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As filed with the Securities and Exchange Commission on September 2, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
Annaly Mortgage Management, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland 22-3479661
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
12 East 41st Street, Suite 700
New York, New York 10017
(212) 696-0100
(Address, Including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
_______________________
Michael A. J. Farrell
Chairman of the Board and Chief Executive Officer
Annaly Mortgage Management, Inc.
12 East 41st Street, Suite 700
New York, New York 10017
(212) 696-0100
(Name, Address, Including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
________________________
Copies To:
Howard L. Meyerson, Esq.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
(212) 309-6000
________________________
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement as the Registrant
shall determine.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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Title of Shares to be Registered Amount to be Proposed Maximum Proposed Maximum Amount of
Registered (1) Aggregate Price per Unit Aggregate Offering Price Registration Fee (5)
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<S> <C> <C> <C> <C>
Common Stock (2)(3)(4) (2) (2)
Preferred Stock
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Total $200,000,000 $200,000,000 $55,600
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) In no event will the aggregate maximum offering price of all securities
issued pursuant to this registration statement exceed $200,000,000.
(3) Subject to footnote 2, there is being registered hereunder an indeterminate
number of shares of common stock as may be sold, from time to time, by the
registrant. There is also being registered hereunder an indeterminate
number of shares of common stock as shall be issuable upon conversion of
the shares of preferred stock registered hereby.
(4) Subject to footnote 2, there is being registered hereunder an indeterminate
number of shares of preferred stock as may be sold from time to time by the
registrant.
(5) Calculated pursuant to Rule 457(o) under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED ________________, 1999
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 _____________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
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......................................... 17
PLAN OF DISTRIBUTION...................................................... 24
EXPERTS................................................................... 25
LEGAL MATTERS............................................................. 26
WHERE YOU CAN FIND MORE INFORMATION....................................... 26
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 26
</TABLE>
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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.
. 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.
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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.
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
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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 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
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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-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
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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
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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 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.
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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 eachclass term is as
follows:
Class 1 3 Directors Expires 2000
Class 2 3 Directors Expires 2001
Class 3 3 Directors Expires 2002
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
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
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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.
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.
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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:
. 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
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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.
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
(3) 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
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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:
(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%.
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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 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 customer 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.
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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. 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:
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. 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.
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 the 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;
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. 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 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
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. 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.
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
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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 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.
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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 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
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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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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The fees and expenses to be paid in connection with the distribution of the
securities being registered hereby are estimated as follows:
Registration Fee............................... $ 55,600
Legal fees and expenses........................ 100,000
Accounting fees and expenses................... 25,000
Printing....................................... 20,000
Miscellaneous.................................. 35,000
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Total......................................... $235,600
Item 15. Indemnification of Directors and Officers.
Section 2-418 of the Corporations and Associations Article of the Annotated
Code of Maryland (the "Maryland General Corporation Law") provides that a
Maryland corporation may indemnify any director or officer of a corporation who
is made a party to any proceeding by reason of service in that capacity unless
it is established that the act or omission of the director or officer was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty; or the person
actually received an improper personal benefit in money, property or services;
or, in the case of any criminal proceeding, the person had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be against
judgments, penalties, fines, settlements, and reasonable expenses actually
incurred by the director or officer in connection with the proceeding, but if
the proceeding was one by or in the right of the corporation, indemnification
may not be made in respect of any proceeding in which the director or officer
shall have been adjudged to be liable to the corporation. Such indemnification
may not be made unless authorized for a specific proceeding after a
determination has been made, in the manner prescribed by the law, that
indemnification is permissible in the circumstances because the director or
officer has met the applicable standard of conduct. On the other hand, the
director or officer must be indemnified for expenses if he has been successful
in the defense of the proceeding or as otherwise ordered by a court. The law
also prescribes the circumstances under which the corporation may advance
expenses to, or obtain insurance or similar protection for, directors and
officers.
Our articles of incorporation provide that our directors and officers will,
and our agents in the discretion of our Board of Directors may, be indemnified
to the fullest extent required or permitted from time to time by the laws of
Maryland.
The Maryland General Corporation Law permits the charter of a Maryland
corporation to include a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages except to the
extent that (i) it is proved that the person actually received an improper
benefit or profit in money, property or services for the amount of the benefit
or profit in money, property or services actually received, or (ii) a judgment
or other final adjudication is entered in a proceeding based on a finding that
the person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. Our articles of incorporation contain a provision providing for
elimination of the liability of our directors and officers to us or our
stockholders for money damages to the maximum extent permitted by Maryland law.
We maintain policies of insurance under which our directors and officers
are insured, within the limits and subject to the limitations of the policies,
against expenses in connection with the defense of actions, suits or proceedings
resulting from such director or officer being or having been a director or
officer, and certain liabilities which might be imposed as a result of these
actions, suits or proceedings.
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Item 16. Exhibits.
See the Exhibit Index included herewith which is incorporated herein by
reference.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question
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whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
(d) That,
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on August 27, 1999.
ANNALY MORTGAGE MANAGEMENT, INC.
By: /s/ Michael A.J. Farrell
-----------------------------------
Michael A.J. Farrell
Chairman of the Board and Chief Executive
Officer
Each person whose signature appears below hereby authorizes Michael A. J.
Farrell, Timothy J. Guba and Wellington J. St. Claire, and each of them, as
attorney-in-fact, to sign on his or her behalf, individually and in each
capacity stated below, any amendment, including post-effective amendments to
this registration statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Kevin P. Brady Director August 27, 1999
- -------------------------------
Kevin P. Brady
/s/ Katherine F. Fagan Chief Financial Officer and August 27, 1999
- ------------------------------- Treasurer (principal financial
Katherine F. Fagan and accounting officer)
/s/ Michael A.J. Farrell Chairman of the Board, Chief August 27, 1999
- ------------------------------- Executive Officer and Director
Michael A.J. Farrell (principal executive officer)
/s/ Timothy J. Guba President, Chief Operating August 27, 1999
- ------------------------------- Officer and Director
Timothy J. Guba
/s/ John A. Lambiase Director August 27, 1999
- -------------------------------
John A. Lambiase
/s/ Wellington J. St. Claire Vice Chairman of the Board August 27, 1999
- ------------------------------- and Director
Wellington J. St. Claire
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------- -----------------------
4.1 Articles of Amendment and Restatement of the Articles of
Incorporation of the Registrant (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-11
(Registration No. 333-32913) filed with the Securities and
Exchange Commission on August 5, 1997) .
4.2 Bylaws of the Registrant, as amended (incorporated by reference
to Exhibit 3.3 to the Company's Registration Statement on Form S-
11 (Registration No. 333-32913) filed with the Securities and
Exchange Commission on August 5, 1997).
4.3 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-11 (Registration No. 333-32913) filed with
the Securities and Exchange Commission on September 17, 1997).
5.1 Opinion of Morgan, Lewis & Bockius LLP (including consent of such
firm).
8.1 Opinion of Morgan, Lewis & Bockius LLP, as to certain tax matters
(including consent of such firm).
23.1 Consent of Morgan, Lewis & Bockius LLP (included in Exhibits 5.1
and 8.1).
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on page II-4).
<PAGE>
EXHIBIT 5.1
[Opinion of Morgan, Lewis & Bockius LLP]
September 2, 1999
Annaly Mortgage Management, Inc.
12 East 41st Street, Suite 700
New York, New York 10017
Re: Issuance of Shares Pursuant to Registration Statement on Form S-3
-----------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Annaly Mortgage Management, Inc., a Maryland
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, of a Registration Statement on Form S-3 (the "Registration Statement"),
relating to the registration of shares of common stock, par value $.01 per share
(the "Common Shares"), and shares of preferred stock, par value $.01 per share
(the "Preferred Shares"), of the Company with an aggregate public offering price
of up to $200,000,000 that may be issued by the Company (collectively, the
"Shares"), all of which Shares may be sold by the Company from time to time as
set forth in the prospectus which forms a part of the Registration Statement
(the "Prospectus"), and as to be set forth in one or more supplements to the
Prospectus (each, a "Prospectus Supplement"). Unless otherwise defined,
capitalized terms used herein have the respective meanings ascribed to those
terms in the Registration Statement.
In arriving at the opinion expressed below, we have assumed that the amount,
terms, classification and reclassification of the Shares to be offered from time
to time will be duly authorized and determined by proper action of the Board of
Directors of the Company consistent with the procedures and terms described in
the Registration Statement and in accordance with the Company's Articles of
Amendment and Restatement of Articles of Incorporation, as amended to date (the
"Restated Articles"), and applicable Maryland law. We have examined originals,
or copies certified or otherwise identified to our satisfaction, of the Restated
Articles, the By-Laws of the Company, as amended to date, and such other
documents, records, certificates and other instruments as in our judgment are
necessary or appropriate for purposes of this opinion.
Based on the foregoing, we are of the opinion that, as of the date hereof:
1. The Common Shares have been duly authorized and, when issued and sold as
contemplated by the Registration Statement and any Prospectus Supplement
and consideration therefor is received by the Company, will be duly and
validly issued, fully paid and nonassessable.
2. With respect to the Preferred Shares, when (i) appropriate Articles
Supplementary to the Restated Articles relating to the class or series of
the Preferred Shares to be sold under the Registration Statement have been
duly adopted by the Board of Directors, have been filed with and accepted
for record by the State Department of Assessments and Taxation of the Sate
of Maryland and have become effective, (ii) the terms of the sale of the
Preferred Shares have been duly established in conformity with the Restated
Articles and the Company's By-Laws, which terms do not violate any
applicable law or result in a default or breach of any agreement or
instrument binding on the Company and comply with any requirement or
restriction imposed by any court or governmental body having jurisdiction
over the Company, and (iii) the Preferred Shares have been issued and sold
as contemplated by the Registration Statement and consideration therefor
received by the Company, the Preferred Shares will be duly and validly
issued, fully paid and nonassessable.
We render this opinion as members of the Bar of the State of New York and
express no opinion as to any law other than the Corporations and Associations
Article of the Annotated Code of Maryland.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters". In
giving this consent, we do not admit that we are acting within the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
Morgan Lewis & Bockius LLP
<PAGE>
EXHIBIT 8.1
[Opinion of Morgan, Lewis & Bockius LLP]
September 2, 1999
Annaly Mortgage Management, Inc.
12 East 41st Street, Suite 700
New York, NY 10017
Re: Registration Statement on Form S-3 (File No. 333- )
------------------------------------------------------
Dear Sirs:
We are acting as counsel to Annaly Mortgage Management, Inc., a Maryland
corporation (the "Company"), in connection with the above-referenced
registration statement dated September 2, 1999 (the "Registration Statement")
relating to shares of common stock, par value $.01 per share, and shares of
preferred stock, par value $.01 per share, of the Company with an aggregate
public offering price of up to $200,000,000 that may be issued by the Company.
Unless otherwise defined, capitalized terms used herein have the respective
meanings ascribed to those terms in the Registration Statement.
In arriving at the opinion expressed below, we have examined originals or copies
satisfactory to us of all such corporate records, agreements, instruments and
other documents as we have deemed relevant and necessary as a basis for the
opinion hereinafter expressed. In our examination, we have assumed the
authenticity of original documents, the accuracy of copies and the genuineness
of signatures. We understand and assume that (i) any agreement which we have
examined will represent the valid and binding obligation of the respective
parties thereto, enforceable in accordance with its respective terms, and the
entire agreement between the parties with respect to the subject matter thereof,
(ii) the parties to each such agreement will comply with all of their respective
covenants, agreements and undertakings contained therein, and (iii) the
transactions provided for by each such agreement will be carried out in
accordance with its terms.
Our opinion is based upon existing federal income tax laws, regulations,
administrative pronouncements and judicial decisions. All such authorities are
subject to change, either prospectively or retroactively. No assurance can be
provided as to the effect of any such change upon our opinion.
The opinion set forth herein has no binding effect on the Internal Revenue
Service or the courts. No assurance can be given that, if the matter were
contested, a court would agree with the opinion set forth herein.
Based upon the foregoing, we are of the opinion that, except as to factual
matters and subject to the qualifications and limitations set out in the
Registration Statement, the statements of legal conclusions contained in the
Registration Statement under the caption "Federal Income Tax Considerations" are
correct in all material respects.
While such descriptions discuss the material anticipated United States federal
tax consequences applicable to the Company and certain stockholders, they do not
purport to discuss all federal income tax consequences and our opinion is
limited to those federal income tax considerations specifically discussed
therein.
In giving the foregoing opinion, we express no opinion other than as to the
federal income tax law of the United States of America.
We are furnishing this letter in our capacity as United States tax counsel to
the Company, and this letter is solely for the benefit of the Company. This
letter is not to be used, circulated, quoted or otherwise referred to for any
other purpose, except as set forth below.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. In giving such consent, we do not thereby concede that
we are within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission issued thereunder or that we are "experts"
within the meaning of such act, rules and regulations.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
- --------------------------------
Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Registration Statement No. 333-______ of Annaly
Mortgage Management, Inc. of our report dated February 5, 1999 which is
incorporated by reference, and to the reference to us under "Experts" which is
included in, the Prospectus, which is also included in such Registration
Statement.
Deloitte & Touche LLP
New York, New York
August 27, 1999
