ANNALY MORTGAGE MANAGEMENT INC, 424B5, 1999-09-27

ANNALY MORTGAGE MANAGEMENT INC
424B5, 1999-09-27
ASSET-BACKED SECURITIES

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<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-86401

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement is not complete and may be +
+changed. This prospectus supplement is not an offer to sell securities and is +
+not soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999

PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 16, 1999)

5,000,000 Shares

ANNALY MORTGAGE MANAGEMENT, INC.
COMMON STOCK

This is a public offering of shares of common stock of Annaly Mortgage
Management, Inc. All of the shares of common stock offered for sale in this
prospectus supplement are being issued and sold by us.

Our common stock is traded on the New York Stock Exchange under the symbol
"NLY". On , 1999, the last reported sale price of our common stock on the
New York Stock Exchange was $ per share.

See "Risk Factors" beginning on page S-6 of this prospectus supplement and
page 5 of the accompanying prospectus to read about certain factors you should
consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement. Any representation to the
contrary is a criminal offense.

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts.......................................... $ $
Proceeds, before expenses, to us................................ $ $
</TABLE>

The underwriters may, under certain circumstances, purchase up to an
additional 750,000 shares of our common stock from us at the public offering
price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.

You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
information that is different from that contained in this prospectus supplement
and the accompanying prospectus. We are offering to sell the common stock only
in jurisdictions where offers and sales are permitted. The information
contained in this prospectus supplement and the accompanying prospectus is
accurate only as of the respective dates of this prospectus supplement and the
accompanying prospectus.

Friedman Billings Ramsey

Schroder & Co. Inc.

Tucker Anthony Cleary Gull

The date of this Prospectus Supplement is September , 1999
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Prospectus Supplement
- ---------------------
<S> <C>
PROSPECTUS SUPPLEMENT SUMMARY...................................... S-1
RISK FACTORS....................................................... S-6
USE OF PROCEEDS.................................................... S-7
DIVIDEND POLICY.................................................... S-7
PRICE RANGE OF COMMON STOCK........................................ S-7
CAPITALIZATION..................................................... S-8
SELECTED FINANCIAL DATA............................................ S-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................. S-10
BUSINESS STRATEGY.................................................. S-22
MANAGEMENT......................................................... S-36
UNDERWRITING....................................................... S-37
LEGAL MATTERS...................................................... S-38
EXPERTS............................................................ S-38
INDEX TO FINANCIAL STATEMENTS...................................... F-1

Prospectus
- ----------
ABOUT THIS PROSPECTUS.............................................. 3
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995................... 3
ABOUT ANNALY MORTGAGE MANAGEMENT, INC.............................. 3
RISK FACTORS....................................................... 5
USE OF PROCEEDS.................................................... 11
DESCRIPTION OF STOCK............................................... 12
FEDERAL INCOME TAX CONSIDERATIONS.................................. 16
PLAN OF DISTRIBUTION............................................... 24
EXPERTS............................................................ 25
LEGAL MATTERS...................................................... 25
WHERE YOU CAN FIND MORE INFORMATION................................ 25
INCORPORATION OF CERTAIN DOCUMENT BY REFERENCE..................... 26
</TABLE>
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

PROSPECTUS SUPPLEMENT SUMMARY

The following summary highlights selected information from this prospectus
supplement and the prospectus and may not contain all of the information that is
important to you. We encourage you to read this prospectus supplement and the
prospectus, as well the information which is incorporated by reference in this
prospectus, in their entireties. You should carefully consider the factors set
forth under "Risk Factors" in this prospectus supplement and the prospectus.
Unless otherwise specified, the information in this prospectus supplement
assumes that the underwriters do not exercise the over-allotment option
described herein under "Underwriting."

THE COMPANY

Background

We own and manage a portfolio of mortgage-backed securities, including
mortgage pass-through certificates, collateralized mortgage obligations (or
CMOs) 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 mortgage-backed securities and the costs of borrowing to finance
our acquisition of mortgage-backed securities. We have elected to be taxed as a
real estate investment trust (or REIT) under the Internal Revenue Code.
Therefore, substantially all of our assets consist of qualified REIT real estate
assets (of the type described in Section 856(c)(6)(B) of the Internal Revenue
Code). We commenced operations on February 18, 1997. We are self-advised and
self-managed.

We have financed our purchases of mortgage-backed 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
plan to finance additional purchases of mortgage-backed securities with the
proceeds of this offering, future offerings and future borrowings.

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 (1) that are rated within
one of the two highest rating categories by at least one of the nationally
recognized rating agencies, (2) that are unrated but are guaranteed by the
United States government or an agency of the United States government, or (3)
that are unrated but are determined by us 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 which are unrated
or rated less than high quality but which are at least "investment grade" (rated
"BBB" or better by Standard & Poor's Corporation (S&P) or the equivalent by
another nationally recognized rating agency) or, if not rated, are determined by
us to be of comparable credit quality to an investment which is rated "BBB" or
better.

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, all of the securities that we have acquired have been agency
mortgage-backed securities which, 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 (or FHLMC), the Federal National Mortgage
Association (or FNMA) or the Government National Mortgage Association (or GNMA),
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.

S-1
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2

Financial Statements:

Balance Sheets--December 31, 1998 and December 31, 1997 (audited)....... F-3

Statements of Operations for the year ended December 31, 1998 and the
period February 18, 1997 (commencement of operations) through December
31, 1997 (audited)..................................................... F-4

Statements of Stockholders's Equity for the year ended December 31, 1998
and the period February 18, 1997 (commencement of operations) through
December 31, 1997 (audited)............................................ F-5

Statements of Cash Flows for the year ended December 31, 1998 and the
period February 18, 1997 (commencement of operations) through December
31, 1997 (audited)..................................................... F-6

Notes to Financial Statements (audited)................................. F-7

Balance Sheet--June 30, 1999 (unaudited)................................ F-14

Statements of Operations for the six months ended June 30, 1999 and 1998
(unaudited)............................................................ F-15

Statement of Stockholders' Equity for the six months ended June 30, 1999
(unaudited)............................................................ F-16

Statements of Cash Flows for the six months ended June 30, 1999 and 1998
(unaudited)............................................................ F-17

Notes to Interim Financial Statements (unaudited)....................... F-18
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Annaly Mortgage Management, Inc.

We have audited the accompanying balance sheets of Annaly Mortgage
Management, Inc. (the "Company") as of December 31, 1998 and 1997, and the
related statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1998 and the period February 18, 1997 (commencement of
operations) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1998 and 1997
and the results of its operations and its cash flows for the year ended
December 31, 1998 and the period February 18, 1997 (commencement of operations)
through December 31, 1997 in conformity with generally accepted accounting
principles.

February 5, 1999
Deloittle & Touche LLP
New York, New York

F-2
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents....................... $ 69,020 $ 511,172
Mortgage-Backed Securities--At fair value....... 1,520,288,762 1,161,779,192
Accrued Interest Receivable..................... 6,782,043 5,338,861
Other Assets.................................... 212,214 111,257
-------------- --------------
Total Assets.................................... $1,527,352,039 $1,167,740,482
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Repurchase agreements......................... $1,280,510,000 $ 918,869,000
Payable for Mortgage-Backed Securities
purchased.................................... 111,921,205 105,793,723
Accrued interest payable...................... 5,052,626 4,992,447
Dividends payable............................. 3,857,663 2,797,058
Accounts payable.............................. 139,236 201,976
-------------- --------------
Total liabilities........................... 1,401,480,730 1,032,654,204
-------------- --------------
Stockholders' Equity:
Common stock: par value $.01 per share;
100,000,000 authorized, 12,758,024 and
12,713,900
shares issued and outstanding, respectively... 127,580 127,139
Additional paid-in capital.................... 132,770,175 132,705,765
Accumulated other comprehensive income
(loss)....................................... (6,404,275) 2,023,751
Treasury stock at cost (109,600 shares)....... (903,163) --
Retained earnings............................. 280,992 229,623
-------------- --------------
Total stockholders' equity.................. 125,871,309 135,086,278
-------------- --------------
Total Liabilities and Stockholders' Equity.. $1,527,352,039 $1,167,740,482
============== ==============
</TABLE>

See notes to financial statements.

F-3
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Period
February 18, 1997
For the (Commencement of
Year Ended Operations)
December Through December
31, 1998 31, 1997
----------- -----------------
<S> <C> <C>
Interest Income:
Mortgage-Backed Securities.................... $89,985,526 $24,682,353
Money market account.......................... 105 30,782
----------- -----------
Total interest income....................... 89,985,631 24,713,135
Interest Expense:
Repurchase agreements......................... 75,735,280 19,676,954
----------- -----------
Net Interest Income............................. 14,250,351 5,036,181
Gain on Sale of Mortgage-Backed Securities...... 3,344,106 735,303
General and Administrative Expenses............. 2,105,534 851,990
----------- -----------
Net Income...................................... 15,488,923 4,919,494
----------- -----------
Other Comprehensive Income (Loss):
Unrealized gain (loss) on available-for-sale
securities................................... (5,083,920) 2,759,054
Less: reclassification adjustment for gains
included in net income....................... (3,344,106) (735,303)
----------- -----------
Other comprehensive gain (loss)............... (8,428,026) 2,023,751
----------- -----------
Comprehensive Income............................ $ 7,060,897 $ 6,943,245
=========== ===========
Net Income Per Share:
Basic......................................... $ 1.22 $ 0.83
=========== ===========
Diluted....................................... $ 1.19 $ 0.80
=========== ===========
Average Number of Shares Outstanding:
Basic......................................... 12,709,116 5,952,123
=========== ===========
Diluted....................................... 13,020,648 6,168,531
=========== ===========
</TABLE>

See notes to financial statements.

F-4
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD FEBRUARY 18, 1997
(COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997

<TABLE>
<CAPTION>
Common Additional Other
Stock Paid-in Treasury Comprehensive Retained Comprehensive
Par Value Capital Stock Income Earnings Income Total
--------- ------------ --------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 18,
1997................... $ 800 $ 11,200 $ $ $ (209) $ $ 11,791
Net income............. $ 4,919,494 4,919,494
Other comprehensive
income:
Unrealized net losses
on securities, net of
reclassification
adjustment............ 2,023,751 2,023,751 6,943,245
-----------
Comprehensive income... $ 6,943,245
===========
Issuance of common
stock................. 126,339 132,694,565 132,820,904
Dividends declared for
the year ended
December 31, 1997,
$0.79 per average
share................. (4,689,662) (4,689,662)
-------- ------------ ------------ ----------- ------------
BALANCE, DECEMBER 31,
1997................... 127,139 132,705,765 229,623 2,023,751 135,086,278
-------- ------------ ------------ ----------- ------------
Net income............. $15,488,923 15,488,923
Other comprehensive
income:
Unrealized net losses
on securities, net of
reclassification
adjustment............ (8,428,026) (8,428,026)
-----------
Comprehensive income... $ 7,060,897 7,060,897
===========
Exercise of stock
options............... 441 194,658 195,099
Additional cost of
initial public
offering.............. (130,248) (130,248)
Stock buyback.......... (903,163) (903,163)
Dividends declared for
the year ended
December 31, 1998,
$1.22 per average
share................. (15,437,554) (15,437,554)
-------- ------------ --------- ------------ ----------- ------------
BALANCE, DECEMBER 31,
1998................... $127,580 $132,770,175 $(903,163) $ 280,992 $(6,404,275) $125,871,309
======== ============ ========= ============ =========== ============
Disclosure of
reclassification
amounts:
Unrealized holding
losses arising during
period................ $(5,083,920)
Less reclassification
adjustment of gains
included in net
income................ (3,344,106)
-----------
Net unrealized losses
on securities......... $(8,428,026)
===========
</TABLE>

See notes to financial statements.

F-5
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
February 18, 1997
For the Year (Commencement of
Ended Operations)
December 31, Through
1998 December 31, 1997
---------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................... $ 15,488,923 $ 4,919,494
Adjustments to reconcile net income to
net cash provided by
operating activities:
Amortization of mortgage premiums and
discounts, net........................ 8,235,371 2,620,729
Depreciation of fixed assets........... 14,154 --
Gain on sale of Mortgage-Backed
Securities............................ (3,344,106) (735,303)
Increase in accrued interest
receivable............................ (1,443,182) (5,338,861)
Increase in other assets............... (115,112) (111,257)
Increase in accrued interest payable... 60,179 4,992,447
(Decrease) increase in accounts
payable............................... (62,740) 201,976
---------------- ---------------
Net cash provided by operating
activities.......................... 18,833,487 6,549,225
---------------- ---------------
Cash Flows From Investing Activities:
Purchase of Mortgage-Backed Securities... (1,420,592,798) (1,310,362,097)
Proceeds from sale of Mortgage-Backed
Securities.............................. 568,553,814 174,682,533
Principal payments on Mortgage-Backed
Securities.............................. 486,337,605 79,832,420
---------------- ---------------
Net cash used in investing
activities.......................... (365,701,379) (1,055,847,144)
---------------- ---------------
Cash Flows From Financing Activities:
Proceeds from repurchase agreements...... 11,506,566,000 3,498,546,390
Principal payments on repurchase
agreements.............................. (11,144,925,000) (2,579,677,390)
Proceeds from exercise of stock options.. 195,100 --
Proceeds from private placement equity
offering................................ -- 32,979,904
Net proceeds from public offering........ -- 98,962,999
Net proceeds from direct offering........ -- 878,000
Additional cost of initial public
offering................................ (130,248) --
Purchase of Treasury Stock............... (903,163) --
Dividends paid........................... (14,376,949) (1,892,604)
---------------- ---------------
Net cash provided by financing
activities.......................... 346,425,740 1,049,797,299
---------------- ---------------
Net Increase in Cash and Cash Equivalents.. (442,152) 499,380
Cash and Cash Equivalents, Beginning of
Period.................................... 511,172 11,792
---------------- ---------------
Cash and Cash Equivalents, End of Period... $ 69,020 $ 511,172
================ ===============
Supplemental Disclosure of Cash Flow
Information:
Interest paid............................ $ 48,811,362 $ 14,684,507
================ ===============
Noncash Financing Activities:
Net unrealized gain (loss) on available-
for-sale securities..................... $ (6,404,275) $ 2,023,751
================ ===============
Dividends declared, not yet paid......... $ 3,857,663 $ 2,797,058
================ ===============
</TABLE>

See notes to financial statements.

F-6
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD
FEBRUARY 18, 1997 THROUGH DECEMBER 31, 1997

1. Organization and Significant Accounting Policies

Annaly Mortgage Management, Inc. (the "Company") was incorporated in
Maryland on November 25, 1996. The Company commenced its operations of
purchasing and managing an investment portfolio of Mortgage-Backed Securities
on February 18, 1997, upon receipt of the net proceeds from the private
placement of equity capital. On July 31, 1997, the Company received additional
proceeds from a direct offering to officers and directors. An initial public
offering was completed on October 14, 1997.

A summary of the Company's significant accounting policies follows:

Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand
and money market funds. The carrying amounts of cash equivalents approximates
their value.

Mortgage-Backed Securities. The Company invests primarily in mortgage pass-
through certificates, collateralized mortgage obligations and other mortgage-
backed securities representing interests in or obligations backed by pools of
mortgage loans (collectively, "Mortgage-Backed Securities").

Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"), requires the Company to
classify its investments as either trading investments, available-for-sale
investments or held-to-maturity investments. Although the Company generally
intends to hold most of its Mortgage-Backed Securities until maturity, it may,
from time to time, sell any of its Mortgage-Backed Securities as part of its
overall management of its balance sheet. Accordingly, this flexibility requires
the Company to classify all of its Mortgage-Backed Securities as available-for-
sale. All assets classified as available-for-sale are reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity.

Unrealized losses on Mortgage-Backed Securities that are considered other
than temporary, as measured by the amount of decline in fair value attributable
to factors other than temporary, are recognized in income and the cost basis of
the Mortgage-Backed Securities is adjusted. There were no such adjustments for
the years ended December 31, 1998 and 1997.

Interest income is accrued based on the outstanding principal amount of the
Mortgage-Backed Securities and their contractual terms. Premiums and discounts
associated with the purchase of the Mortgage-Backed Securities are amortized
into interest income over the lives of the securities using the effective yield
method.

Mortgage-Backed Securities transactions are recorded on the date the
securities are purchased or sold. Purchases of newly issued securities are
recorded when all significant uncertainties regarding the characteristics of
the securities are removed, generally shortly before settlement date. Realized
gains and losses on Mortgage-Backed Securities transactions are determined on
the specific identification basis.

Credit Risk. At December 31, 1998 and 1997, the Company has limited its
exposure to credit losses on its portfolio of Mortgage-Backed Securities by
only purchasing securities from Federal Home Loan Mortgage Corporation
("FHLMC"), Federal National Mortgage Association ("FNMA"), or Government
National Mortgage Association ("GNMA"). The payment of principal and interest
on the FHLMC and FNMA Mortgage-Backed Securities are guaranteed by those
respective agencies and the payment of principal and interest on the GNMA
Mortgage-Backed Securities are backed by the full-faith-and-credit of the U.S.
government. At December 31, 1998 and 1997, all of the Company's Mortgage-Backed
Securities have an implied "AAA" rating.

F-7
<PAGE>

Income Taxes. The Company has elected to be taxed as a Real Estate
Investment Trust ("REIT") and intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") with respect thereto.
Accordingly, the Company will not be subjected to Federal income tax to the
extent of its distributions to shareholders and as long as certain asset,
income and stock ownership tests are met.

Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. Mortgage-Backed Securities

The following table pertains to the Company's Mortgage-Backed Securities
classified as available-for-sale as of December 31, 1998, which are carried at
their fair value:

<TABLE>
<CAPTION>
Federal Federal Government
Home Loan National National Total
Mortgage Mortgage Mortgage Mortgage
Corporation Association Association Assets
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Mortgage-Backed
Securities, gross...... $449,433,408 $955,650,670 $97,330,495 $1,502,414,573
Unamortized discount.... (184,996) (423,583) -- (608,579)
Unamortized premium..... 8,852,370 14,264,277 1,770,397 24,887,044
------------ ------------ ----------- --------------
Amortized cost.......... 458,100,782 969,491,364 99,100,892 1,526,693,038
Gross unrealized gains.. 659,557 2,092,119 549,900 3,301,576
Gross unrealized
losses................. (3,487,784) (5,692,759) (525,309) (9,705,852)
------------ ------------ ----------- --------------
Estimated fair value.... $455,272,555 $965,890,724 $99,125,483 $1,520,288,762
============ ============ =========== ==============
</TABLE>

The following table pertains to the Company's Mortgage-Backed Securities
classified as available-for-sale as of December 31, 1997, which are carried at
their fair value:

<TABLE>
<CAPTION>
Federal Federal Government
Home Loan National National Total
Mortgage Mortgage Mortgage Mortgage
Corporation Association Association Assets
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Mortgage-Backed
Securities, gross...... $273,119,008 $691,081,916 $174,164,513 $1,138,365,437
Unamortized discount.... (3,619) (110,567) -- (114,186)
Unamortized premium..... 2,848,376 14,532,363 4,123,451 21,504,190
------------ ------------ ------------ --------------
Amortized cost.......... 275,963,765 705,503,712 178,287,964 1,159,755,441
Gross unrealized gains.. 376,485 1,948,068 928,453 3,253,006
Gross unrealized
losses................. (115,190) (802,801) (311,264) (1,229,255)
------------ ------------ ------------ --------------
Estimated fair value.... $276,225,060 $706,648,979 $178,905,153 $1,161,779,192
============ ============ ============ ==============
</TABLE>

The adjustable rate Mortgage-Backed Securities are limited by periodic caps
(generally interest rate adjustments are limited to no more than 1% every six
months) and lifetime caps. The weighted average lifetime cap was 10.6% and
10.8% at December 31, 1998 and 1997, respectively.

During the year ended December 31, 1998, the Company realized $3,344,070 in
gains from sales of Mortgage-Backed Securities. Losses totaled $9,964 for the
year ended December 31, 1998. During the period ended December 31, 1997, the
Company realized $735,303 in gains from sales of Mortgage-Backed Securities.
There were no losses on sales of Mortgage-Backed Securities during the period
ended December 31, 1997.

F-8
<PAGE>

3. Repurchase Agreements

The Company had outstanding $1,280,510,000 and $918,869,000 of repurchase
agreements with a weighted average borrowing rate of 5.21% and 6.16% and a
weighted average remaining maturity of 29 days and 16 days as of December 31,
1998 and 1997, respectively. At December 31, 1998 and 1997, Mortgage-Backed
Securities actually pledged had an estimated fair value of $1,458,669,078 and
$936,859,658.

At December 31, 1998 and 1997, the repurchase agreements had the following
remaining maturities:

<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
--------------- ------------
<S> <C> <C>
Within 30 days............................. $ 1,222,542,000 $590,960,000
30 to 59 days.............................. 31,346,000 51,776,000
60 to 89 days.............................. 26,622,000 --
90 to 119 days............................. -- 103,391,000
Over 120 days.............................. -- 172,742,000
--------------- ------------
$ 1,280,510,000 $918,869,000
=============== ============
</TABLE>

4. Common Stock

During the period ended December 31, 1997, the Company completed a private
placement of equity capital. The Company received net proceeds of $32,979,904
from an issuance of 3,600,000 shares of common stock. The Company received
additional proceeds of $878,000 from an issuance of 87,800 shares of common
stock upon the closing of a direct offering to certain directors, officers, and
employees of the Company on July 31, 1997. The Company issued 9,006,100 shares
of common stock on October 14, 1997 during an initial public offering. Net
proceeds received in the offering were $98,832,751. During the year ended
December 31, 1998, 44,124 options were exercised at $195,099. Stock buybacks
during the year ended December 31, 1998 totaled 109,600 shares at a cost of
$903,163.

During the Company's year ending December 31, 1998, the Company declared
dividends to shareholders totaling $15,437,554, or $1.22 per weighted average
share, of which $11,579,891 was paid during the period and $3,857,663 was paid
on January 25, 1999. For Federal income tax purposes dividends paid for the
period is ordinary income to the Company stockholders.

During the period ended December 31, 1997, the Company declared dividends to
shareholders totaling $4,689,662, or $.79 per weighted average share, of which
$1,892,604 was paid during the period and $2,797,058 was paid on January 20,
1998. For Federal income tax purposes, dividends paid for the period are
ordinary income to the Company stockholders.

F-9
<PAGE>

5. Earnings Per Share (EPS)

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting No. 128, Earnings Per Share (SFAS No. 128),
which requires dual presentation of Basic EPS and Diluted EPS on the face of
the income statement for all entities with complex capital structures. SFAS No.
128 also requires a reconciliation of the numerator and denominator of Basic
EPS and Diluted EPS computation. For the year ended December 31, 1998, the
reconciliation is as follows:

<TABLE>
<CAPTION>
For the Year Ended
December 31, 1998
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
<S> <C> <C> <C>
Net income.................................. $15,488,923
-----------
Basic EPS................................... 15,488,923 12,709,116 $1.22
=====
Effect of dilutive securities:
Dilutive stock options.................... 311,532
----------- ----------
Diluted EPS............................... $15,488,923 13,020,648 $1.19
=========== ========== =====
</TABLE>

Options to purchase 446,084 shares were outstanding during the period (Note
6) and were dilutive as the exercise price (between $4.00 and $8.13) was less
than the average stock price for the year for the Company of $9.36. Options to
purchase 147,676 shares of stock were outstanding and not considered dilutive.
The exercise price (between $10.00 and $11.28) was greater than the average
stock price for the year of $9.36.

For the period ending December 31, 1997, the reconciliation is as follows:

<TABLE>
<CAPTION>
For the Period Ended
December 31, 1997
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net income................................. $4,919,494
----------
Basic EPS.................................. 4,919,494 5,952,123 $0.83
=====
Effect of dilutive securities:
Dilutive stock options................... 216,408
---------- ---------
Diluted EPS.............................. $4,919,494 6,168,531 $0.80
========== ========= =====
</TABLE>

Options to purchase 348,500 shares were outstanding during the period (Note
6) and were dilutive as the exercise price (between $4.00 and $10.00) was less
than the average stock price for the period for the Company (between $11.00 and
$12.00).

6. Long Term Stock Incentive Plan

The Company has adopted a Long Term Stock Incentive Plan for executive
officers, key employees and nonemployee directors (the "Incentive Plan"). The
Incentive Plan authorizes the Compensation Committee of the Board of Directors
to grant awards, including incentive stock options as defined under section 422
of the Code ("ISOs") and options not so qualified ("NQSOs"). The Incentive Plan
authorizes the granting of options or other awards for an aggregate of the
greater of 500,000 shares or 5% of the outstanding shares of the Company's
common stock.

F-10
<PAGE>

The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost for the Incentive Plan has been determined
based on the fair value at the grant date for awards consistent with the
provisions of SFAS No. 123. For the Company's pro forma net earnings, the
compensation cost will be amortized over the four-year vesting period of the
options. The Company's net earnings per share would have been reduced to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
For the Period Ending
------------------------
December December 31,
31, 1998 1997
----------- ------------
<S> <C> <C>
Net earnings--as reported...................... $15,488,925 $4,919,494
Net earnings--pro forma........................ 15,280,631 4,738,932
Earnings per share--as reported................ $ 1.22 $ 0.83
Earnings per share--pro forma.................. $ 1.20 $ 0.80
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in the year ended December 31, 1998: dividend yield
of 10%; expected volatility of 33%; risk-free interest rate of 5.56%; and
expected lives of seven years. For the period ended December 31, 1997, dividend
yield of 10%; expected volatility of 25%; risk-free interest rate of 6.07%; and
expected lives of four years.

Information regarding options is as follows:

<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
-------- --------
<S> <C> <C>
Outstanding, January 1, 1998....................... 348,500 $6.42
Granted (242,884 ISOs, 46,500 NQSOs)............... 289,384 8.17
Exercised.......................................... (44,124) 4.34
Expired............................................ -- --
-------- -----
Outstanding, December 31, 1998..................... 593,760 $7.42
======== =====
Weighted average fair value of options granted
during the year (per share)....................... $ 1.99
========
</TABLE>

Information regarding options at December 31, 1997, is as follows:

<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
-------- --------
<S> <C> <C>
Granted (311,000 ISOs, 37,500 NQSOs)................ 348,500 $6.42
Exercised........................................... -- --
Expired............................................. -- --
-------- -----
Outstanding, December 31, 1997...................... 348,500 $6.42
======== =====
Weighted average fair value of options granted
during the period (per share)...................... $ 2.07
========
</TABLE>

F-11
<PAGE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding
Weighted
Average
Remaining
Range of Options Contractual
Exercise Prices Outstanding Life (Yrs.)
--------------- ----------- -------------------
<S> <C> <C>
$ 4.00 166,626 3
$ 8.13 279,458 10
$ 8.94 7,500 4
$10.00 137,750 3
$11.25 2,426 4
-------
593,760 6.3
-------
</TABLE>

At December 31, 1998, 56,241 options were vested and not exercised.

7. Comprehensive Income

The Company adopted FASB Statement No. 130, Reporting Comprehensive Income.
Statement No. 130 requires the reporting of comprehensive income in addition to
net income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income. The
Company at December 31, 1998 and 1997 held securities classified as available-
for-sale. At December 31, 1998, the net unrealized losses totaled $6,404,275
and at December 31, 1997 the net unrealized gains totaled $2,023,751.

8. Lease Commitments

The Corporation has a noncancelable lease for office space, which commenced
in April 1998 and expires in December 2007.

The Corporation's aggregate future minimum lease payments are as follows:

<TABLE>
<S> <C>
1999............................... $ 92,804
2000............................... 95,299
2001............................... 97,868
2002............................... 100,515
2003 and thereafter................ 582,406
---------
$ 968,892
---------
</TABLE>

9. Related Party Transaction

Included in "Other Assets" on the Balance sheet is an investment in Annaly
International Money Management, Inc. On June 24, 1998, the Company acquired
99,960 nonvoting shares, at a cost of $49,980. The officers and directors of
Annaly International Money Management Inc. are also officers and directors of
the Company.

F-12
<PAGE>

10. Summarized Quarterly Results (Unaudited)

The following is a presentation of the quarterly results of operations for
the year ended December 31, 1998.

<TABLE>
<CAPTION>
Quarters Ending
-----------------------------------------------
March 31, June 30, September December
1998 1998 30, 1998 31, 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income from Mortgage-
Backed Securities and cash... $20,078,721 $23,761,953 $24,008,567 $22,136,390
Interest expense on repurchase
agreements................... 16,313,474 20,177,580 20,765,301 18,478,925
----------- ----------- ----------- -----------
Net interest income....... 3,765,247 3,584,373 3,243,266 3,657,465
Gain on sale of Mortgage-
Backed Securities............ 1,427,084 295,875 993,630 627,517
General and administrative
expenses..................... 484,181 493,718 528,240 599,185
----------- ----------- ----------- -----------
Net income.................... $ 4,708,150 $ 3,386,530 $ 3,708,656 $ 3,685,797
=========== =========== =========== ===========
Net income per share:
Basic....................... $ 0.37 $ 0.27 $ 0.29 $ 0.29
=========== =========== =========== ===========
Dilutive.................... $ 0.36 $ 0.26 $ 0.29 $ 0.29
=========== =========== =========== ===========
Average number of shares
outstanding:
Basic....................... 12,727,405 12,757,674 12,704,194 12,648,116
=========== =========== =========== ===========
Dilutive.................... 12,923,195 12,959,771 12,785,765 12,731,192
=========== =========== =========== ===========
</TABLE>

The following is a presentation of the quarterly results of operations for
the period February 18, 1997 (commencement of operations) through December 31,
1997.

<TABLE>
<CAPTION>
Quarters Ending
Period Ended ------------------------------------
March 31, June 30, September 30, December
1997 1997 1997 31, 1997
------------ ---------- ------------- -----------
<S> <C> <C> <C> <C>
Interest income from
Mortgage-Backed
Securities and cash..... $1,060,692 $5,448,215 $6,123,457 $12,080,771
Interest expense on
repurchase agreements... 713,120 4,435,697 5,126,089 9,402,048
---------- ---------- ---------- -----------
Net interest income.... 347,572 1,012,518 997,368 2,678,723
Gain on sale of Mortgage-
Backed Securities....... -- 229,865 429,400 76,038
General and
administrative
expenses................ 64,047 185,849 227,245 374,849
---------- ---------- ---------- -----------
Net income............... $ 283,525 $1,056,534 $1,199,523 $ 2,379,912
========== ========== ========== ===========
Net income per share:
Basic.................. $ 0.08 $ 0.28 $ 0.32 $ 0.21
========== ========== ========== ===========
Dilutive............... $ 0.07 $ 0.26 $ 0.29 $ 0.20
========== ========== ========== ===========
Average number of shares
outstanding............. 3,680,000 3,680,000 3,739,170 11,449,777
========== ========== ========== ===========
</TABLE>

* * * * * *

F-13
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
June 30, 1999
--------------
(Unaudited)
<S> <C>
ASSETS
Cash and Cash Equivalents...................................... $ 52,402
Mortgage-Backed Securities, At fair value...................... 1,474,103,767
Accrued Interest Receivable.................................... 7,402,365
Other Assets................................................... 403,165
--------------
Total Assets............................................... $1,481,961,699
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Repurchase agreements........................................ $1,344,740,000
Payable for Mortgage-Backed Securities purchased............. 9,987,500
Accrued interest payable..................................... 8,767,821
Dividends payable............................................ 4,444,142
Accounts payable............................................. 430,329
--------------
Total liabilities.......................................... 1,368,369,792
--------------
Stockholders' Equity:
Common stock: par value $.01 per share; 100,000,000
authorized; 12,807,148 shares issued and outstanding........ 128,071
Additional paid-in capital................................... 132,966,180
Accumulated other comprehensive income....................... (19,428,328)
Treasury Stock at cost (109,600 shares)...................... (903,163)
Retained earnings............................................ 829,147
--------------
Total stockholders' equity................................. 113,591,907
--------------
Total Liabilities and Stockholders' Equity................. $1,481,961,699
==============
</TABLE>

See notes to financial statements.

F-14
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For The Six For The Six
Months Ended Months Ended
June 30, 1999 June 30, 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Interest Income:
Mortgage-Backed Securities....................... $ 44,279,733 $43,840,637
Money market account............................. 138 37
------------ -----------
Total interest income.......................... 44,279,871 43,840,674
Interest Expense:
Repurchase agreements............................ 34,016,865 36,491,054
------------ -----------
Net Interest Income................................ 10,263,006 7,349,620
Gain on Sale of Mortgage-Backed Securities......... 90,413 1,722,959
General and Administrative Expenses................ 1,171,014 977,899
------------ -----------
Net Income......................................... 9,182,405 8,094,680
------------ -----------
Other Comprehensive Income
Unrealized loss on available-for-sale
securities...................................... (12,933,640) (2,211,198)
Less: reclassification adjustment for gains
included in net income.......................... (90,413) (1,722,959)
------------ -----------
Other comprehensive loss......................... (13,024,053) (3,934,157)
------------ -----------
Comprehensive Income............................... $ (3,841,648) $ 4,160,523
============ ===========
Net Income Per Share:
Basic............................................ $ 0.72 $ 0.64
============ ===========
Dilutive......................................... $ 0.71 $ 0.63
============ ===========
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic............................................ 12,677,718 12,742,623
============ ===========
Dilutive......................................... 12,957,289 12,941,535
============ ===========
</TABLE>

See notes to financial statements.

F-15
<PAGE>

STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
Common Additional Other
Stock Par Paid-in Treasury Comprehensive Retained Comprehensive
Value Capital Stock Income Earnings Income Total
--------- ------------- ---------- ------------- ----------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1998................... $ 127,580 $ 132,770,175 $ (903,163) $ 280,992 $ (6,404,275) $ 125,871,309
Net income............. $ 4,318,456 4,318,456
Other comprehensive
income:
Unrealized net gains on
securities, net of
reclassification
adjustment............ 421,355 421,355
------------
Comprehensive income... $ 4,739,811 4,739,811
============
Exercise of stock
options............... 489 195,007 195,496
Dividends declared for
the quarter ended
March 31, 1999, $0.33
per average share..... (4,190,108) (4,190,108)
--------- ------------- ---------- ----------- ------------- -------------
BALANCE, MARCH 31,
1999................... $ 128,069 $ 132,965,182 $ (903,163) $ 409,340 $ (5,982,920) $126,616,508
Net income............. $ 4,863,949 4,863,949
Other comprehensive
income:
Unrealized net losses
on securities, net of
reclassification
adjustment (13,445,408) (13,445,408)
------------
Comprehensive income... $ (8,581,459) (8,581,459)
============
Exercise of stock
options............... 2 998 1,000
Dividends declared for
the quarter ended June
30, 1999, $0.35 per
average share......... (4,444,142) (4,444,142)
--------- ------------- ---------- ----------- ------------- -------------
BALANCE, JUNE 30,1999... $ 128,071 $ 132,966,180 $ (903,163) $ 829,147 $ (19,428,328) $ 113,591,907
========= ============= ========== =========== ============= =============
Disclosure of
reclassification
amount:
Unrealized holding
losses arising during
period................. $(12,933,640)
Less: reclassification
adjustment for gains
included in net
income................. (90,413)
------------
Net unrealized losses on
securities............. $(13,024,053)
============
</TABLE>

See notes to financial statements.

F-16
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For The Six For The Six
Months Ended Months Ended
June 30, 1999 June 30, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................. $ 9,182,405 $ 8,094,680
Adjustments to reconcile net income to net
cash provided by
operating activities:
Amortization of mortgage premiums and
discounts, net.......................... 4,050,915 3,853,436
Gain on sale of Mortgage-Backed
Securities.............................. (90,413) (1,722,959)
Increase in accrued interest receivable.. (620,322) (2,240,482)
Increase in other assets................. (190,951) (133,344)
Increase in accrued interest payable..... 3,715,195 5,907,928
Increase (Decrease) in accounts payable.. 291,092 (75,544)
--------------- ---------------
Net cash provided by operating
activities............................ 16,337,921 13,683,715
--------------- ---------------
Cash Flows From Investing Activities:
Purchase of Mortgage-Backed Securities..... (356,751,056) (961,783,914)
Proceeds from sale of Mortgage-Backed
Securities................................ 48,212,366 224,939,508
Principal payments on Mortgage-Backed
Securities................................ 235,805,426 232,134,576
--------------- ---------------
Net cash used in investing activities.. (72,733,264) (504,709,830)
--------------- ---------------
Cash Flows From Financing Activities:
Proceeds from repurchase agreements........ 5,272,183,000 5,241,533,000
Principal payments on repurchase
agreements................................ (5,207,953,000) (4,744,134,000)
Proceeds from exercise of stock options.... 196,496 193,700
Additional cost of initial public
offering.................................. -- (130,248)
Dividends paid............................. (8,047,771) (6,879,514)
--------------- ---------------
Net cash provided by financing
activities............................ 56,378,725 490,582,938
--------------- ---------------
Net Increase in Cash and Cash Equivalents.... (16,618) (443,177)
Cash and Cash Equivalents, Beginning of
Period...................................... 69,020 511,172
--------------- ---------------
Cash and Cash Equivalents, End of Period..... $ 52,402 $ 67,995
=============== ===============
Supplemental Disclosure of Cash Flow
Information:
Interest paid.............................. $ 30,241,491 $ 30,493,126
=============== ===============
Noncash Financing Activities:
Net unrealized losses on available-for-sale
securities................................ $ (19,428,328) $ (1,910,407)
=============== ===============
Dividends declared, not yet paid........... $ 4,444,142 $ 4,082,456
=============== ===============
</TABLE>

See notes to financial statements.

F-17
<PAGE>

ANNALY MORTGAGE MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies

Annaly Mortgage Management, Inc. (the "Company") was incorporated in
Maryland on November 25, 1996. The Company commenced its operations of
purchasing and managing Mortgage-Backed Securities on February 18, 1997, upon
receipt of the net proceeds from the private placement of equity capital. An
initial public offering was completed on October 14, 1997.

A summary of the Company's significant accounting policies follows:

Basis of Presentation. The accompanying unaudited financial statements have
been prepared in conformity with the instructions to Form 10-Q and Article 10,
Rule 10-01 of Regulation S-X for interim financial statements. The interim
financial statements for the six month period are unaudited; however, in the
opinion of the Company's management, all adjustments, consisting only of normal
recurring accruals, necessary for a fair statement of the results of operations
have been included. These unaudited financials statements should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on form 10-K for the year ended December 31, 1998. The nature of
the Company's business is such that the results of any interim period are not
necessarily indicative of results for a full year.

Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand
and money market funds. The carrying amounts of cash equivalents approximates
their value.

F-18
<PAGE>

Credit Risk. At June 30, 1999, the Company has limited exposure to credit
losses on its portfolio of Mortgage-Backed Securities by only purchasing
securities from Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association ("FNMA"), or Government National Mortgage
Association ("GNMA"). The payment of principal and interest on the FHLMC and
FNMA Mortgage-Backed Securities are guaranteed by those respective agencies and
the payment of principal and interest on the GNMA Mortgage-Backed Securities
are backed by the full-faith-and-credit of the U.S. government. At June 30,
1999 and December 31, 1998, all of the Company's Mortgage-Backed Securities
have a "AAA" rating or an implied a "AAA" rating.

2. Mortgaged-Backed Securities

The following table pertains to the Company's Mortgage-Backed Securities
classified as available-for-sale as of June 30, 1999, which are carried at
their fair value:

<TABLE>
<CAPTION>
Federal Federal Government
Home Loan National National Total
Mortgage Mortgage Mortgage Mortgage
Corporation Association Association Assets
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Mortgage-Backed
Securities, gross...... $424,033,991 $938,104,181 $106,408,686 $1,468,546,858
Unamortized discount.... (167,685) (867,438) -- (1,035,123)
Unamortized premium..... 8,489,757 15,666,584 1,864,019 26,020,360
------------ ------------ ------------ --------------
Amortized cost.......... 432,356,063 952,903,327 108,272,705 1,493,532,095
Gross unrealized gains.. 58,216 1,685,599 -- 1,743,815
Gross unrealized
losses................. (6,681,797) (12,136,017) (2,354,329) (21,172,143)
------------ ------------ ------------ --------------
Estimated fair value.... $425,732,482 $942,452,909 $105,918,376 $1,474,103,767
============ ============ ============ ==============
</TABLE>

During the six months ended June 30, 1999 and 1998, the Company realized
$90,413 and $1,722,959 in gains from sales of Mortgage-Backed Securities,
respectively. There were no losses on sales of Mortgage-Backed Securities for
the six months ended June 30, 1999 and 1998.

3. Repurchase Agreements

As of June 30, 1999, the Company had outstanding $1,344,740,000 of
repurchase agreements with a weighted average borrowing rate of 4.87% and a
weighted average remaining maturity of 24 days. At June 30, 1999, Mortgage-
Backed Securities actually pledged had an estimated fair value of
$1,419,675,628.

F-19
<PAGE>

At June 30, 1999, the repurchase agreements had the following remaining
maturities:

<TABLE>
<CAPTION>
June 30, 1999
---------------
<S> <C>
Within 30 days............... $ 1,177,751,000
30 to 59 days................ 45,453,000
60 to 89 days................ 41,254,000
90 to 119 days............... 54,752,000
120 days and over............ 25,530,000
---------------
$ 1,344,740,000
---------------
</TABLE>

4. Common Stock

Options were exercised during the six month period ending June 30, 1999
increasing the total number of shares outstanding to 12,697,548. The number of
stock options exercised was 49,124, with an aggregate purchase price of
$196,496.

During the Company's six months ending June 30, 1999, the Company declared
dividends to shareholders totaling $8,634,250, or $0.68 per weighted average
share, of which $4,444,142 was paid on July 28, 1999.

5. Earnings Per Share (EPS)

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting No. 128, Earnings Per Share (SFAS No. 128),
which requires dual presentation of Basic EPS and Diluted EPS on the face of
the income statement for all entities with complex capital structures. SFAS No.
128 also requires a reconciliation of the numerator and denominator of Basic
EPS and Diluted EPS computation. For the six months ended June 30, 1999 the
reconciliation is as follows:

<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1999
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
<S> <C> <C> <C>
Net income.................................. $9,182,405
----------
Basic EPS................................... 9,182,405 12,677,718 $0.72
Effect of dilutive securities:
Dilutive stock options.................... 279,571
---------- ---------- -----
Diluted EPS............................... $9,182,405 12,957,289 $0.71
========== ========== =====
</TABLE>

Options to purchase 404,460 shares were outstanding during the quarter were
dilutive, as the exercise price (between $4.00 and $8.94) was less than the
average stock price for the six month period for the Company of $9.80. Options
to purchase 147,676 shares of stock were outstanding during the period and are
not considered dilutive. The exercise price (between $10.00 and $11.25) was
greater than the average stock price for the six month period of $9.80.

For the six months ended June 30, 1998, the reconciliation is as follows:

<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1998
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
<S> <C> <C> <C>
Net income.................................. $8,094,680
----------
Basic EPS................................... 8,094,680 12,742,623 $0.64
Effect of dilutive securities:
Dilutive stock options.................... 198,912
---------- ---------- -----
Diluted EPS............................... $8,094,680 12,941,535 $0.63
========== ========== =====
</TABLE>

F-20
<PAGE>

Options to purchase 312,226 shares were outstanding during the quarter and
were dilutive as the exercise price (between $4.00 and $10.00) was less than
the average stock price for the six month period for the Company of $10.66.
Options to purchase 2,426 shares of stock were outstanding and not considered
dilutive. The exercise price of $11.25 were greater than the average stock
price of for the quarter of $10.66.

6. Comprehensive Income

The Company adopted FASB Statement no. 130, Reporting Comprehensive Income,
Statement no. 130 requires the reporting of comprehensive income in addition to
net income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income. The
Company at June 30, 1999 held securities classified as available-for-sale. At
June 30, 1999, the net unrealized losses totaled $19,428,328.

7. Lease Commitments

The Corporation has non-cancelable lease for office space, which commenced
in April 1998 and expires in December 2007.

The Corporation's aggregate future minimum lease payments are as follows:

<TABLE>
<S> <C>
1999................................ 92,804
2000................................ 95,299
2001................................ 97,868
2002................................ 100,515
2003 through 2007................... 582,406
--------
Total lease obligation............ $968,892
========
</TABLE>

8. Related Party Transaction

F-21
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Prospectus

Annaly Mortgage Management, Inc.
12 East 41st Street, Suite 700
New York, New York 10017
(212-696-0100)

$200,000,000

Common Stock and Preferred Stock

By this prospectus, we may offer, from time to time, shares of our:

. common stock
. preferred stock
. any combination of the foregoing

We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you decide to invest.

This prospectus may not be used to consummate sales of these securities
unless it is accompanied by a prospectus supplement.

The New York Stock Exchange lists our common stock under the symbol "NLY".

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.

Consider carefully the risk factors beginning on page 5 of 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 accurate or complete. Any representation to the contrary is a
criminal offense.

The date of this prospectus is September 16, 1999
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TABLE OF CONTENTS

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ABOUT THIS PROSPECTUS.............................................. 3

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995................... 3

ABOUT ANNALY MORTGAGE MANAGEMENT, INC.............................. 3

RISK FACTORS....................................................... 5

USE OF PROCEEDS.................................................... 11

DESCRIPTION OF STOCK............................................... 12

FEDERAL INCOME TAX CONSIDERATIONS.................................. 16

PLAN OF DISTRIBUTION............................................... 24

EXPERTS............................................................ 25

LEGAL MATTERS...................................................... 25

WHERE YOU CAN FIND MORE INFORMATION................................ 25

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................... 26
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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this process, we may offer and
sell any combination of preferred stock and common stock in one or more
offerings up to a total dollar amount of $200,000,000. This prospectus provides
you with a general description of the securities we may offer. Each time we
offer to sell securities, we will provide a supplement to this prospectus that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with the additional information you may need to make your
investment decision.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT

This prospectus and the documents incorporated by reference herein contain
"forward-looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995, that are based on our current expectations, estimates and
projections. Statements that are not historical facts, including statements
about our beliefs and expectations, are forward-looking statements. These
statements are not guarantees of future performance, events or results and
involve potential risks and uncertainties. Accordingly, our actual results may
differ from our current expectations, estimates and projections. We undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.

Important factors that may impact our actual results include changes in
interest rates, changes in the yield curve, changes in prepayment rates, the
supply of mortgage-backed securities, our ability to obtain financing, the terms
of any financing and the other factors described in this prospectus under the
heading "Risk Factors."

ABOUT ANNALY MORTGAGE MANAGEMENT, INC.

General

We are a real estate investment trust (or REIT) organized under Maryland
law. We own, manage and finance a portfolio of mortgage-backed securities. We
seek to generate net income for our stockholders from the spread between the
interest income we earn on our portfolio of mortgage-backed securities and our
borrowing costs to finance our portfolio of mortgage-backed securities. We were
organized on November 25, 1996 and commenced operations on February 18, 1997. We
are self-advised and self-managed.

Assets

On June 30, 1999, all of the mortgage-backed securities we owned were
"agency certificates." Agency certificates are mortgage-backed securities where
a government agency or federally chartered corporation, such as FHLMC, FNMA or
GNMA, guarantees payments of principal or interest on the certificates. Although
not rated, these agency certificates carry an implied "AAA" rating.

. Freddie Mac is a common abbreviation that refers to the Federal Home
Loan Mortgage Corporation, a privately-owned government-sponsored
enterprise created pursuant to an act of Congress.

. Fannie Mae is a common abbreviation that refers to the Federal
National Mortgage Association, a privately-owned, federally-chartered
corporation organized under an act of Congress.

. Ginnie Mae is a common abbreviation that refers to the Government
National Mortgage Association, a wholly-owned instrumentality of the
United States within the Department of Housing and Urban Development.

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Even though we have only acquired AAA securities so far, under our capital
investment policy we have the ability to acquire securities of lower credit
quality. Under our policy:

. 75% of our investments must have a AA or higher rating by Standard &
Poor's Corporation (or S&P), or an equivalent rating by another nationally
recognized rating organization, or our management must determine that the
investments are of comparable credit quality to investments with these ratings;

. the remaining 25% of our investments must have a BBB or higher rating
by S&P, or an equivalent rating by another nationally recognized rating
organization, or our management must determine that the investments are of
comparable credit quality to investments with these ratings; securities with
ratings of BBB or higher are commonly referred to as "investment grade"
securities; and

. we seek to have a minimum weighted average rating for our portfolio of
at least A by S&P.

We acquire both adjustable-rate and fixed-rate mortgage-backed securities.
Adjustable-rate mortgage-backed securities have interest rates that adjust
periodically based upon changes in an objective index of short-term interest
rates, such as LIBOR or a Treasury index. On June 30, 1999, approximately 64%
of our mortgage-backed securities were adjustable-rate securities and
approximately 36% were fixed-rate securities.

Borrowings

We borrow money primarily through repurchase agreements using our mortgage-
backed 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 June 30, 1999, our debt-to-equity ratio was 11.8:1.

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 mortgage-backed securities. However, the interest rates on our
borrowings generally adjust more frequently than the interest rates on our
mortgage-backed 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 12 East 41st Street, Suite
700, New York, New York 10017. Our telephone number is (212) 696-0100.

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RISK FACTORS

An investment in our stock involves a number of risks. Before making an
investment decision, you should carefully consider all of the risks described in
this prospectus. If any of the risks discussed in this prospectus actually
occur, our business, financial condition and results of operations could be
materially adversely affected. If this were to occur, the trading price of our
common stock could decline significantly and you may lose all or part of your
investment.

If the interest payments on our borrowings increase relative to the interest we
earn on our mortgage-backed securities, it may adversely affect our
profitability

We earn money based upon the spread between the interest payments we earn
on our mortgage-backed security investments and the interest payments we must
make on our borrowings. If the interest payments on our borrowings increase
relative to the interest we earn on our mortgage-backed securities, our
profitability may be adversely affected.

The interest payments on our borrowings may increase relative to the
interest we earn on our adjustable-rate mortgage-backed securities for various
reasons discussed in this section.

. Differences in timing of interest rate adjustments on our mortgage-backed
securities and our borrowings may adversely affect our profitability

We rely primarily on short-term borrowings to acquire mortgage-backed
securities with long-term maturities. Accordingly, if short-term interest rates
increase, this may adversely affect our profitability.

Most of the mortgage-backed securities we acquire are adjustable-rate
securities. This means that their interest rates may vary over time based upon
changes in an objective index, such as:

. LIBOR or the London Interbank Offered Rate. The interest rate that
banks in London offer for deposits in London of U.S. dollars.

. Treasury Index. A monthly or weekly average yield of benchmark U.S.
Treasury securities, as published by the Federal Reserve Board.

. CD Rate. The weekly average of secondary market interest rates on six-
month negotiable certificates of deposit, as published by the Federal
Reserve Board.

These indices generally reflect short-term interest rates. On June 30,
1999, approximately 64% of our mortgage-backed securities were adjustable-rate
securities.

The interest rates on our borrowings similarly vary with changes in an
objective index. However, the interest rates on our borrowings generally adjust
more frequently than the interest rates on our adjustable-rate mortgage-backed
securities. For example, on June 30, 1999, our adjustable-rate mortgage-backed
securities had a weighted average term to next rate adjustment of 10 months,
while our borrowings had a weighted average term to next rate adjustment of 24
days. Accordingly, in a period of rising interest rates, we could experience a
decrease in net income or a net loss because the interest rates on our
borrowings adjust faster than the interest rates on our adjustable-rate
mortgage-backed securities.

. Interest rate caps on our mortgage-backed securities may adversely affect
our profitability

Our adjustable-rate mortgage-backed securities are typically subject to
periodic and lifetime interest rate caps. Periodic interest rate caps limit the
amount an interest rate can increase during any given period. Lifetime interest
rate caps limit the amount an interest rate can increase through maturity of a
mortgage-backed security. Our borrowings are not subject to similar
restrictions. Accordingly, in a period of rapidly increasing interest rates, we
could experience a decrease in net income or a net loss because the interest
rates on our borrowings could increase

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without limitation while the interest rates on our adjustable-rate mortgage-
backed securities would be limited by caps.

. Because we acquire fixed-rate securities, an increase in interest rates may
adversely affect our profitability

While the majority of our investments consist of adjustable-rate mortgage-
backed securities, we also invest in fixed-rate mortgage-backed securities. In
a period of rising interest rates, our interest payments could increase while
the interest we earn on our fixed-rate mortgage-backed securities would not
change. This would adversely affect our profitability. On June 30, 1999,
approximately 36% of our mortgage-backed securities were fixed-rate securities.

An increase in prepayment rates may adversely affect our profitability

The mortgage-backed securities we acquire are backed by pools of mortgage
loans. We receive payments, generally, from the payments that are made on these
underlying mortgage loans. When borrowers prepay their mortgage loans at rates
that are faster than expected, this results in prepayments that are faster than
expected on the mortgage-backed securities. These faster than expected
prepayments may adversely affect our profitability.

We often purchase mortgage-backed securities that have a higher interest
rate than the market interest rate at the time. In exchange for this higher
interest rate, we must pay a premium over the market value to acquire the
security. In accordance with accounting rules, we amortize this premium over the
term of the mortgage-backed security. If the mortgage-backed security is prepaid
in whole or in part prior to its maturity date, however, we must expense the
premium that was prepaid at the time of the prepayment. This adversely affects
our profitability. On June 30, 1999, approximately 87% of the mortgage-backed
securities we owned were acquired at a premium.

Prepayment rates generally increase when interest rates fall and decrease
when interest rates rise, but changes in prepayment rates are difficult to
predict. Prepayment rates also may be affected by conditions in the housing and
financial markets, general economic conditions and the relative interest rates
on fixed-rate and adjustable-rate mortgage loans.

We may seek to reduce prepayment risk by acquiring mortgage-backed
securities at a discount. If a discounted security is prepaid in whole or in
part prior to its maturity date, we will earn income equal to the amount of the
remaining discount. This will improve our profitability if the discounted
securities are prepaid faster than expected. On June 30, 1999, approximately 13%
of the mortgage-backed securities we owned were acquired at a discount.

While we seek to minimize prepayment risk to the extent practical, in
selecting investments we must balance prepayment risk against other risks and
the potential returns of each investment. No strategy can completely insulate us
from prepayment risk.

An increase in interest rates may adversely affect our book value

Increases in interest rates may negatively affect the market value of our
mortgage-backed securities. Our fixed-rate securities, generally, are more
negatively affected by these increases. In accordance with accounting rules, we
reduce our book value by the amount of any decrease in the market value of our
mortgage-backed securities. During the second quarter of 1999, rising interest
rates contributed to a decline in our book value from $9.97 per share at the
beginning of the quarter to $8.95 per share at the end of the quarter.

Our strategy involves significant leverage

We seek to maintain a ratio of debt-to-equity of between 8:1 and 12:1,
although our ratio may at times be above or below this amount. We incur this
leverage by borrowing against a substantial portion of the market value of our
mortgage-backed securities. By incurring this leverage, we can enhance our
returns. However, this leverage, which is fundamental to our investment
strategy, also creates significant risks.

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. Our leverage may cause substantial losses

Because of our significant leverage, we may incur substantial losses if our
borrowing costs increase. Our borrowing costs may increase for any of the
following reasons:

. short-term interest rates increase

. the market value of our mortgage-backed securities decreases

. interest rate volatility increases

. the availability of financing in the market decreases.

. Our leverage may cause margin calls and defaults and force us to
sell assets under adverse market conditions

Because of our leverage, a decline in the value of our mortgage-backed
securities may result in our lenders initiating margin calls. A margin call
means that the lender requires us to pledge additional collateral to re-
establish the ratio of the value of the collateral to the amount of the
borrowing. Our fixed-rate mortgage-backed securities generally are more
susceptible to margin calls as increases in interest rates tend to more
negatively affect the market value of fixed-rate securities.

If we are unable to satisfy margin calls, our lenders may foreclose on our
collateral. This could force us to sell our mortgage-backed securities under
adverse market conditions. Additionally, in the event of our bankruptcy, our
borrowings, which are generally made under repurchase agreements, may qualify
for special treatment under the Bankruptcy Code. This special treatment would
allow the lenders under these agreements to avoid the automatic stay provisions
of the Bankruptcy Code and to liquidate the collateral under these agreements
without delay.

. Liquidation of collateral may jeopardize our REIT status

To continue to qualify as a REIT, we must comply with requirements
regarding our assets and our sources of income. If we are compelled to liquidate
our mortgage-backed securities, we may be unable to comply with these
requirements, ultimately jeopardizing our status as a REIT. For further
discussion of these asset and source of income requirements, and the
consequences of our failure to continue to qualify as a REIT, please see the
"Federal Income Tax Considerations" section of this prospectus.

. We may exceed our target leverage ratios

We seek to maintain a ratio of debt-to-equity of between 8:1 and 12:1.
However, we are not required to stay within this leverage ratio. If we exceed
this ratio, the adverse impact on our financial condition and results of
operations from the types of risks described in this section would likely be
more severe.

. We may not be able to achieve our optimal leverage

We use leverage as a strategy to increase the return to our investors.
However, we may not be able to achieve our desired leverage for any of the
following reasons:

. we determine that the leverage would expose us to excessive risk

. our lenders do not make funding available to us at acceptable rates

. our lenders require that we provide additional collateral to cover our
borrowings.

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. We may incur increased borrowing costs which would adversely affect our
profitability

Currently, all of our borrowings are collateralized borrowings in the form
of repurchase agreements. If the interest rates on these repurchase agreements
increase, it would adversely affect our profitability.

Our borrowing costs under repurchase agreements generally correspond to
short-term interest rates such as LIBOR or a short-term Treasury index, plus or
minus a margin. The margins on these borrowings over or under short-term
interest rates may vary depending upon:

. the movement of interest rates

. the availability of financing in the market

. the value and liquidity of our mortgage-backed securities.

If we are unable to renew our borrowings at favorable rates, our profitability
may be adversely affected

Since we rely primarily on short-term borrowings, our ability to achieve
our investment objectives depends not only on our ability to borrow money in
sufficient amounts and on favorable terms, but also on our ability to renew or
replace on a continuous basis our maturing short-term borrowings. If we are not
able to renew or replace maturing borrowings, we would have to sell our assets
under possibly adverse market conditions.

We have not used derivatives to mitigate our interest rate and prepayment risks

Our policies permit us to enter into interest rate swaps, caps and floors
and other derivative transactions to help us mitigate our interest rate and
prepayment risks described above. However, we have determined in the past that
the cost of these transactions outweighs the benefits. In addition, we will not
enter into derivative transactions if we believe they will jeopardize our status
as a REIT. If we decide to enter into derivative transactions in the future,
these transactions may mitigate our interest rate and prepayment risks but
cannot insulate us from these risks.

Our investment strategy may involve credit risk

We may incur losses if there are payment defaults under our mortgage-backed
securities.

To date, all of our mortgage-backed securities have been agency
certificates which, although not rated, carry an implied "AAA" rating. Agency
certificates are mortgage-backed securities where Freddie Mac, Fannie Mae or
Ginnie Mae guarantees payments of principal or interest on the certificates.

Even though we have only acquired AAA securities so far, under our capital
investment policy we have the ability to acquire securities of lower credit
quality. Under our policy:

. 75% of our investments must have a AA or higher rating by Standard &
Poor's Corporation (or S&P), or an equivalent rating by a similar
nationally recognized rating organization, or our management must
determine that the investments are of comparable credit quality to
investments with these ratings;

. the remaining 25% of our investments must have a BBB or higher rating
by S&P, or an equivalent rating by a similar nationally recognized
rating organization, or our management must determine that the
investments are of comparable credit quality to investments with these
ratings; securities with ratings of BBB or higher are commonly
referred to as "investment grade" securities; and

. we seek to have a minimum weighted average rating for our portfolio of
at least A by S&P.

If we acquire mortgage-backed securities of lower credit quality, we may
incur losses if there are defaults under those mortgage-backed securities or if
the rating agencies downgrade the credit quality of those mortgage-backed
securities.

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Because of competition, we may not be able to acquire mortgage-backed securities
at favorable yields

Our net income depends, in large part, on our ability to acquire mortgage-
backed securities at favorable spreads over our borrowing costs. In acquiring
mortgage-backed securities, we compete with other REITs, investment banking
firms, savings and loan associations, banks, insurance companies, mutual funds,
other lenders and other entities that purchase mortgage-backed securities, many
of which have greater financial resources than us. As a result, in the future,
we may not be able to acquire sufficient mortgage-backed securities at favorable
spreads over our borrowing costs.

We are dependent on our key personnel

We are dependent on the efforts of our key officers and employees,
including Michael A. J. Farrell, Chairman of the Board and Chief Executive
Officer, Timothy J. Guba, President and Chief Operating Officer, Wellington J.
St. Claire, Vice Chairman and Portfolio Manager, and Kathryn F. Fagan, Chief
Financial Officer. The loss of any of their services could have an adverse
effect on our operations. Although we have employment agreements with each of
them, we cannot assure you they will remain employed with us.

Some of our officers and employees have potential conflicts of interest

Some of our officers and employees have potential conflicts of interest
with us. The material potential conflicts are as follows:

. Our officers and employees manage assets for other clients

Messrs. Farrell and Guba, Ms. St. Claire and other officers and employees
are actively involved in managing mortgage-backed securities and other fixed
income assets for institutional clients through Fixed Income Discount Advisory
Company. FIDAC is a registered investment adviser that on June 30, 1999 managed,
assisted in managing or supervised approximately $650 million in gross assets
for a wide array of clients. Of that amount, FIDAC managed approximately $450
million of those gross assets on a discretionary basis. The U.S. Dollar Floating
Rate Fund is a fund managed by FIDAC. Mr. Farrell is a Director of the Floating
Rate Fund. These officers will continue to perform services for FIDAC, the
institutional clients and the Floating Rate Fund. Mr. Farrell is also the sole
shareholder of FIDAC.

These responsibilities may create conflicts of interest for these officers
and employees if they are presented with corporate opportunities that may
benefit us and the institutional clients and the Floating Rate Fund. Our
officers allocate investments among Annaly, the institutional clients and the
Floating Rate Fund by determining the entity or account for which the investment
is most suitable. In making this determination, our officers consider the
investment strategy and guidelines of each entity or account with respect to
acquisition of assets, leverage, liquidity and other factors that our officers
determine appropriate.

. Some of our directors and officers have ownership interests in our
affiliates that create potential conflicts of interest

Mr. Farrell, our Chairman and Chief Executive Officer, and our other
directors and officers, have direct and indirect ownership interests in our
affiliates that create potential conflicts of interest.

During 1998, we made an initial investment of $49,980 in Annaly
International Mortgage Management, Inc. Annaly International explores business
opportunities overseas, including the origination of mortgages. Annaly
International has not commenced operations beyond this exploratory stage. We own
24.99% of the equity of Annaly International in the form of non-voting
securities. The remaining equity of Annaly International is owned by FIDAC,
Michael A.J. Farrell, Timothy J. Guba, our President and Chief Operating
Officer, Wellington J. St. Claire, our Vice Chairman and Portfolio Manager,
Kathryn F. Fagan, our Chief Financial Officer, John S. Grace, one of our
directors, and other persons. Mr. Farrell is the sole shareholder of FIDAC.

During 1998, Annaly International made an initial investment of $20,400 in
Annaly.com, Inc. Annaly.com explores opportunities to acquire or originate
mortgages in the United States. Annaly.com has established a Web

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site at http://www.annaly.com but has not commenced the acquisition or
origination of mortgages. Annaly International owns 51% of the equity of
Annaly.com. The remaining equity of Annaly.com is owned by FIDAC.

Our management allocates rent and other office expenses between our
affiliates and us. These allocations may create conflicts of interest. Our
management currently allocates rent and other expenses 90% to Annaly and 10% to
FIDAC. Our audit committee must approve any change in these allocation
percentages. In addition, we may enter into agreements, such as technology
sharing or research agreements, with our affiliates in the future. These
agreements would present potential conflicts of interest. Our management will
obtain prior approval of our audit committee prior to entering into any
agreements with our affiliates.

We and our shareholders are subject to certain tax risks

. Our failure to qualify as a REIT would have adverse tax consequences

We believe that since 1997 we have qualified for taxation as a REIT for
federal income tax purposes. We plan to continue to meet the requirements for
taxation as a REIT. Many of these requirements, however, are highly technical
and complex. The determination that we are a REIT requires an analysis of
various factual matters and circumstances that may not be totally within our
control. For example, to qualify as a REIT, as least 95% of our gross income
must come from certain sources that are itemized in the REIT tax laws. We are
also required to distribute to stockholders at least 95% of our REIT taxable
income (excluding capital gains). Even a technical or inadvertent mistake could
jeopardize our REIT status. Furthermore, Congress and the IRS might make changes
to the tax laws and regulations, and the courts might issue new rulings that
make it more difficult or impossible for us to remain qualified as a REIT.

If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first fail to qualify. If we fail to qualify as a REIT, we
would have to pay significant income taxes and would therefore have less money
available for investments or for distributions to our stockholders. This would
likely have a significant adverse effect on the value of our securities. In
addition, we would no longer be required to make any distributions to our
stockholders.

. We have certain distribution requirements

As a REIT, we must distribute 95% of our annual taxable income. The
required distribution limits the amount we have available for other business
purposes, including amounts to fund our growth. Also, it is possible that
because of the differences between the time we actually receive revenue or pay
expenses and the period we report those items for distribution purposes, we may
have to borrow funds on a short-term basis to meet the 95% distribution
requirement.

. We are also subject to other tax liabilities

Even if we qualify as a REIT, we may be subject to certain federal, state
and local taxes on our income and property. Any of these taxes would reduce our
operating cash flow.

Loss of Investment Company Act exemption would adversely affect us

We intend to conduct our business so as not to become regulated as an
investment company under the Investment Company Act. If we fail to qualify for
this exemption, our ability to use leverage would be substantially reduced and
we would be unable to conduct our business as described in this prospectus.

The Investment Company Act exempts entities that are primarily engaged in
the business of purchasing or otherwise acquiring mortgages and other liens on
and interests in real estate. Under the current interpretation of the SEC staff,
in order to qualify for this exemption, we must maintain at least 55% of our
assets directly in these qualifying real estate interests. Mortgage-backed
securities that do not represent all the certificates issued with respect to an
underlying pool of mortgages may be treated as securities separate from the
underlying mortgage loans and, thus, may not qualify for purposes of the 55%
requirement. Therefore, our ownership of these mortgage-

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backed securities is limited by the provisions of the Investment Company Act. In
addition, in meeting the 55% requirement under the Investment Company Act, we
treat as qualifying interests mortgage-backed securities issued with respect to
an underlying pool as to which we hold all issued certificates. If the SEC or
its staff adopts a contrary interpretation, we could be required to sell a
substantial amount of our mortgage-backed securities, under potentially adverse
market conditions. Further, in order to insure that we at all times qualify for
the exemption from the Investment Company Act, we may be precluded from
acquiring mortgage-backed securities whose yield is somewhat higher than the
yield on mortgage-backed securities that could be purchased in a manner
consistent with the exemption. The net effect of these factors may be to lower
our net income.

Issuances of large amounts of our stock could cause our price to decline

As of August 26, 1999, 12,793,224 shares of our common stock were
outstanding. This prospectus may be used for the issuance of additional common
stock or shares of preferred stock that are convertible into common stock. If we
issue a significant number of shares of common stock or convertible preferred
stock in a short period of time, there could be a dilution of the existing
common stock and a decrease in the market price of the common stock.

We may change our policies without stockholder approval

Our Board of Directors and management determine all of our policies,
including our investment, financing and distribution policies. Although they
have no current plans to do so, they may amend or revise these policies at any
time without a vote of our stockholders. Policy changes could adversely affect
our financial condition, results of operations, the market price of our common
stock or our ability to pay dividends or distributions.

We are subject to the year 2000 risk

The year 2000 risk arises because certain computer programs have been
written using two digits rather than four to define the applicable years.
Consequently, date-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations. Our accounting software
vendor has certified that the software package we use is year 2000 compliant.;
however, we have not independently determined that this package is year 2000
compliant and we cannot assure you it is free of year 2000 risk.

We rely on third-party suppliers for a number of key services. If supplier
operations are interrupted due to the year 2000 risk, that interruption could
affect our operations. Although some of our suppliers have assured us that they
are year 2000 compliant, we cannot assure you that our vendors are free of year
2000 risk.

USE OF PROCEEDS

Unless otherwise indicated in an accompanying prospectus supplement, we
intend to use the net proceeds from any of the offered securities for the
purchase of mortgage-backed securities. We then intend to increase our
investment assets by borrowing against these mortgage-backed securities and
using the proceeds to acquire additional mortgage-backed securities.

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DESCRIPTION OF STOCK

General

Our authorized capital stock consists of 100 million shares of common
stock. Pursuant to our articles of incorporation, our Board has the right to
classify or reclassify any unissued shares of common stock into one or more
classes or series of common stock or preferred stock.

Common Stock

Voting

Each of our common stockholders is entitled to one vote for each share held
of record on each matter submitted to a vote of common stockholders.

Our bylaws provide that annual meetings of our stockholders will be held
each calendar year on the date determined by our President, and special meetings
may be called by a majority of our Board, our Chairman, a majority of our
independent directors, our President or generally by stockholders entitled to
cast at least 25% of the votes which all stockholders are entitled to cast at
the meeting. Our articles of incorporation may be amended in accordance with
Maryland law.

Dividends; Liquidation; Other Rights

Common stockholders are entitled to receive dividends when declared by our
Board of Directors out of legally available funds. The right of common
stockholders to receive dividends is subordinate to the rights of preferred
stockholders or other senior stockholders. If we have a liquidation,
dissolution or winding up, our common stockholders will share ratably in all of
our assets remaining after the payment of all of our liabilities and the payment
of all liquidation and other preference amounts to preferred stockholders and
other senior stockholders. Common stockholders have no preemptive or other
subscription rights, and there are no conversion rights, or redemption or
sinking fund provisions, relating to the shares of common stock.

Classification or Reclassification of Common Stock or Preferred Stock

Our articles of incorporation authorize our Board to reclassify any
unissued shares of common or preferred stock into other classes or series of
shares, to establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series.

Issuance of Preferred Stock

The following description sets forth general terms and provisions of the
preferred stock to which any prospectus supplement may relate. The statements
below describing the preferred stock are in all respects subject to and
qualified in their entirety by reference to our articles of incorporation, by-
laws and any articles supplementary to our articles of incorporation designating
terms of a series of preferred stock. The preferred stock, when issued, will be
fully paid and non-assessable. Because our Board has the power to establish the
preferences, powers and rights of each series of preferred stock, our Board may
afford the holders of any series of preferred stock preferences, powers and
rights, voting or otherwise, senior to the rights of common stockholders.

The rights, preferences, privileges and restrictions of each series of
preferred stock will be fixed by the articles supplementary relating to the
series. A prospectus supplement, relating to each series, will specify the
terms of the preferred stock, as follows:

- the title and stated value of the preferred stock;
- the number of shares offered, the liquidation preference per share and
the offering price of the shares;

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- the dividend rate(s), period(s) and payment date(s) or method(s) of
calculation applicable to the preferred stock;
- the date from which dividends on the preferred stock will accumulate,
if applicable;
- the procedures for any auction and remarketing for the preferred
stock;
- the provision for a sinking fund, if any, for the preferred stock;
- the provision for redemption, if applicable, of the preferred stock;
- any listing of the preferred stock on any securities exchange;
- the terms, if any, upon which the preferred stock will be convertible
into common stock, including the conversion price (or manner of
calculation) and conversion period;
- any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock;
- a discussion of certain material federal income tax considerations
applicable to the preferred stock;
- the relative ranking and preferences of the preferred stock as to
dividend rights and rights upon the liquidation, dissolution or
winding-up of our affairs;
- any limitation on issuance of any series of preferred stock ranking
senior to or on a parity with the series of preferred stock as to
dividend rights and rights upon the liquidation, dissolution or
winding-up of our affairs; and
- any limitations on direct or beneficial ownership and restrictions on
transfer of the preferred stock, in each case as may be appropriate to
preserve our status as REIT.

Restrictions on Ownership and Transfer

To ensure that we meet the requirements for qualification as a REIT, our
articles of incorporation prohibit anyone from acquiring or holding, directly or
constructively, ownership of a number of shares of any class of our capital
stock in excess of 9.8% of the outstanding shares. For this purpose the term
"ownership" generally means either direct ownership or constructive ownership in
accordance with the constructive ownership provisions of section 544 of the
Internal Revenue Code.

The constructive ownership provisions of section 544 of the Internal
Revenue Code, generally attribute ownership of securities owned by a
corporation, partnership, estate or trust proportionately to its stockholders,
partners or beneficiaries; attribute ownership of securities owned by family
members to other members of the same family; and set forth rules as to when
securities constructively owned by a person are considered to be actually owned
for the application of such attribution provisions (i.e., "reattribution"). To
determine whether a person holds or would hold capital stock in excess of the
9.8% ownership limit, a person will be treated as owning not only shares of
capital stock actually owned, but also any shares of capital stock attributed to
that person under the attribution rules described above. Accordingly, a person
who individually owns less than 9.8% of the shares outstanding may nevertheless
be in violation of the 9.8% ownership limit.

Any transfer of shares of capital stock that would cause us to be
disqualified as a REIT or that would (a) create a direct or constructive
ownership of shares of capital stock in excess of the 9.8% ownership limit, or
(b) result in the shares of capital stock being beneficially owned (within the
meaning of section 856(a) of the Internal Revenue Code) by fewer than 100
persons (determined without reference to any rules of attribution), or (c)
result in us being "closely held" within the meaning of section 856(h) of the
Internal Revenue Code, will be null and void, and the intended transferee (the
"purported transferee") will acquire no rights to those shares. These
restrictions on transferability and ownership will not apply if our Board
determines that it is no longer in our best interests to continue to qualify as
a REIT.

Any purported transfer of shares of capital stock that would result in a
purported transferee owning (directly or constructively) shares of capital stock
in excess of the 9.8% ownership limit due to the unenforceability of the
transfer restrictions described above will constitute "excess securities."
Excess securities will be transferred by operation of law to a trust that we
will establish for the exclusive benefit of a charitable organization, until
such time as the trustee of the trust retransfers the excess securities. The
trustee will be a banking institution designated by us that is not affiliated
with the purported transferee or us. While the excess securities are held in
trust, the purported transferee will not be entitled to vote or to share in any
dividends or other distributions with respect to the securities. Subject to the
9.8% ownership limit, excess securities may be transferred by the trust to any
person (if such transfer would not result in excess securities) at a price not
to exceed the price paid by the purported transferee (or, if no

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<PAGE>

consideration was paid by the purported transferee, the fair market value of the
excess securities on the date of the purported transfer), at which point the
excess securities will automatically cease to be excess securities.

Upon a purported transfer of excess securities, the purported transferee
shall cease to be entitled to distributions, voting rights and other benefits
with respect to the shares of capital stock except the right to payment of the
purchase price for the shares of capital stock on the retransfer of securities
as provided above. Any dividend or distribution paid to a purported transferee
on excess securities prior to our discovery that shares of capital stock have
been transferred in violation of our articles of incorporation shall be repaid
to us upon demand. If these transfer restrictions are determined to be void,
invalid or unenforceable by a court of competent jurisdiction, then the
purported transferee of any excess securities may be deemed, at our option, to
have acted as an agent on our behalf in acquiring the excess securities and to
hold the excess securities on our behalf.

All certificates representing shares of capital stock will bear a legend
referring to the restrictions described above.

Any person who acquires shares in violation of our articles of
incorporation, or any person who is a purported transferee such that excess
securities results, must immediately give written notice or, in the event of a
proposed or attempted transfer that would be void as set forth above, give at
least 15 days prior written notice to us of such event and shall provide us such
other information as we may request in order to determine the effect, if any, of
the transfer on our status as a REIT. In addition, every record owner of more
than 5.0% (during any period in which the number of record stockholders is 2,000
or more) or 1.0% (during any period in which the number of record stockholders
is greater than 200 but less than 2,000) or 1/2% (during any period in which the
number of record stockholders is 200 or less) of the number or value of our
outstanding shares must send us an annual written notice by January 31 stating
the name and address of the record owner and the number of shares held and
describing how the shares are held. Further, each stockholder is required to
disclose to us in writing information with respect to the direct and
constructive ownership of shares as the Board deems reasonably necessary to
comply with the REIT provisions of the Internal Revenue Code, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.

Our Board may increase or decrease the 9.8% ownership limit. In addition,
to the extent consistent with the REIT provisions of the Internal Revenue Code,
our Board may, pursuant to our articles of incorporation, waive the 9.8%
ownership limit for a purchaser of our stock. In connection with any such
waiver, we may require that the stockholder requesting the waiver enter into an
agreement with us providing that we may repurchase shares from the stockholder
under certain circumstances to ensure compliance with the REIT provisions of the
Internal Revenue Code. The repurchase would be at fair market value as set forth
in the agreement between us and the stockholder. The consideration received by
the stockholder in the repurchase might be characterized as the receipt by the
stockholder of a dividend from us, and any stockholder entering into an
agreement with us should consult its tax advisor. At present, we do not intend
to waive the 9.8% ownership limit for any purchaser.

The provisions described above may inhibit market activity and the
resulting opportunity for the holders of our capital stock to receive a premium
for their shares that might otherwise exist in the absence of such provisions.
Such provisions also may make us an unsuitable investment vehicle for any person
seeking to obtain ownership of more than 9.8% of the outstanding shares of our
capital stock.

Classification of Board, Vacancies and Removal of Directors

Our by-laws provide for a staggered Board of Directors. Our by-laws provide
for nine directors divided into three classes, with terms of three years each.
The number of directors in each class and the expiration of each class term is
as follows:

<TABLE>
<S> <C> <C> <C>
Class 1 3 Directors Expires 2000
Class 2 3 Directors Expires 2001
Class 3 3 Directors Expires 2002
</TABLE>

At each annual meeting of our stockholders, successors of the class of
directors whose term expires at that meeting will be elected for a three-year
term and the directors in the other two classes will continue in office. A

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<PAGE>

classified Board may delay, defer or prevent a change in control or other
transaction that might involve a premium over the then prevailing market price
for our common stock or other attributes that our stockholders may consider
desirable. In addition, a classified Board could prevent stockholders who do not
agree with the policies of our Board of Directors from replacing a majority of
the Board of Directors for two years, except in the event of removal for cause.

On August 30, 1999, John S. Grace, one of the Class 1 directors, resigned
from our Board, leaving one vacancy on our Board. Our by-laws provide that any
vacancy on our Board may be filled by a majority of the remaining directors. Any
individual so elected director will hold office for the unexplored term of the
director he or she is replacing. Our by-laws provide that a director may be
removed at any time only for cause upon the affirmative vote of at least two-
thirds of the votes entitled to be cast in the election of directors, but only
by a vote taken at a stockholder meeting. These provisions preclude stockholders
form removing incumbent directors, except for cause and upon a substantial
affirmative vote, and filling the vacancies created by such removal with their
own nominees.

Indemnification

Our articles of incorporation obligate us to indemnify our directors and
officers and to pay or reimburse expenses for them before the final disposition
of a proceeding to the maximum extent permitted by Maryland law. The
Corporations and Associations Article of the Annotated Code of Maryland (or the
Maryland General Corporation Law) permits a corporation to indemnify its present
and former directors and officers against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities, unless it is established that (1) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (a) was committed in bad faith, or (b) was the result of active
and deliberate dishonesty, or (2) the director or officer actually received an
improper personal benefit in money, property or services, or (3) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful.

Limitation of Liability

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 (1) it is proved that the person actually received an improper
benefit or profit in money, property or services, or (2) 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 and was material to the cause of action adjudicated in the
proceeding. Our articles of incorporation provide 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 from time to time.

Maryland Business Combination Statute

The Maryland General Corporation Law establishes special requirements for
"business combinations" between a Maryland corporation and "interested
stockholders" unless exemptions are applicable. An interested stockholder is
any person who beneficially owns ten percent or more of the voting power of our
then-outstanding voting stock. Among other things, the law prohibits for a
period of five years a merger and other similar transactions between us and an
interested stockholder unless the Board approved the transaction prior to the
party becoming an interested stockholder. The five-year period runs from the
most recent date on which the interested stockholder became an interested
stockholder. The law also requires a supermajority stockholder vote for such
transactions after the end of the five-year period. This means that the
transaction must be approved by at least:

. 80% of the votes entitled to be cast by holders of outstanding voting
shares; and

. 66% of the votes entitled to be cast by holders of outstanding voting
shares other than shares held by the interested stockholder with whom
the business combination is to be effected.

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<PAGE>

As permitted by the Maryland General Corporation Law, we have elected not
to be governed by the Maryland business combination statute. We made this
election by opting out of this statute in our articles of incorporation. If,
however, we amend our articles of incorporation to opt back in to the statute,
the business combination statute could have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating these offers, even
if our acquisition would be in our stockholders' best interests.

Maryland Control Share Acquisition Statute

Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a stockholder vote. Two-thirds of the shares eligible to vote
must vote in favor of granting the "control shares" voting rights. "Control
shares" are shares of stock that, taken together with all other shares of stock
the acquiror previously acquired, would entitle the acquiror to exercise at
least 20% of the voting power in electing directors. Control shares do not
include shares of stock the acquiring person is entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.

If a person who has made (or proposes to make) a control share acquisition
satisfies certain conditions (including agreeing to pay expenses), he may compel
the Board of Directors to call a special meeting of stockholders to be held
within 50 days to consider the voting rights of the shares. If such a person
makes no request for a meeting, we have the option to present the question at
any stockholders' meeting.

If voting rights are not approved at a meeting of stockholders then we may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value. We will determine the fair value
of the shares, without regard to voting rights, as of the date of either:

. the last control share acquisition; or

. any meeting where stockholders considered and did not approve voting
rights of the control shares.

If voting rights for control shares are approved at a stockholders' meeting
and the acquiror becomes entitled to vote a majority of the shares of stock
entitled to vote, all other stockholders may exercise appraisal rights. This
means that you would be able to redeem your stock back to us for fair value.
Under Maryland law, the fair value may not be less than the highest price per
share paid in the control share acquisition. Furthermore, certain limitations
otherwise applicable to the exercise of dissenters' rights would not apply in
the context of a control share acquisition.

The control share acquisition statute would not apply to shares acquired in
a merger, consolidation or share exchange if we were a party to the transaction.

The control share acquisition statute could have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.

Transfer Agent and Registrar

ChaseMellon Shareholder Services, L.L.C., 450 West 33rd Street, 15th Floor,
New York, New York 10001, is the transfer agent and registrar for our stock. Its
telephone number is (800) 851-9677.

FEDERAL INCOME TAX CONSIDERATIONS

The following discusses the material United States federal income tax
considerations that relate to our treatment as a REIT and that apply to an
investment in our stock. No assurance can be given that the conclusions set out
below would be sustained by a court if challenged by the IRS. This summary deals
only with stock that you hold as a "capital asset", which generally means
property that is held for investment. It does not address tax considerations
applicable to you if you are a person subject to special tax rules, such as:

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<PAGE>

. 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;

. a stockholder whose functional currency is not the United States
dollar; or

. a tax-exempt or foreign taxpayer, except to the extent discussed
below.

The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986 and regulations, rulings and judicial decisions
interpreting the Internal Revenue 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
United States federal income tax consequences of our treatment as a REIT and of
an investment in our stock. We urge you to consult your own tax advisor as to
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 United
States 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 any changes
occurring after that date.

General

We have elected to become subject to tax as a REIT for federal income tax
purposes effective for our taxable year ending December 31, 1997. In the opinion
of Morgan, Lewis & Bockius LLP, 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 Internal Revenue Code, and our
method of operation enables us to meet the requirements for qualification and
taxation as a REIT. This opinion is based on factual assumptions and
representations relating to our organization and operations and factual
assumptions and representations relating to our continued efforts to comply with
the various REIT tests. Qualification as a REIT depends upon our ability to meet
on a continuing basis, through actual operating results, the various
qualification tests imposed under the Internal Revenue Code, and Morgan, Lewis &
Bockius LLP has not reviewed in the past, and may not review in the future, our
compliance with these tests.

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 were not to qualify as a REIT in any
particular year, we would be subject to federal income tax as a regular domestic
corporation, and you would be subject to tax in the same manner as a stockholder
of a regular domestic corporation. In this event, we could be subject to a
potentially 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 "Failure to qualify" below.

REIT Qualification Requirements

The following is a brief summary of the material technical requirements
that we must meet on an ongoing basis in order to qualify, and remain qualified,
as a REIT under the Internal Revenue Code.

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<PAGE>

Stock Ownership Tests

We must meet the following stock ownership tests:

(1) our capital stock must be transferable;

(2) our capital stock must be held 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); and

(2) no more than 50% of the value of our capital stock may be owned,
directly or indirectly, by five or fewer individuals at any time
during the last half of the taxable year. In applying this test, the
Internal Revenue Code treats some entities as individuals.

Tax-exempt entities, other than private foundations and certain
unemployment compensation trusts, are generally not treated as individuals for
these purposes. The requirements of items (2) and (3) above do not apply to the
first taxable year for which we made an election to be taxed as a REIT. However,
these stock ownership requirements must be satisfied in each subsequent taxable
year. Our articles of incorporation provide restrictions regarding the transfer
of our shares in order to aid us in meeting the stock ownership requirements. In
addition, we are required under Treasury Department regulations to demand annual
written statements from the record holders of designated percentages of our
capital stock disclosing actual and constructive stock ownership and to maintain
permanent records showing the information we have received as to the actual and
constructive stock ownership and a list of those persons failing or refusing to
comply with our demand.

Asset Tests

We generally must meet the following asset tests at the close of each
quarter of each taxable year:

(a) at least 75% of the value of our total assets must consist of
Qualified REIT Real Estate Assets, government securities, cash and
cash items; and

(b) the value of securities that we hold (other than government
securities) may not exceed 25% of the value of our total assets, and
in addition, we may not hold securities of any one issuer that
constitute either

(1) 5% or more of the value of our total assets or

(2) 10% of the outstanding voting securities of the issuer.

"Qualified REIT Real Estate Assets" means pass-through certificates,
mortgage loans and other assets of the type described in Section 856(c)(5)(B) of
the Internal Revenue Code.

We, along with one or more other entities, may form and capitalize one or
more taxable subsidiaries that will engage in hedging activities, the creation
of mortgage-backed securities through securitization or other activities. In
order to ensure that we would not violate the more than 10% single issuer voting
stock limitation, we would own only non-voting preferred and common stock, and
the other entities would own all of the voting common stock. The value of our
investment in any of these subsidiaries would also be limited to less than 5% of
the value of our total assets at the end of each calendar quarter so that we can
also comply with the 5% of value, single-issuer asset limitation. The taxable
subsidiary would not elect REIT status and would distribute only net after-tax
profits to its stockholders, including us. We will consult with our tax advisor
to determine whether our activities or the formation and contemplated method of
operation of a subsidiary corporation would cause us to fail to satisfy the REIT
requirements.

Gross Income Tests

We generally must meet the following gross income tests for each taxable
year:

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<PAGE>

(a) at least 75% of our gross income must be derived from the real estate
sources specified in the Internal Revenue Code, including interest
income and gain from the disposition of Qualified REIT Real Estate
Assets or "qualified temporary investment income," which is income
derived from "new capital" within one year of its receipt; and

(b) at least 95% of our gross income for each taxable year must be derived
from sources of income qualifying for the 75% gross income test
described in (a), dividends, interest, and gains from the sale of
stock or other financial instruments (including interest rate swap and
cap agreements, options, futures contracts, forward rate agreements or
similar financial instruments entered into to hedge variable rate debt
incurred to acquire Qualified REIT Real Estate Assets) not held for
sale in the ordinary course of business.

Distribution Requirement

We generally must distribute to our stockholders at least 95% of our REIT
taxable income before deductions of dividends paid and excluding net capital
gain. However, we may elect to retain, rather than distribute, our net long-term
capital gains and pay the tax on these gains, while our stockholders include
their proportionate share of the undistributed long-term capital gains in income
and receive a credit for their share of the tax that we pay.

Failure to Qualify

If we fail to qualify for taxation as a REIT in any taxable year and relief
provisions do not apply, we will be subject to tax, including any applicable
alternative minimum tax, on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify as a REIT
will not be deductible by us, nor will we be required to make distributions.
Unless entitled to relief under specific statutory provisions, we also will be
disqualified from taxation as a REIT for four taxable years following the year
during which qualification was lost. It is not possible to state whether in all
circumstances we would be entitled to such statutory relief.

Recent Developments

On August 4, 1999, Congress released the "Taxpayer Refund and Relief Act of
1999," a bill that is to be sent to the White House for President Clinton's
approval when Congress reconvenes in September. The bill would change the
restriction on the ability of the REIT to own securities of any issuer from the
current 10% of the voting securities of an issuer to 10% of the vote or value of
the securities of an issuer. President Clinton's proposed budget plan, released
earlier this year, included similar provisions. In addition, the bill would
allow REITs to own up to 100% of the stock of "taxable REIT subsidiaries."
Although a taxable REIT subsidiary would not be subject to the 10% vote or value
test, a taxable REIT subsidiary would otherwise be subject to the REIT asset
tests. If these provisions were to become law, we might have to change our
future or current ownership of subsidiaries in order to continue to qualify as a
REIT. Congress' Taxpayer Refund and Relief Act of 1999 does contain a transition
rule under which securities that a REIT has held on July 12, 1999 will not be
subject to this new limitation, assuming that the issuer of the securities does
not engage in a substantially new line of business or acquire a substantial
asset. This transition rule may exempt our ownership of 24.99% of the equity of
Annaly International from the bill's provisions if it were enacted as proposed.
The bill also contains a provision, among others, that would reduce a REIT's
annual distribution requirement from the current 95% of REIT taxable income to
90%.

Taxation of Annaly Mortgage Management

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 REIT taxable income or capital gain
that we distribute to our stockholders. We will, however, be subject to federal
income tax at normal corporate income tax rates upon any undistributed taxable
income or capital gain.

Notwithstanding our qualification as a REIT, we may also be subject to tax
in the following other circumstances:

. If we fail to satisfy either the 75% or the 95% gross income
test, but nonetheless maintain our qualification as a REIT
because we meet other requirements, we generally would be
subject to a

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<PAGE>

100% tax on the greater of the amount by which we fail either
the 75% or the 95% gross income test multiplied by a fraction
intended to reflect our profitability.

. We will also be subject to a tax of 100% on net income derived
from any "prohibited transaction" which is, in general, a sale
or other disposition of property held primarily for sale to
customers in the ordinary course of business.

. If we have (1) net income from the sale or other disposition
of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (2) other non-
qualifying income from foreclosure property, it will be
subject to federal income tax at the highest corporate income
tax rate.

. If we fail to distribute during each calendar year at least
the sum of (1) 85% of our REIT ordinary income for such year,
(2) 95% of our REIT capital gain net income for such year and
(3) any undistributed amount of ordinary and capital gain net
income from the preceding taxable years, we would be subject
to a 4% federal excise tax on the excess of the required
distribution over the amounts actually distributed during the
taxable year.

. If we acquire any asset from a C corporation in a transaction
in which the basis of the asset is determined by reference to
the basis of the asset in the hands of a C corporation and we
recognize gain upon a disposition of such asset occurring
within 10 years of its acquisition, then we would be subject
to tax to the extent of any built-in gain at the highest
regular corporate rate.

. We also may be subject to the corporate alternative minimum
tax, as well as other taxes in situations not presently
contemplated.

If we fail to qualify as a REIT in any taxable year and the relief
provisions provided in the Internal Revenue Code do not apply, we would 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 would not be allowed to deduct
distributions to shareholders in these years, nor would we be required to make
them under the Internal Revenue Code. Further, unless entitled to the relief
provisions of the Internal Revenue Code, we also would be disqualified from re-
electing REIT status for the four taxable years following the year during which
we became disqualified.

We intend to monitor on an ongoing basis our compliance with the REIT
requirements described above. In order to maintain our REIT status, 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.

Taxation of Stockholders

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. If the amount we distribute to you
also exceeds your adjusted basis, this excess amount will be treated as a gain
from the sale or exchange of a capital asset. Distributions you receive, whether
characterized as ordinary income or as capital gain, are not eligible for the
corporate dividends received deduction.

Distributions that we designate as capital gain dividends generally will be
subject to tax as long-term capital gain to you, to the extent that the
distributions to you and the other shareholders do not exceed our actual net
capital gain for the taxable year. In the event that we realize a loss for the
taxable year, you will not be permitted to deduct any share of that loss.
Further, if we, or a portion of our assets, were to be treated as a taxable
mortgage pool, any "excess inclusion income" that is allocated to you could not
be offset by any net operating loss that you may have.

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Future Treasury Department regulations may require that you take into account,
for purposes of computing your individual alternative minimum tax liability,
some of our tax preference items.

Dividends that we declare during the last quarter of the 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 and received. 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 Internal Revenue Code, but you will be treated as
having received these dividends in the taxable year in which their distribution
is actually made.

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 the stock, which gain or loss will be long-
term if you have held the stock for more than one year. Any loss that you
recognize on the sale or exchange of our stock that you have held for six months
or less generally will be treated as a long-term capital loss to the extent,
with respect to the stock, of (1) any long-term capital gain dividends that you
receive and (2) any long-term capital gain that we retain and the tax on which
you receive a credit.

If we do not qualify as a REIT in any year, distributions that we make to
you would be taxable in the same manner discussed above, except that:

. we would not be allowed to designate any distributions as capital gain
dividends;

. distributions would be eligible for the corporate dividends received
deduction;

. the excess inclusion income rules would not apply to you; and

. you would not receive any share of our tax preference items.

In this event, however, we could be subject to potentially substantial
federal income tax liability, and the amount of earnings and cash available for
distribution to you and other stockholders could be significantly reduced or
eliminated.

Information Reporting and Backup Withholding

We will report to our domestic stockholders and to the IRS the amount of
distributions that we pay, and the amount of tax that we withhold on these
distributions for each calendar year. Under the backup withholding rules, you
may be subject to backup withholding at a rate of 31% with respect to
distributions paid unless you:

. are a corporation or otherwise within an exempt category and
demonstrate this fact when required; or

. provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with applicable
requirements of the backup withholding rules.

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 is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against your United States
federal income tax liability, provided that you furnish the required information
to the IRS.

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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 (UBTI), provided that:

. you have not incurred indebtedness to purchase or hold our stock;

. you do not otherwise use our shares in an unrelated trade or business;
and

. we, consistent with our present intent, do not hold a residual
interest in a REMIC that gives rise to "excess inclusion" income as
defined under section 860E of the Internal Revenue Code.

If we were to be treated as a "taxable mortgage pool," however, a
substantial portion of the dividends you receive may be subject to tax as UBTI.

In addition, a substantial portion of the dividends 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 interests at
any time during a taxable year. For these purposes, a "qualified pension trust"
is any pension or other retirement trust that qualifies under section 401(a) of
the Internal Revenue Code. We would be treated as a "pension-held REIT" if (1)
we would not have qualified as a REIT but for the provisions of the Internal
Revenue Code which look through qualified pension trust stockholders to the
qualified pension trust's beneficiaries in determining stock ownership of a REIT
and (2) at least one qualified pension trust holds more than 25% of our stock by
value or one or more qualified pension trusts (each owning more than 10% of our
stock by value) hold in the aggregate more than 50% of our stock by value.
Assuming compliance with the ownership limit provisions set forth in our
articles of incorporation, it is unlikely that pension plans will accumulate
sufficient stock to cause us to be treated as a pension-held REIT.

If you are exempt from federal income taxation under sections 501(c)(7),
(c)(9), (c)(17), and (c)(20) of the Internal Revenue Code, then distributions
you receive may also constitute UBTI; we urge you to consult your tax advisor
concerning the applicable "set aside" and reserve requirements.

United States Federal Income Tax Considerations Applicable to Foreign Holders

The discussion under this heading applies to you only if you are not a U.S.
person. A U.S. person is a person who is:

. a citizen or resident of the United States;

. 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;

. an estate whose income is includible in gross income for United States
Federal income tax purposes regardless of its source; or

. 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 and
has made an election to be treated as a U.S. person;

This discussion is only a brief summary of the United States 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 United States
federal tax consequences

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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 attributable to gain from the dispositions of real
property interests or designated as capital gains dividends, distributions you
receive from us generally will be subject, to the extent of our earnings and
profits, to withholding of United States federal income tax at the rate of 30%,
unless reduced or eliminated by an applicable tax treaty or unless the
distributions are treated as effectively connected with a United States trade or
business. If you wish to claim the benefits of an applicable tax treaty, you
may need to satisfy certification and other requirements, some of which will
change on January 1, 2001.

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 our stock as described below. If we cannot determine at the time we
make a distribution whether the distribution will exceed our 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 United States federal tax liability if it is subsequently
determined that the distribution was, in fact, in excess of our earnings and
profits. If you receive a dividend that is treated as being effectively
connected with your conduct of a trade or business within the United States, the
dividend will be subject to the United States federal income tax on net income
that applies to United States 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 United States real
property interest, generally will not be subject to United States federal income
taxation, unless:

. your investment in our stock is effectively connected with your
conduct of a trade or business within the United States; or

. 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 your disposition of United States
real property interests are subject to income and withholding taxes pursuant to
the Foreign Investment in Real Property Act of 1980 (FIRPTA), and may also be
subject to branch profits tax if you are a corporation that is not entitled to
treaty relief or exemption. However, because we do not expect to hold assets
that would be treated as "United States real property interests" as defined by
FIRPTA, the FIRPTA provisions should not apply to your investment in our stock.

Gain on Disposition

You generally will not be subject to United States federal income tax on
gain recognized on a sale or other disposition of our stock unless:

. the gain is effectively connected with your conduct of a trade or
business within the United States;

. you are a nonresident alien individual who holds our stock as a
capital asset and is present in the United States for 183 or more days
in the taxable year and other requirements are met; or

. you are subject to tax under the FIRPTA rules discussed below.

Gain that is effectively connected with your conduct of a trade or business
within the United States will be subject to the United States federal income tax
on net income that applies to United States persons generally and may be subject
to the branch profits tax if you are a corporation. However, these effectively-
connected gains will not be subject to withholding. We urge you to consult
applicable treaties, which may provide for different rules.

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Under FIRPTA, you may be subject to tax on gain recognized from your sale
or other disposition of our stock if we were to both (1) hold United States real
property interests and (2) fail to qualify as a "domestically-controlled REIT."
A REIT qualifies as "domestically-controlled" as long as less than 50% in value
of its shares of beneficial interest are held by foreign persons at all times
during the shorter of (1) the previous five years and (2) the period in which
the REIT is in existence. As mentioned above, we do not expect to hold any
United States real property interests. Furthermore, we will likely qualify as a
"domestically-controlled REIT," although no assurances can be provided because
our shares are publicly-traded.

State and Local Taxes

We and our stockholders may be subject to state or local taxation in
various jurisdictions, including those in which we or they transact business or
reside. The state and local tax treatment that applies to us and our
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, we urge you to consult your own tax advisor regarding the
effect of state and local tax laws.

PLAN OF DISTRIBUTION

We may sell the securities offered pursuant to this prospectus and any
accompanying prospectus supplements to or through one or more underwriters or
dealers or we may sell the securities to investors directly or through agents.
Any underwriter or agent involved in the offer and sale of the securities will
be named in the applicable prospectus supplement. We may sell securities
directly to investors on our own behalf in those jurisdictions where we are
authorized to do so.

Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at market prices prevailing at the time of sale, at prices
related to the prevailing market prices or at negotiated prices. We also may,
from time to time, authorize dealers or agents to offer and sell these
securities upon such terms and conditions as may be set forth in the applicable
prospectus supplement. In connection with the sale of any of these securities,
underwriters may receive compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of the
securities for whom they may act as agent. Underwriters may sell the securities
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for which they may act as agents.

Shares may also be sold in one or more of the following transactions: (a)
block transactions (which may involve crosses) in which a broker-dealer may sell
all or a portion of the shares as agent but may position and resell all or a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker-dealer as principal and resale by the broker-dealer for its own
account pursuant to a prospectus supplement; (c) a special offering, an exchange
distribution or a secondary distribution in accordance with applicable New York
Stock Exchange or other stock exchange rules; (d) ordinary brokerage
transactions and transactions in which a broker-dealer solicits purchasers; (e)
sales "at the market" to or through a market maker or into an existing trading
market, on an exchange or otherwise, for shares; and (f) sales in other ways not
involving market makers or established trading markets, including direct sales
to purchasers. Broker-dealers may also receive compensation from purchasers of
the shares which is not expected to exceed that customary in the types of
transactions involved.

Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of these securities, and any discounts or
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions.

Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. Unless otherwise
set forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any

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of these securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of the series of securities, if
any are purchased.

Underwriters, dealers and agents may engage in transactions with, or
perform services for, us and our affiliates in the ordinary course of business.

In connection with the offering of the securities hereby, certain
underwriters, and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the applicable securities. These transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated by
the Securities and Exchange Commission pursuant to which these persons may bid
for or purchase securities for the purpose of stabilizing their market price.

The underwriters in an offering of securities may also create a "short
position" for their account by selling more securities in connection with the
offering than they are committed to purchase from us. In that case, the
underwriters could cover all or a portion of the short position by either
purchasing securities in the open market following completion of the offering of
these securities or by exercising any over-allotment option granted to them by
us. In addition, the managing underwriter may impose "penalty bids" under
contractual arrangements with other underwriters, which means that they can
reclaim from an underwriter (or any selling group member participating in the
offering) for the account of the other underwriters, the selling concession for
the securities that are distributed in the offering but subsequently purchased
for the account of the underwriters in the open market. Any of the transactions
described in this paragraph or comparable transactions that are described in any
accompanying prospectus supplement may result in the maintenance of the price of
the securities at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph or in an
accompanying prospectus supplement are required to be taken by any underwriters
and, if they are undertaken, may be discontinued at any time.

The common stock is listed on the New York Stock Exchange under the symbol
"NLY." The preferred stock will be new issues of securities with no established
trading market and may or may not be listed on a national securities exchange.
Any underwriters or agents to or through which securities are sold by us may
make a market in the securities, but these underwriters or agents will not be
obligated to do so and any of them may discontinue any market making at any time
without notice. No assurance can be given as to the liquidity of or trading
market for any shares of preferred stock.

EXPERTS

Deloitte & Touche LLP, independent auditors, have audited our financial
statements as of December 31, 1998 and 1997 and for the year ended December 31,
1998 and the period ended December 31, 1997, as set forth in their reports which
are incorporated in this prospectus by reference. Our financial statements are
incorporated by reference in reliance on Deloitte & Touche LLP's reports, given
on their authority as experts in accounting and auditing.

LEGAL MATTERS

The validity of the securities offered hereby is being passed upon for us
by Morgan, Lewis & Bockius LLP. The opinion of counsel described under the
heading "Federal Income Tax Considerations" is being rendered by Morgan, Lewis &
Bockius 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 Commission. You may inspect and copy such reports, proxy
statements and other information at the public reference facilities maintained
by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
further information. This material can also be obtained from the Commission's
worldwide web site at http://www.sec.gov. Our outstanding common stock is
listed on the NYSE

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under the symbol "NLY," and all such reports, proxy statements and other
information filed by us with the NYSE may be inspected at the NYSE's offices at
20 Broad Street, New York, New York 10005.

We have filed a registration statement, of which this prospectus is a part,
covering the securities offered hereby. As allowed by Commission rules, this
prospectus does not contain all 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 Commission 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 Commission. 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 Commission (File No. 1-13447) under
the Securities Exchange Act of 1934 (the "Exchange Act"), and these documents
are incorporated herein by reference:

. Our Annual Report on Form 10-K for the year ended December 31, 1998.

. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999.

. Our Proxy Statement dated March 25, 1999.

. The description of our common stock included in our registration
statement on Form 8-A, as amended.

Any 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 will
automatically be deemed to be incorporated by reference in this prospectus and
to be part hereof from the date of filing those documents. Any documents we file
pursuant to these sections 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 will automatically be deemed to be
incorporated by reference in 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.

You may obtain copies of all documents which are incorporated in this
prospectus by reference (other than the exhibits to such documents which are not
specifically incorporated by reference herein) without charge upon written or
oral request to Investor Relations, at Annaly Mortgage Management, Inc., 12 East
41st Street, Suite 700, New York, New York, 10017, telephone number (212) 696-
0100.

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5,000,000 Shares

ANNALY MORTGAGE MANGEMENT, INC.

Common Stock

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PROSPECTUS SUPPLEMENT

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FRIEDMAN BILLINGS RAMSEY

SCHRODER & CO. INC.

TUCKER ANTHONY CLEARY GULL

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