POS AM: Post-effective amendment to a registration statement that is not immediately effective upon filing
Published on July 15, 2003
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 2003
COMMISSION FILE NO.: 333-83620
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MFA MORTGAGE INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
350 PARK AVENUE
21ST FLOOR
NEW YORK, NEW YORK 10022
MARYLAND (212) 207-9400 13-3974868
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive (IRS Employer
(State of incorporation) offices) I.D. Number)
STEWART ZIMMERMAN
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
MFA MORTGAGE INVESTMENTS, INC.
350 PARK AVENUE
21ST FLOOR
NEW YORK, NEW YORK 10022
(212) 207-6400
(Name, address and telephone number of agent for service)
Copies to:
TIMOTHY W. KORTH, ESQ.
CLIFFORD CHANCE US LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
TEL: (212) 878-8000
FAX: (212) 878-8375
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
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 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. / /
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING ACCORDING TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JULY 15, 2003
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE HAVE FILED A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT RELATING
TO THE SECURITIES DESCRIBED IN THIS PROSPECTUS WITH THE SECURITIES AND EXCHANGE
COMMISSION. WE MAY NOT SELL THESE SECURITIES, OR ACCEPT OFFERS TO BUY THEM,
UNTIL THE POST-EFFECTIVE AMENDMENT IS DECLARED EFFECTIVE BY THE SECURITIES AND
EXCHANGE COMMISSION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES,
AND WE ARE NOT SOLICITING ANY OFFER TO BUY THESE SECURITIES, IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
MFA MORTGAGE INVESTMENTS, INC.
DISCOUNT WAIVER, DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
Our Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan
(the "Plan") provides prospective investors and existing holders of our common
stock with a convenient and economical method to purchase shares of our common
stock. By participating in the Plan, you may purchase additional shares of our
common stock by reinvesting some or all of the cash dividends that you receive
on your shares of our common stock. If you elect to participate in the Plan, you
may also make optional cash purchases of shares of our common stock of between
$50 and $10,000 per month and, with our prior approval, in excess of $10,000 per
month. Shares of our common stock purchased under the Plan may be acquired at
discounts of up to 5% from the prevailing market price as determined by us from
time to time.
Plan highlights include:
- Any registered holder of our common stock may elect to participate in the
Plan.
- Interested prospective investors who are not currently holders of our
common stock may make their initial purchase through the Plan.
- Up to a 5% discount on shares of our common stock purchased under the
Plan.
- Full or partial dividend reinvestment options.
- Optional cash purchases of between $50 and $10,000 per month and, with our
prior approval, optional cash purchases in excess of $10,000 per month.
- Available certificate safekeeping in book-entry form at no charge to you.
- Detailed recordkeeping and reporting will be provided at no charge to you.
- Optional automatic investment withdrawals from your bank account.
This prospectus relates to the offer and sale of up to 3,000,000 authorized
but unissued shares of our common stock under the Plan. Participants should
retain this prospectus for future reference.
Our common stock is listed on the New York Stock Exchange under the symbol
"MFA."
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS" BEGINNING ON
PAGE 16 OF THIS PROSPECTUS BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2003
You should rely only on the information contained in or incorporated by
reference into this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
and the documents incorporated by reference herein is accurate only as of its
respective date or dates or on the date or dates which are specified in these
documents. Our business, financial condition, results of operations and
prospects may have changed since those dates.
TABLE OF CONTENTS
PAGE
----
MFA Mortgage Investments, Inc............................... 1
Use of Proceeds............................................. 3
Description of the Plan..................................... 4
Risk Factors................................................ 16
Federal Income Tax Considerations........................... 22
Plan of Distribution........................................ 35
Experts..................................................... 36
Legal Matters............................................... 36
Where You Can Find More Information......................... 36
Incorporation of Certain Documents by Reference............. 36
Appendix I -- Schedule of Large Cash Purchases.............. A-1
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (or the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (or the Exchange Act). When used,
statements which are not historical in nature, including those containing words
such as "anticipate," "estimate," "should," "expect," "believe," "intend" and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are subject to various risks and uncertainties,
including those relating to:
- changes in the prepayment rates on the mortgage loans securing our
mortgage-backed securities;
- changes in short-term interest rates and the market value of our
mortgage-backed securities;
- our ability to use borrowings to finance our assets;
- changes in government regulations affecting our business;
- our ability to maintain our qualification as a real estate investment
trust (or a REIT) for federal income tax purposes; and
- risks associated with investing in real estate assets, including changes
in business conditions and the general economy.
Other risks, uncertainties and factors, including those discussed under
"Risk Factors" in this prospectus or described in reports that we file from time
to time with the Securities and Exchange Commission (or the SEC), including our
annual report on Form 10-K and quarterly reports on Form 10-Q, could cause our
actual results to differ materially from those projected in any forward-looking
statements we make. We are not obligated to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
ii
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN,
OR INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS. WE ENCOURAGE YOU TO READ
THIS PROSPECTUS, AS WELL AS THE INFORMATION WHICH IS INCORPORATED BY REFERENCE
HEREIN, IN THEIR ENTIRETY. YOU SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH
UNDER "RISK FACTORS" IN THIS PROSPECTUS BEFORE MAKING A DECISION TO PARTICIPATE
IN OUR DISCOUNT WAIVER, DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN (OR
THE PLAN). ALL REFERENCES TO "WE," "US" OR "OUR COMPANY" IN THIS PROSPECTUS MEAN
MFA MORTGAGE INVESTMENTS, INC.
MFA MORTGAGE INVESTMENTS, INC.
OUR BUSINESS
We invest primarily in adjustable-rate mortgage-backed securities that we
acquire in the secondary market. Our assets consist primarily of mortgage-backed
securities issued or guaranteed as to principal or interest by an agency of the
U.S. government or a federally chartered corporation, such as Fannie Mae, the
Federal Home Loan Mortgage Corporation (or Freddie Mac) or the Government
National Mortgage Association (or Ginnie Mae), high quality mortgage-backed
securities rated "AAA" by at least one nationally recognized rating agency and
cash. We also own indirect interests in multifamily apartment properties.
INVESTMENT STRATEGY
The mortgage-backed securities we acquire are primarily secured by pools of
adjustable-rate mortgage loans on single-family residences. Our investment
policy requires that at least 50% of our assets consist of adjustable-rate
mortgage-backed securities that are either issued or guaranteed as to principal
or interest by an agency of the U.S. government or a federally chartered
corporation, such as Fannie Mae, Freddie Mac or Ginnie Mae, or are rated in one
of the two highest rating categories by at least one nationally recognized
rating agency.
Interest rates on the adjustable-rate mortgage loans securing our
mortgage-backed securities are based on an index rate, such as the one-year
constant maturity treasury rate, the London Interbank Offered Rate or the 11th
District Cost of Funds Index, and are adjusted on a periodic basis (generally
annually); however, some may be adjusted more frequently. A majority of the
adjustable-rate mortgage loans securing our mortgage-backed securities are
"hybrids," which have a fixed interest rate for an initial period of time
(typically three to five years) and then convert to a one-year adjustable-rate
for the remaining loan term. The maximum adjustment, in any year, of the
adjustable-rate mortgage loans securing our mortgage-backed securities is
usually limited to 1% to 2%. Generally, adjustable-rate mortgage loans have a
lifetime limit on interest rate increases of 6% over the initial interest rate.
We may also invest in mortgage loans and mortgage-backed securities that are not
guaranteed by a federal agency and/or that have fixed interest rates.
FINANCING STRATEGY
We finance the acquisition of our mortgage-backed securities at short-term
borrowing rates through the use of repurchase agreements. Under these repurchase
agreements, we sell securities to a lender and agree to repurchase those
securities in the future for a price that is higher than the original sales
price. The difference between the sales price we receive and the repurchase
price we pay represents interest paid to the lender. Although structured as a
sale and repurchase obligation, a repurchase agreement operates as a financing
under which we effectively pledge our securities as collateral to secure a
short-term loan which is equal in value to a specified percentage of the market
value of the pledged collateral. We retain beneficial ownership of the pledged
collateral, including the right to distributions. At the maturity of a
repurchase agreement, we are required to repay the loan and concurrently receive
back our pledged collateral from the lender or, with the consent of the lender,
we renew such agreement at the then prevailing financing rate. Our repurchase
agreements may require us to pledge additional assets to the lender in the event
the market value of the existing pledged collateral declines. To date, we have
not had margin calls on our repurchase agreements that we were not able to
satisfy with either cash or additional pledged collateral.
Our repurchase agreements generally range from one month to 36 months in
duration; however, we are not precluded from entering into repurchase agreements
with longer durations. Should the providers of the repurchase agreements decide
not to renew such agreements at maturity, we must either refinance these
obligations or be in a position to retire the obligations. If, during the term
of a repurchase agreement, a lender should file for bankruptcy, we might
experience difficulty recovering our pledged assets and may have an unsecured
claim against the lender's assets for the difference between the amount loaned
to us and the fair value of the collateral pledged to such lender. To reduce our
exposure, we enter into repurchase agreements only with financially sound
institutions whose holding or parent company's long-term debt rating is "A" or
better as determined by at least one nationally recognized rating agency, where
applicable. If this minimum criterion is not met, we will not enter into
repurchase agreements with that lender without the specific approval of our
board of directors. In the event an existing lender is downgraded below "A," we
will seek approval from our board of directors before entering into additional
repurchase agreements with that lender. We generally seek to diversify our
exposure by entering into repurchase agreements with at least four separate
lenders with a maximum loan amount from any lender of no more than three times
our stockholders' equity.
We may use derivative transactions and other hedging strategies to help us
mitigate our prepayment and interest rate risks if we determine that the cost of
these transactions is justified by their potential benefit. To reduce our
exposure, we enter into interest rate cap agreements only with financially sound
institutions whose holding or parent company's long-term debt rating is "A" or
better as determined by at least one nationally recognized rating agency, where
applicable. See "Risk Factors--Our use of derivatives to mitigate our prepayment
and interest rate risks may not be effective."
Each of the multifamily apartment properties in which we hold interests is
financed with a long-term fixed-rate mortgage loan. The borrowers on these
mortgage loans are separate corporations, limited partnerships or limited
liability companies. Each of these mortgage loans is made to the ownership
entity on a nonrecourse basis (subject to customary nonrecourse exceptions),
which means generally that the lender's final source of the repayment in the
event of a default is the foreclosure of the property securing the mortgage
loan.
Our policy is to generally maintain an assets-to-equity ratio of less than
11 to 1.
2
COMPLIANCE WITH REIT REQUIREMENTS AND THE INVESTMENT COMPANY ACT OF 1940
We have elected to be treated as a REIT for federal income tax purposes. In
order to maintain our status as a REIT, we must comply with a number of
requirements under federal income tax law that are discussed under "Federal
Income Tax Considerations" in this prospectus. In addition, we at all times
intend to conduct our business so as to maintain our exempt status under, and
not to become regulated as an investment company for purposes of, the Investment
Company Act of 1940, as amended (or the Investment Company Act). If we fail to
maintain our exempt status under the Investment Company Act, we would be unable
to conduct our business as described in this prospectus. See "Risk Factors--Loss
of Investment Company Act exemption would adversely affect us."
GENERAL INFORMATION
We were incorporated on July 24, 1997 under Maryland law. Our principal
executive offices are located at 350 Park Avenue, 21st Floor, New York, New York
10022. Our telephone number is (212) 207-6400. Our common stock is listed on the
New York Stock Exchange (or the NYSE) under the symbol "MFA." Our internet
address is WWW.MFA-REIT.COM. Information contained on our internet website is
not, and should not be interpreted to be, a part of this prospectus.
USE OF PROCEEDS
We will receive proceeds from the sale of shares of our common stock that
the Plan Administrator (as defined herein) purchases directly from us on behalf
of the Plan. We intend to use such proceeds for general corporate purposes,
including the acquisition of additional mortgage-backed securities consistent
with our investment policy. We have no basis for estimating either the number of
shares of common stock that will be sold directly by us to the Plan or the
prices at which such shares will be sold. We will not receive any proceeds from
the sale of our common stock that the Plan Administrator purchases on behalf of
the Plan in the open market or in privately negotiated transactions.
3
DESCRIPTION OF THE PLAN
Our Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan is
described in the following questions and answers:
1. WHY IS THE PLAN BEING OFFERED?
The purpose of the Plan is to provide a convenient and economical method for
our current stockholders to automatically reinvest all or a portion of their
cash dividends in additional shares of our common stock. The Plan also provides
our current stockholders and new investors with an economical way to acquire
shares of our common stock by directly investing additional cash amounts. In
these ways, the Plan is intended to benefit our long-term investors by allowing
them to increase their investment in our common stock. The Plan also provides us
with a cost-efficient way to raise additional capital through the direct sale of
our common stock.
2. HOW DOES THE PLAN WORK?
The dividend reinvestment component of the Plan permits our stockholders to
designate that all or a portion of their cash dividends on our common stock be
invested in additional shares of our common stock. The optional cash purchase
component of the Plan permits current stockholders and new investors to purchase
shares of our common stock on a monthly basis in amounts, subject to certain
exceptions (see Question 16), ranging from $50 to $10,000 or, with our prior
approval, in excess of $10,000 (see Question 17). Funds invested pursuant to the
Plan are fully invested through the purchase of both whole and fractional shares
of our common stock and proportionate cash dividends on fractional shares of our
common stock held in a participant's Plan Account (as defined herein) are used
to purchase additional shares under the Plan.
3. WHAT ARE THE ADVANTAGES OF PARTICIPATING IN THE PLAN?
The Plan provides participants with the opportunity to acquire additional
shares of our common stock directly from us without having to pay, subject to
certain exceptions, the trading fees or service charges associated with an
independent purchase (see Question 27). If we issue new shares of our common
stock to participants in the Plan, we may sell them at a discount of up to 5%
from the current market price of our common stock. If the Plan Administrator
acquires our shares in the open market for participants in the Plan, we may
discount such shares by paying up to 5% of the purchase price for such shares.
For shares acquired in the open market, the purchase price includes all trading
fees and service charges. You should note, however, that we are not required to
offer shares at a discount or to pay discounts, fees and service charges. We may
change the discount percentage offered at any time or discontinue to offer this
feature of the Plan at any time (see Question 12).
The Plan also offers a "share safekeeping" service that allows you to
deposit your share certificates with the Plan Administrator and have your share
ownership maintained on the Plan Administrator's records as part of your Plan
Account. There is no charge for this service.
4. WHAT ARE THE DISADVANTAGES OF PARTICIPATING IN THE PLAN?
Investing in our common stock through the Plan is no different from, and is
subject to, the same risks as investing in our common stock directly. This
includes the risk that the market price for our common stock may decline. See
"Risk Factors." NEITHER WE NOR THE PLAN ADMINISTRATOR CAN GUARANTEE THAT SHARES
OF OUR COMMON STOCK PURCHASED UNDER THE PLAN WILL BE WORTH MORE OR LESS THAN
THEIR PURCHASE PRICE AT ANY PARTICULAR TIME.
Amounts contributed to the Plan will not necessarily be invested by the Plan
Administrator immediately upon receipt. Likewise, there may be delays in the
delivery of moneys to be returned to
4
you under the Plan. The Plan will not pay interest to you on funds held pending
investment or pending return to you.
Purchases and sales of our common stock under the Plan will be effected by
the Plan Administrator only as soon as practicable after it receives investment
instructions. Therefore, if you participate in the Plan, you will not be able to
control the specific timing of purchases and sales made for you under the Plan.
The market price of our common stock may fluctuate between the time an
investment instruction is received and the time shares are purchased or sold.
You will not be able to pledge any shares of our common stock held in your
Plan Account until a certificate for those shares is issued to you.
If you reinvest your cash dividends, you will be treated as having received
dividend income for federal income tax purposes, but will not receive a dividend
check. There may be other tax-related disadvantages applicable to your
participation in the Plan (see Question 33). See "Federal Income Tax
Considerations."
There are certain fees that will be charged to you by the Plan Administrator
(see Question 27).
5. WHO IS ELIGIBLE TO PARTICIPATE?
Anyone is potentially eligible to participate in the Plan. You may
participate in the Plan if: (i) you are a "registered holder" of our common
stock; that is, your shares are registered in your name on our stock transfer
books; (ii) you are a "beneficial owner" of our common stock; that is, your
shares are registered in a name other than your own name (i.e., in the name of a
broker, bank or other nominee); or (iii) you are not presently a stockholder,
but wish to acquire shares of our common stock. Registered holders may
participate in the Plan directly. If you are a beneficial owner, you must either
become a registered holder by having your shares transferred into your own name
or make arrangements with your broker, bank or other nominee to participate in
the Plan on your behalf (see Question 6).
You will not be allowed to participate if you live in a jurisdiction that
makes it unlawful for us to permit your participation in the Plan. Persons who
are citizens or residents of a country other than the United States, its
territories and possessions should make certain that their participation does
not violate local laws governing such things as taxes, currency and exchange
controls, share registration, foreign investments and related matters. We
reserve the right to terminate anyone's participation in the Plan if we deem it
advisable under any applicable laws or regulations. We also reserve the right,
in our sole discretion, to exclude anyone from the Plan who fails to comply with
the requirements of the Plan, including, but not limited to, those seeking to
use the Plan to engage in short-term trading activities that may cause
aberrations in the trading volume of our common stock or who use multiple Plan
Accounts to circumvent the Plan's standard $10,000 per month investment maximum.
6. HOW DO I ENROLL IN THE PLAN?
If you hold shares of our common stock in your own name or if you are a new
investor, you may enroll in the Plan and/or make optional cash purchases by
completing your plan enrollment online via Investor
ServiceDirect-Registered Trademark- at WWW.MELLONINVESTOR.COM. Alternatively,
you may enroll in the Plan by obtaining a plan enrollment form by calling, toll
free, 1-800-842-7629 and mailing your completed form to the Plan Administrator
in care of Mellon Investor Services, P.O. Box 3338, South Hackensack, New Jersey
07606-1938. If your shares are registered in a name other than your own name
(i.e., in the name of a broker, bank or other nominee), then you must either
(i) have your shares re-registered in your own name and then complete your plan
enrollment as discussed above or (ii) make arrangements with your nominee holder
to participate on your behalf. You will need to confirm that your nominee holder
is able to accommodate your participation in the Plan.
An eligible person may elect to become a participant in the Plan at any
time, subject to our right to modify, suspend, terminate or refuse participation
in the Plan. Your completed plan enrollment
5
appoints the Plan Administrator as your agent for purposes of the Plan and
permits it to reinvest dividends in the number of shares you designate and to
make cash purchases on your behalf as you direct. You may also specify whether
you wish to have your shares held by the Plan Administrator for safekeeping (see
Question 21).
If you are enrolling for dividend reinvestment, the Plan Administrator must
receive your completed plan enrollment at least two business days prior to the
record date established for a particular dividend in order for you to be
eligible for reinvestment of that dividend payment under the Plan (see
Question 13). Otherwise, reinvestment of your dividends will begin with the next
dividend payment.
If you are enrolling in the Plan by making an optional cash purchase (see
Question 9), the Plan Administrator must receive your completed plan enrollment
and investment funds at least two business days before the date such funds are
scheduled to be invested for a particular month (see Question 13). If your
completed plan enrollment and investment funds are received after that date,
your funds will be held in your Plan Account until the next Cash Purchase
Investment Date (as defined herein); provided, however, that if your funds are
not fully invested within 30 days of the next Cash Purchase Investment Date, the
uninvested Funds will be returned to you without interest. If you are not a
current stockholder, you must submit your initial investment with your completed
plan enrollment.
7. WHO IS THE PLAN ADMINISTRATOR?
The Plan is being administered by Mellon Bank, N.A. Certain administrative
support services to the Plan Administrator will be performed by Mellon Investor
Services, a registered transfer agent, or FutureShare Financial LLC, an
affiliate of Mellon Bank and a registered broker-dealer. Information on how to
contact the Plan Administrator is described in Question 35. The Plan
Administrator, along with its affiliates, keeps records, sends statements of
account to each participant in the Plan and performs other duties related to the
Plan, including the safekeeping of the shares purchased for each participant.
The Plan Administrator, along with its affiliates, also acts as the dividend
disbursing agent, transfer agent and registrar for our common stock.
8. HOW WILL I KEEP TRACK OF MY INVESTMENTS?
The Plan Administrator will send you a transaction notice confirming the
details of each Plan transaction you make, including the number of shares
purchased and the price paid. If you continue to participate in the Plan, but
have no transactions, the Plan Administrator will send you an annual statement
after the end of the year detailing the status of your holdings of our common
stock in your Plan Account. You will also receive annual income tax information
on Form 1099. These statements are your record of the cost of your purchases and
should be retained for income tax and other purposes.
All notices from the Plan Administrator to you will be mailed to your last
address of record. However, if your shares are registered in a name other than
your own name, communications regarding the Plan will be made through your
nominee holder.
9. WHAT INVESTMENT OPTIONS ARE AVAILABLE UNDER THE PLAN?
You can purchase shares of our common stock under the Plan through the
following investment options:
DIVIDEND REINVESTMENT. You can instruct the Plan Administrator to apply
the cash dividends paid on all or any portion of the shares of our common
stock designated by you for reinvestment. In order to participate in the
Plan, you do not have to submit the shares of our common stock currently
held by you or on your behalf to your Plan Account in order to elect to
reinvest the dividends on all or a portion of such shares, although share
safekeeping is one of the benefits available under the Plan (see
Question 21). Shares of our common stock purchased for your Plan Account
will be automatically enrolled in the Plan in book-entry form, with the Plan
Administrator
6
listed as your nominee, and all dividends paid on these shares will also be
reinvested, even if you withdraw the shares from your Plan Account, unless
you instruct the Plan Administrator otherwise. Cash dividends paid on shares
of our common stock owned by you that are not held in your Plan Account, and
for which you do not elect to reinvest dividends, will continue to be paid
directly to you.
OPTIONAL CASH PURCHASES. You can make voluntary cash contributions to
your Plan Account at any time, even if you are not currently reinvesting
dividends paid to you on our common stock. Payment for these optional cash
purchases can be made by check, money order or electronic funds transfer
from a pre-designated bank account. The Plan Administrator will use these
funds to purchase shares of our common stock on a monthly basis. If you are
already a stockholder, the minimum cash purchase is $50 per month. If you
are using this feature to make your initial investment in our common stock,
the minimum cash purchase is $1,000. You may not make optional cash
purchases of more than $10,000 per month without our prior written approval
(see Question 17). Dividends paid on shares of our common stock that are
purchased for your Plan Account with voluntary cash contributions will
automatically be reinvested in our common stock, unless you instruct the
Plan Administrator otherwise.
10. CAN I CHANGE MY INVESTMENT OPTIONS?
Yes. You may change your investment options at any time by completing a new
plan enrollment and submitting it to the Plan Administrator at least two
business days prior to the record date for the next dividend payment.
11. WHAT IS THE SOURCE OF SHARES PURCHASED BY THE PLAN?
We may either issue new shares of our common stock directly to the Plan or
instruct the Plan Administrator to acquire currently outstanding shares in the
open market. Open market purchases may be made, at the Plan Administrator's
option, on the NYSE or any other securities exchange where our common stock is
traded, in the over-the-counter market or in negotiated transactions with third
persons.
12. AT WHAT PRICE WILL SHARES BE ACQUIRED?
SHARES ACQUIRED DIRECTLY FROM US. All shares of our common stock acquired
directly from us pursuant to the Plan will be acquired at a discount rate
ranging from 0% to 5% from the average of the daily high and low sales prices,
computed up to four decimal places, if necessary, of our common stock as
reported on the NYSE on the applicable Dividend Payment Date (as defined herein)
or Cash Purchase Investment Date, as the case may be.
SHARES ACQUIRED ON THE OPEN MARKET. All shares of our common stock
purchased by the Plan Administrator in the open market will be acquired at a
discount rate, which will be paid by us, ranging from 0% to 5% from the
prevailing market price. The price deemed to be paid by any participant for
shares acquired in the open market on any given day will be the weighted average
of the actual prices paid for all shares acquired on that date, computed to four
decimal places, if necessary, including all trading fees and service charges.
Open market purchases may be made on such terms as to price, delivery and
otherwise as the Plan Administrator determines.
We are not required to sell shares issued by us at a discount to the Plan or
to pay a discount with respect to shares purchased by the Plan Administrator in
the open market, and the discount rate we offer is subject to change or
discontinuance at our discretion and without prior notice to participants in the
Plan. The discount rate, if any, will be determined by us from time to time
based on a review of current market conditions, the level of participation in
the Plan, our current and projected capital needs and other factors that we deem
to be relevant.
7
There are special rules for cash purchases of more than $10,000 per month
(see Question 17).
13. WHEN ARE THE SHARES PURCHASED FOR THE PLAN?
We typically pay dividends on a quarterly basis. If these dividends are used
to acquire new shares directly from us, the Plan Administrator will reinvest
dividends on the applicable date on which we pay dividends (or a Dividend
Payment Date). If these dividends are used to acquire shares through open market
purchases, the Plan Administrator will purchase all shares within 30 days of the
applicable Dividend Payment Date. If the dividends are not able to be fully
invested within this 30-day period, the uninvested dividends will be distributed
in full, without interest, by the Plan Administrator to the stockholders
participating in the Plan. Payment of dividends are always announced in advance.
You may learn the date of any announced dividend payment by calling the Plan
Administrator at (866) 249-2610.
Funds for optional cash purchases may be deposited into your Plan Account at
any time and will be used to acquire shares on the last business day of each
month (or a Cash Purchase Investment Date). If these funds deposited during a
particular calendar month are used to acquire new shares directly from us, they
will be invested on the Cash Purchase Investment Date. If these funds are used
to acquire shares through open market purchases, the Plan Administrator will
purchase all shares within 30 days of the Cash Purchase Investment Date. If any
funds deposited for optional cash purchases are not able to be fully invested
within this 30-day period, the uninvested funds will be returned in full,
without interest, by the Plan Administrator to the applicable stockholders
and/or new investors.
14. WILL I EARN INTEREST ON FUNDS IN MY PLAN ACCOUNT PRIOR TO INVESTMENT OR
RETURN TO ME?
No. Interest will not be paid on funds deposited by you in your Plan Account
pending investment or return to you.
15. WHAT ARE THE PROCEDURES FOR CASH PURCHASES?
If you are not already a stockholder, you are required under the Plan to
make an initial investment of at least $1,000, but not more than $10,000, except
in the case of Large Cash Purchases (as defined herein) (see Question 17). Your
initial investment can be made through Investor
ServiceDirect-Registered Trademark- at WWW.MELLONINVESTOR.COM by authorizing
either a one-time deduction or a monthly automatic deduction from your
designated bank account. You may also make your initial investment by completing
a plan enrollment form and submitting it with your check or money order made
payable to Mellon Bank/MFA.
If you are already a stockholder and have enrolled in the Plan and want to
make optional cash purchases, you can authorize specific deductions from your
designated bank account online through Investor
ServiceDirect-Registered Trademark- or send a check or money order to the Plan
Administrator for each purchase. If you choose to submit a check or money order,
please make sure to include the contribution form from your Plan statement and
mail it in the envelope provided. If you wish to make regular monthly optional
cash purchases, you may authorize monthly automatic deductions from your bank
account. This feature enables you to make ongoing investments in an amount that
is comfortable for you. Ongoing optional cash purchases are subject to a minimum
investment of $50 per month and a maximum of $10,000 per month, except in the
case of Large Cash Purchases.
In order for your funds to be invested on a particular Cash Purchase
Investment Date, they must be received by the Plan Administrator no later than
two business days before the Cash Purchase Investment Date. No interest will be
paid on funds held by the Plan Administrator pending investment.
You may cancel an optional cash purchase by advising the Plan Administrator
at least two business days before the applicable Cash Purchase Investment Date.
The Plan Administrator will return the funds from a cancelled purchase to you
without interest as soon as practical. No refund of a check or money order will
be made until the funds have been actually received by the Plan Administrator.
8
16. WHAT LIMITATIONS APPLY TO OPTIONAL CASH PURCHASES?
MINIMUM INVESTMENTS. If you are already a stockholder, the minimum cash
purchase is $50 for any given month. If you are using this feature to make your
initial investment in our common stock, the minimum cash purchase is $1,000.
Cash purchases for less than these minimums will be returned to you without
interest, unless we choose to waive these minimum amounts.
LARGE CASH PURCHASES. Cash purchases of more than $10,000 per month (or
Large Cash Purchases) will not be allowed by the Plan Administrator without our
prior written approval. Unless you have complied with the procedures described
in Question 17, any amount you submit for investment over this limit will be
returned to you without interest. For purposes of this limitation, we reserve
the right to aggregate all cash purchases from any participant with more than
one Plan Account using the same name, address or social security or taxpayer
identification number. If you do not supply a social security or taxpayer
identification number to the Plan Administrator, your participation may be
limited to only one Plan Account. Also for the purpose of this limitation, all
Plan Accounts that we believe to be under common control or management or to
have common ultimate beneficial ownership may be aggregated. We may grant or
withhold our permission to make Large Cash Purchases in our sole discretion. We
may grant such request in whole or in part. We may also grant requests for some
Large Cash Purchases and deny requests for others even though they are made in
the same month.
17. WHAT ARE THE PROCEDURES FOR A LARGE CASH PURCHASE?
Large Cash Purchases may be made by a participant in the Plan or a new
investor only upon our written approval. You must obtain our approval of a
request for waiver each calendar month before the beginning of the relevant
Pricing Period (as defined herein). To obtain our approval, you must submit a
request for waiver form. You may make a request for waiver by contacting the
Plan Administrator at (917) 320-6300. Completed request for waiver forms should
be submitted to the Plan Administrator via facsimile at (917) 320-6312 no later
than two business days prior to the applicable Pricing Period Start Date. The
Plan Administrator will notify you as to whether your request has been granted
or denied, either in whole or in part, within one business day of the receipt of
your request. If your request is granted in part, the Plan Administrator will
advise you of the maximum amount that will be accepted from you as a Large Cash
Purchase. If your request is approved, the Plan Administrator must receive the
funds for your Large Cash Purchase prior to or on the applicable date specified
in APPENDIX I to this prospectus for the relevant Pricing Period. If you do not
receive a response from us in connection with your request for waiver, you
should assume that we have denied your request. If we approve your request to
make a Large Cash Purchase, there will be a "Pricing Period," which will consist
of ten separate investment dates, each of which will occur on a separate
"trading day," which is any day on which trading of our common stock is reported
on the NYSE during the applicable Pricing Period, with one-tenth of your Large
Cash Purchase being invested on each trading day, subject to the qualifications
listed below. The Plan Administrator will pay a price equal to 100% (subject to
the application of the applicable discount as provided below) of the average of
the high and low sales prices of our common stock reported on the NYSE for each
trading day, which is an investment date, during the Pricing Period, computed up
to four decimal places, if necessary. The purchase price on any such investment
date may be reduced by any discount that we have provided for Large Cash
Purchases on such investment date, but in no event will such purchase price be
less than 95% of the average of the high and low sale prices of our common stock
on such investment date.
See APPENDIX I to this prospectus for a list of the expected Pricing Period
Start Dates. We may alter, amend, supplement or waive, in our sole discretion,
the Pricing Periods set forth in APPENDIX I to this prospectus with respect to
Large Cash Purchases made by one or more participants in the Plan or new
investors, at any time and from time to time, prior to the commencement of any
Pricing Period and prior to the granting of any request for waiver with respect
to such period. For more information please contact the Plan Administrator at
(917) 320-6300.
9
In addition, we may establish a minimum purchase price per share, a
"Threshold Price," applicable to Large Cash Purchases to be made during a
particular Pricing Period. We will fix the Threshold Price for a particular
Pricing Period as a dollar amount per share of common stock. If the average of
the high and low sale prices of our common stock reported on the NYSE on any
trading day during the Pricing Period is less than this Threshold Price (not
adjusted for discounts, if any), or if no trades are reported for our common
stock on a particular trading day during the Pricing Period, then that trading
date will be excluded from the Pricing Period. For each trading day that is
excluded from the Pricing Period, one-tenth of the funds submitted for each
Large Cash Purchase for a particular month will be returned to the applicable
Plan participant or new investor without interest. For example, if the Threshold
Price is not satisfied for two of the ten trading days in the Pricing Period,
then 2/10ths (i.e., 20%) of the funds submitted for each Large Cash Purchase
will be returned without interest. The Threshold Price will be based on our
evaluation of current market conditions and other relevant factors, but will be
set in our sole discretion. We will notify the Plan Administrator of the
Threshold Price, if any, at least three trading days before the relevant Pricing
Period Start Date set forth in APPENDIX I to this prospectus. You can obtain the
applicable Threshold Price for a particular Pricing Period by calling the Plan
Administrator at (917) 320-6300.
18. DOES THE PLAN ADMINISTRATOR CREDIT MY SHARES TO A SEPARATE ACCOUNT?
Yes. The Plan Administrator will establish a separate Plan Account for you
and credit it with those shares that have been purchased for you under the Plan.
In addition, the Plan Administrator will credit your Plan Account with those
shares that you have delivered to the Plan Administrator for safekeeping (see
Question 21). All shares in your Plan Account will be registered in book-entry
form in the name of the Plan Administrator or its nominee, but your beneficial
ownership will be maintained in your Plan Account. The total number of shares
credited to your Plan Account will be shown on each account statement.
In the event that you wish to have any whole shares of our common stock that
have been credited to your Plan Account issued in certificated form to you, you
may do so by contacting the Plan Administrator and making such request (see
Question 20).
Although the Plan Administrator will maintain a separate Plan Account for
you, it is authorized to commingle funds in your Plan Account with those of
other Plan participants for purposes of making purchases of our common stock.
19. ARE FUNDS HELD IN MY PLAN ACCOUNT INSURED?
No. Funds held in your Plan Account pending investment or return are not
treated as a bank deposit or account and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency or instrumentality.
20. WILL I RECEIVE CERTIFICATES FOR THE SHARES PURCHASED FOR ME UNDER THE PLAN?
No. You will not receive certificates for shares purchased for you under the
Plan. For your convenience, the Plan Administrator will maintain the shares
purchased for your Plan Account in non-certificated, "book-entry" form. You may,
however, request that a stock certificate be issued to you for any or all whole
shares of our common stock credited to your Plan Account. No certificates for
fractional shares will be issued. Certificates will be issued free of charge.
Cash dividends with respect to participating shares represented by certificates
issued to you will continue to be automatically reinvested, unless you instruct
the Plan Administrator otherwise. Any remaining shares will continue to be
credited to your Plan Account. You may request certificates by contacting the
Plan Administrator at (866) 249-2610. You may also submit your request online
via InvestorServiceDirect at WWW.MELLONINVESTOR.COM.
10
21. WHAT IS SHARE SAFEKEEPING?
If you hold the certificates for shares of our common stock (whether or not
you elect to have dividends on these shares reinvested), you may deposit the
certificates with the Plan Administrator for safekeeping in your Plan Account.
Share safekeeping protects your shares against loss, theft or accidental
destruction and is a convenient way for you to keep track of your shares. There
is no fee or other charge for this service. Shares held for safekeeping will be
credited to your Plan Account and the certificates for such shares will be
cancelled. If at a later time you want to withdraw those shares from share
safekeeping in your Plan Account, a new certificate for such shares shall be
issued to you (see Question 20). Only shares held in safekeeping may be sold
through the Plan. The Plan Administrator may maintain shares held for
safekeeping in its name or in the name of its nominee. Contact the Plan
Administrator at (866) 249-2610 for information on how to submit your share
certificates for safekeeping.
22. MAY THE SHARES IN MY PLAN ACCOUNT BE SOLD OR TRANSFERRED?
Yes. You may instruct the Plan Administrator to sell any or all of the whole
shares held in your Plan Account at any time. However, you will not be able to
direct the date on which, or the price at which, shares held in your Plan
Account may be sold. In the case of a request to sell submitted on behalf of a
Plan participant who has died or is an adjudicated incompetent, the request must
be accompanied by certified evidence of the representative's authority to
request a sale of the participant's shares. The Plan Administrator will process
sales orders when practicable, which will be at least once each week. Shares
will be sold from your Plan Account at the prevailing market price and the
proceeds of sale, less applicable trading fees, transfer taxes and the Plan
Administrator's administrative fee, will be remitted to you or your
representative.
In addition, you may transfer the ownership of all or part of the shares in
your Plan Account to the Plan Account of another person without requiring the
issuance of stock certificates. This could include a gift or private sale.
Transfers of less than all of the shares credited to your Plan Account must be
made in whole share amounts. No fractional shares may be transferred, unless
your entire Plan Account balance is transferred. Requests for these transfers
must meet the same requirements as are applicable to the transfer of stock
certificates, including the requirement of a medallion stamp guarantee. Shares
that are transferred will be credited in book-entry form to the transferee's
Plan Account. If the transferee does not have a Plan Account, one will be opened
for the transferee using the same investment options as your Plan Account,
unless you specify differently. The transferee may change the investment options
after the transfer has been made. After the transfer, the transferee will
receive an account statement showing the number of shares transferred to and
held in the transferee's Plan Account.
23. MAY SHARES IN MY PLAN ACCOUNT BE PLEDGED?
No. You must first request that certificates for shares credited to your
Plan Account be issued to you before you can pledge such shares.
24. CAN I VOTE SHARES IN MY PLAN ACCOUNT?
Yes. You will have the right to vote all whole shares held in your Plan
Account. Fractional shares may not be voted. Proxies for whole shares held in
your Plan Account will be forwarded to you by the Plan Administrator. The Plan
Administrator may vote your shares in certain cases if you fail to return a
proxy to the Plan Administrator.
25. MAY I TRANSFER MY RIGHT TO PARTICIPATE IN THE PLAN?
No. Your right to participate in the Plan is not transferable to any other
person apart from a transfer of your shares.
11
26. WHAT HAPPENS IF OUR COMPANY ISSUES A STOCK DIVIDEND, DECLARES A STOCK SPLIT
OR HAS A RIGHTS OFFERING?
Any stock dividends or stock splits distributed by us on shares of our
common stock held in your Plan Account will be credited to your Plan Account. In
the event we make available to our stockholders rights to purchase additional
shares of our common stock or other securities, you will receive appropriate
instructions in connection with all such rights directly from the Plan
Administrator in order to permit you to determine what action you desire to
take. Transaction processing under the Plan may be curtailed or suspended until
the completion of any stock dividend, stock split or stockholder rights
offering.
27. IS THERE A COST TO PARTICIPATE IN THE PLAN?
The following fees will be paid to the Plan Administrator by Plan
participants:
OPTIONAL CASH PURCHASE OF SHARES (INITIAL):
By check or money order $10.00
By pre-authorized or specific debit from bank
account $10.00
By one-time debit from bank account $3.50
Trading fee (if open market purchase) $0.12 per share
OPTIONAL CASH PURCHASE OF SHARES (SUBSEQUENT):
By check or money order $5.00
By pre-authorized debit from bank account $2.00
By one-time debit from bank account $3.50
Trading fee (if open market purchase) $0.12 per share
SALE OF SHARES OF OUR COMMON STOCK: $15.00 plus $0.12 per share
In addition, the Plan Administrator will charge a fee of $20.00 for
duplicate account statements and $35.00 for insufficient funds or rejected
automatic debits.
We will pay the Plan Administrator's fees in connection with dividend
reinvestments. There are no fees for the share safekeeping service.
In general, trading fees and service charges incurred in connection with
Plan purchases of shares of our common stock in the open market will be added to
and considered part of the purchase price of such shares. Service fees will be
charged to participants making initial and optional cash purchases through
electronic fund transfers. Further, the financial institution designated by a
participant on its plan enrollment may charge a fee for participating in the
electronic fund transfer. When shares of our common stock are sold by the Plan
Administrator for a participant, the participant will be responsible for any
trading fees, expenses, service charges or other expenses incurred pursuant to
the sale of such shares of common stock.
28. HOW AND WHEN MAY I TERMINATE MY PARTICIPATION IN THE PLAN?
You may discontinue the reinvestment of your dividends at any time by giving
notice to the Plan Administrator. To be effective for a given dividend payment,
the Plan Administrator must receive notice two business days before the record
date of that particular dividend. You may provide notice online via Investor
ServiceDirect-Registered Trademark- at WWW.MELLONINVESTOR.COM, by calling the
Plan Administrator at (866) 249-2610 or by mailing your request to the Plan
Administrator in care of Mellon Investor Services, P.O. Box
12
3338, South Hackensack, New Jersey 07606-1938. The Plan Administrator will
continue to hold your Plan shares after any discontinuation, unless you request
a certificate for any whole shares and a cash payment for any fractional share.
You may also request the sale of all or part of such shares or have the Plan
Administrator transfer your shares to your brokerage account or another Plan
Account. In the case of a request submitted on behalf of a Plan participant who
has died or is an adjudicated incompetent, the request must be accompanied by
certified evidence of the representative's authority to make such a request on
behalf of the participant. Shares and cash will be retained in the participant's
Plan Account until the participant's legal representative has been appointed and
has furnished proof satisfactory to the Plan Administrator of the legal
representative's right to receive a distribution of these assets.
29. MAY THE PLAN BE CHANGED OR DISCONTINUED?
Yes. We reserve the right to suspend or terminate the Plan in whole or in
part at any time. Notice will be sent to participants of any suspension or
termination as soon as practicable after such action by us. Upon termination of
the Plan, the Plan Administrator will issue a stock certificate for the total
number of whole shares credited to your Plan Account and a cash payment for any
portion of a fractional share credited to your Plan Account. However, if we
terminate the Plan for the purpose of establishing a new plan, you will be
automatically enrolled in the new plan and shares credited to your Plan Account
will be credited automatically to the new plan, unless, prior to the effective
date thereof, the Plan Administrator receives notice of termination of your Plan
Account.
The Plan may also be amended or supplemented by us at any time, including
the period between the dividend record date and the related Dividend Payment
Date. Any such amendment may include an appointment by the Plan Administrator of
a successor Plan Administrator. Plan participants will be notified of any
amendments as soon as practicable. In addition, the Plan Administrator reserves
the right to change its administrative procedures for the Plan.
30. WHO INTERPRETS AND REGULATES THE PLAN?
We reserve the right, without notice to Plan participants, to interpret and
regulate the Plan as we deem necessary or desirable in connection with our
operations. Any such interpretation and regulation shall be conclusive.
31. WHAT LAW GOVERNS THE PLAN?
The terms and conditions of the Plan and its operation are governed by the
laws of the State of New York.
32. WHAT ARE THE RESPONSIBILITIES OF OUR COMPANY AND THE PLAN ADMINISTRATOR
UNDER THE PLAN?
The Plan Administrator has had no responsibility with respect to the
preparation or contents of this prospectus. Neither we nor the Plan
Administrator, in administering the Plan, shall be liable for any act done in
good faith, or for any good faith omission to act, including, without
limitation, any claims of liability (i) arising out of failure to terminate any
participant's Plan Account upon such participant's death or adjudication of
incompetence, prior to receipt of notice in writing of such death or
adjudication of incompetence, (ii) with respect to the prices at which shares of
our common stock are purchased or sold for the participant's Plan Account and
the times such purchases or sales are made or (iii) with respect to any loss or
fluctuation in the market value after the purchase of shares.
YOU SHOULD RECOGNIZE THAT NEITHER WE NOR THE PLAN ADMINISTRATOR CAN ASSURE A
PROFIT OR PROTECT AGAINST A LOSS IN VALUE OF THE SHARES OF OUR COMMON STOCK THAT
YOU PURCHASE UNDER THE PLAN.
13
33. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN THE PLAN?
DIVIDEND REINVESTMENT. The reinvestment of dividends does not relieve you
of any income tax which may be payable on such dividends. When your dividends
are reinvested to acquire shares of our common stock (including any fractional
share), you will be treated as having received a distribution in the amount of
the fair market value of our common stock on the Dividend Payment Date (or the
Fair Market Value), multiplied by the number of shares (including any fractional
share) purchased plus any trading fees or service charges that we pay on your
behalf.
So long as we continue to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (or the Code), the distribution will be taxable under the
provisions of the Code applicable to REITs and their stockholders, pursuant to
which (i) distributions (other than those designated as capital gain dividends)
will be taxable to stockholders as ordinary income to the extent of our current
or accumulated earnings and profits, (ii) distributions which are designated as
capital gain dividends by us will be taxed as long-term capital gains to
stockholders to the extent they do not exceed our net capital gain for the
taxable year, (iii) distributions which are not designated as capital gains
dividends and which are in excess of our current or accumulated earnings and
profits will be treated as a tax-free return of capital to the stockholders and
reduce the adjusted tax basis of a stockholder's shares (but not below zero) and
(iv) such distributions in excess of a stockholder's adjusted tax basis in its
shares will be treated as gain from the sale or exchange of such shares.
You should be aware that, because shares of our common stock purchased with
reinvested dividends may be purchased at a discount and because we may pay a
portion of the purchase price, trading fees or service charges on your behalf,
the taxable income received by you as a participant in the Plan may be greater
than the taxable income that would have resulted from the receipt of the
dividend in cash.
The Plan Administrator will report to you for tax purposes the dividends to
be credited to your account as well as any discounts or trading fees or service
charges incurred by us. Such information will also be furnished to the Internal
Revenue Service (or the IRS) to the extent required by law.
CASH PURCHASES. The tax consequences relating to a discount associated with
a cash purchase of shares under the Plan are not entirely clear under current
law. However, the IRS has indicated in certain private rulings that the discount
associated with an optional cash purchase of shares of a REIT will be treated as
a distribution to a participant in the REIT's dividend reinvestment and optional
stock purchase plan only if that participant is also enrolled in the dividend
reinvestment feature of that plan at the time of the optional cash investment.
Accordingly, under such private rulings, if you are enrolled in the dividend
reinvestment feature of the Plan, then you should be treated as having received
a distribution, upon the cash purchase of shares directly from us, in an amount
equal to the excess, if any, of the fair market value of the shares on the
purchase date over the amount of the purchase price. However, under such private
rulings, if you are not enrolled in the dividend reinvestment feature of the
Plan, then you should not be treated as having received a distribution on
account of the discount associated with the cash purchase. You should be aware
that the private rulings described above are not binding on the IRS with respect
to the Plan and that the tax characterization of discounts on cash purchases
remains unsettled. Notwithstanding the private rulings described above, we
currently intend to treat the excess value of the shares acquired by cash
purchase under the Plan as a distribution from us regardless of whether or not
the participants are enrolled in the dividend reinvestment feature. You should
consult your own tax advisors in this regard.
You will have a tax basis in shares acquired through the cash purchase
component under the Plan equal to the amount of the cash payment plus the
excess, if any, of the fair market value of the shares on the purchase date over
the amount of the payment, but only to the extent such excess is treated as a
distribution taxable as a dividend.
14
The holding period for shares (including a fractional share) acquired under
the Plan generally will begin on the day after the shares are acquired. In the
case of participants whose dividends are subject to U.S. back-up withholding
(see below), the Plan Administrator will reinvest dividends less the amount of
tax required to be withheld.
RECEIPT OF SHARE CERTIFICATES AND CASH. You will not realize any income
when you receive certificates for shares of our common stock credited to your
Plan Account. Any cash received for a fractional share held in your Plan Account
will be treated as an amount realized on the sale of the fractional share. You
therefore will recognize gain or loss equal to any difference between the amount
of cash received for a fractional share and your tax basis in the fractional
share.
34. WHAT ARE THE EFFECTS OF THE FEDERAL INCOME TAX WITHHOLDING PROVISIONS?
We or the Plan Administrator may be required to withhold on all dividend
payments to a stockholder if (i) such stockholder has failed to furnish his or
her taxpayer identification number, which for an individual is his or her social
security number, (ii) the IRS has notified us that the stockholder has failed to
properly report interest or dividends or (iii) the stockholder has failed to
certify, under penalty of perjury, that he or she is not subject to back-up
withholding. In the case of a stockholder who is subject to back-up withholding
tax on dividends under the Plan, the amount of the tax to be withheld will be
deducted from the amount of the cash dividend and only the reduced amount will
be reinvested in Plan shares.
The summary set forth in Questions 33 and 34 is intended only as a general
discussion of the current federal income tax consequences of participation in
the Plan. This discussion does not purport to deal with all aspects of taxation
that may be relevant to particular participants in light of their personal
investment circumstances or certain types of participants (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers)
subject to special treatment under the federal income tax laws. For a discussion
of the federal income tax consequences of holding stock in a REIT generally, see
"Federal Income Tax Considerations."
35. HOW DO I GET MORE INFORMATION?
Questions regarding the Plan should be directed to Mellon Investor Services,
P.O. Box 3338, South Hackensack, New Jersey 07606-1938, or by calling
(866) 249-2610, between 9:00 a.m. and 7:00 p.m., Eastern Time, Monday through
Friday. For questions regarding Large Cash Purchases, please call the Plan
Administrator at (917) 320-6300. You may also go to the website address set up
for the Plan at WWW.MELLONINVESTOR.COM. If your shares are not held in your
name, contact your brokerage firm, bank, or other nominee for more information.
They can contact the Plan Administrator directly for instructions on how to
participate on your behalf. You can also get more information from our internet
website at WWW.MFA-REIT.COM.
15
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A NUMBER OF RISKS. BEFORE MAKING
A DECISION TO PARTICIPATE IN THE PLAN, YOU SHOULD CAREFULLY CONSIDER ALL OF THE
RISKS DESCRIBED IN THIS PROSPECTUS, AS WELL AS THE OTHER INFORMATION CONTAINED
IN, OR INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS. IF ANY OF THESE RISKS
ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COULD BE MATERIALLY ADVERSELY AFFECTED. IF THIS WERE TO OCCUR, THE VALUE OF OUR
COMMON STOCK COULD DECLINE SIGNIFICANTLY AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RAPID PREPAYMENT RATES OF THE MORTGAGES UNDERLYING OUR MORTGAGE-BACKED
SECURITIES MAY ADVERSELY AFFECT OUR PROFITABILITY.
The mortgage-backed securities we acquire are primarily secured by pools of
mortgage loans on single-family residences. When we acquire a mortgage-backed
security, we anticipate that the underlying mortgages will prepay at a projected
rate generating an expected yield. When homeowners prepay their mortgage loans
faster than anticipated, it results in a faster prepayment rate on the related
mortgage-backed securities in our portfolio and this may adversely affect our
profitability. Prepayment rates generally increase when interest rates fall and
decrease when interest rates rise, but changes in prepayment rates are difficult
to predict. Due to the fact that interest rates, in general, and mortgage rates,
in particular, for both fixed-rate and adjustable-rate mortgage loans declined
in 2002 and in the first and second quarters of 2003 and are currently at
historical lows, prepayment rates may continue at their current rapid pace or
may increase from their current levels in the future and could remain at high
levels for an extended period of time. Prepayment rates may also 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.
During the first quarter ended March 31, 2003, the prepayment rate on our
portfolio of mortgage-backed securities averaged an annualized 33% constant
prepayment rate.
We often purchase mortgage-backed securities that have a higher interest
rate than the prevailing market interest rate. In exchange for a higher interest
rate, we typically pay a premium over par value to acquire these securities. In
accordance with accounting rules, we amortize this premium over the life of the
mortgage-backed security. If the mortgage loans securing a mortgage-backed
security prepay at a rapid rate, we will have to amortize this premium on an
accelerated basis which may adversely affect our profitability. Our investment
policies allow us to acquire mortgage-backed securities at an average portfolio
purchase price of up to 103.5% of par value. As of March 31, 2003, the average
cost of our portfolio of mortgage-backed securities was approximately 102.3% of
par value.
As the holder of mortgage-backed securities, we receive a portion of our
investment principal when underlying mortgages are prepaid. In order to continue
to earn a return on this prepaid principal, we must reinvest it in additional
mortgage-backed securities or other assets. However, if interest rates have
declined, we may earn a lower return on the new investment as compared to the
original mortgage-backed security.
AN INCREASE IN OUR BORROWING COSTS RELATIVE TO THE INTEREST WE RECEIVE ON OUR
MORTGAGE-BACKED SECURITIES MAY ADVERSELY AFFECT OUR PROFITABILITY.
We earn money based upon the spread between the interest we receive on our
mortgage-backed securities, net of amortization of purchase premiums, and the
interest we pay on our borrowings. We rely primarily on short-term borrowings to
acquire mortgage-backed securities with long-term maturities. Even though most
of our mortgage-backed securities have interest rates that adjust based on
short-term rates changes, the interest we pay on our borrowings may increase
relative to the interest we earn on our adjustable-rate mortgage-backed
securities. If the interest payments on our borrowings
16
increase relative to the interest we earn on our mortgage-backed securities, our
profitability may be adversely affected.
- CHANGES IN INTEREST RATES, CYCLICAL OR OTHERWISE, MAY ADVERSELY AFFECT OUR
PROFITABILITY.
Interest rates are highly sensitive to many factors, including fiscal
and monetary policies and domestic and international economic and political
considerations, as well as other factors beyond our control. The interest
rates on our borrowings generally adjust more frequently than the interest
rates on our adjustable-rate mortgage-backed securities. During a period of
rising interest rates, our borrowing costs could increase at a faster pace
than our interest earnings from mortgage-backed securities. If this happens,
we could experience a decrease in net income or incur a net loss during
these periods, which may negatively impact our dividend. Further, an
increase in short-term interest rates without a corresponding increase in
long-term interest rates (i.e., a flattening of the yield curve) could also
have a negative impact on the market value of our common stock.
- HYBRID ADJUSTABLE-RATE MORTGAGES HAVE FIXED INTEREST RATES FOR AN INITIAL
PERIOD WHICH MAY REDUCE OUR PROFITABILITY IF SHORT-TERM INTEREST RATES
INCREASE.
A majority of the mortgages securing our adjustable-rate mortgage-backed
securities are "hybrid" mortgages that have a fixed interest rate for an
initial period (typically three years or greater) and then convert to an
adjustable rate. Accordingly, in a period of rising interest rates, our
financing costs could increase while the interest we earn on our
mortgage-backed securities would be limited by the number of underlying
hybrid mortgages with fixed interest rates. This would adversely affect our
profitability.
- INTEREST RATE CAPS ON THE MORTGAGES UNDERLYING OUR MORTGAGE-BACKED
SECURITIES MAY ADVERSELY AFFECT OUR PROFITABILITY IF SHORT-TERM INTEREST
RATES INCREASE.
The mortgages underlying 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 the maturity of a mortgage-backed security. Our
borrowings are not subject to similar restrictions. 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 could increase without
limitation while any increases in the interest rates on the mortgages
underlying our adjustable-rate mortgage-backed securities would be limited.
OUR BUSINESS STRATEGY INVOLVES A SIGNIFICANT AMOUNT OF BORROWING THAT EXPOSES US
TO ADDITIONAL RISKS.
We borrow against a substantial portion of the market value of our
mortgage-backed securities and use the borrowed funds to acquire additional
investment assets. Our operating policies allow us to maintain an
assets-to-equity ratio of less than 11 to 1. The use of borrowing, or
"leverage," to finance our mortgage-backed securities and other assets involves
a number of risks, including the following:
- IF WE ARE UNABLE TO RENEW OUR BORROWINGS AT FAVORABLE RATES, IT MAY FORCE
US TO SELL ASSETS AND OUR PROFITABILITY MAY BE ADVERSELY AFFECTED.
Since we rely primarily on short-term borrowings, such as repurchase
agreements, to finance our mortgage-backed securities, our ability to
achieve our investment objectives depends on our ability to borrow money in
sufficient amounts and on favorable terms and on our ability to renew or
replace maturing short-term borrowings on a continuous basis. If we are not
able to renew or replace maturing borrowings, we would be forced to sell
some of our assets under possibly adverse market conditions, which may
adversely affect our profitability.
17
- A DECLINE IN THE MARKET VALUE OF OUR ASSETS MAY RESULT IN MARGIN CALLS
THAT MAY FORCE US TO SELL ASSETS UNDER ADVERSE MARKET CONDITIONS.
As interest rates rise, the market value of interest-bearing assets,
such as mortgage-backed securities, will decline. A decline in the market
value of our mortgage-backed securities may result in our lenders initiating
margin calls that require us to pledge additional collateral to re-establish
the ratio of the value of the collateral to the amount of our borrowings. 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.
- OUR USE OF REPURCHASE AGREEMENTS TO BORROW MONEY MAY GIVE OUR LENDERS
GREATER RIGHTS IN THE EVENT OF BANKRUPTCY.
We use repurchase agreements for most of our borrowing. Borrowings made
under repurchase agreements may qualify for special treatment under the U.S.
Bankruptcy Code (or the Bankruptcy Code). This may make it difficult for us
to recover our pledged assets if a lender files for bankruptcy. In addition,
if we ever file for bankruptcy, lenders under our repurchase agreements may
be able to avoid the automatic stay provisions of the Bankruptcy Code and
take possession of, and liquidate, our collateral under these agreements
without delay.
WE MAY EXPERIENCE A DECLINE IN THE MARKET VALUE OF OUR ASSETS.
The market value of our interest-bearing assets, such as mortgage-backed
securities or hedging instruments, may move inversely with changes in interest
rates. A decline in the market value of our mortgage-backed securities may limit
our ability to borrow or result in lenders initiating margin calls under our
repurchase agreements. As a result, we could be required to sell some of our
investments under adverse market conditions in order to maintain liquidity. If
these sales were made at prices lower than the amortized cost of such
investments, we would incur losses. A default under our repurchase agreements
could also result in a liquidation of the underlying collateral and a resulting
loss of the difference between the value of the collateral and the amount
borrowed.
OUR PROFITABILITY MAY BE LIMITED BY RESTRICTIONS ON OUR USE OF LEVERAGE.
As long as we earn a positive margin between our borrowing costs and the
interest and other income we earn on our assets, we can generally increase our
profitability by using greater amounts of leverage. However, the amount of
leverage that we use may be limited because our lenders might not make funding
available to us at acceptable rates or they may require that we provide
additional collateral to cover our borrowings.
OUR USE OF DERIVATIVES TO MITIGATE OUR PREPAYMENT AND INTEREST RATE RISKS MAY
NOT BE EFFECTIVE.
Our policies permit us to enter into interest rate swaps, caps and floors
and other derivative transactions to help us mitigate our prepayment and
interest rate risks. As of March 31, 2003, we had 11 interest rate cap
agreements with an aggregate notional amount of $310 million which were
purchased to hedge against future increases in interest rates on our repurchase
agreements. No hedging strategy, however, can completely insulate us from the
prepayment and interest rate risks to which we are exposed. Furthermore, certain
of the federal income tax requirements that we must satisfy in order to qualify
as a REIT limit our ability to hedge against such risks. We will not enter into
derivative transactions if we believe that they will jeopardize our status as a
REIT.
WE MAY CHANGE OUR POLICIES WITHOUT STOCKHOLDER APPROVAL.
Our board of directors establishes all of our fundamental operating
policies, including our investment, financing and distribution policies, and any
revisions to such policies would require the approval of our board of directors.
Although our board of directors has no current plans to do so, it may amend or
revise these policies at any time without the vote of our stockholders. Policy
changes
18
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 HAVE NOT ESTABLISHED A MINIMUM DIVIDEND PAYMENT LEVEL.
We intend to pay dividends on our common stock in an amount equal to at
least 90% of our taxable income before deductions of dividends paid and
excluding net capital gains in order to maintain our status as a REIT for
federal income tax purposes. Dividends will be declared and paid at the
discretion of our board of directors and will depend on our earnings, our
financial condition, maintenance of our REIT status and such other factors as
our board of directors may deem relevant from time to time. We have not
established a minimum dividend payment level and our ability to pay dividends
may be adversely affected for the reasons set forth in this section of, and the
information incorporated by reference into, this prospectus.
WE ARE DEPENDENT ON OUR EXECUTIVES AND EMPLOYEES.
As a self-advised REIT, we are dependent on the efforts of our key officers
and employees, including Stewart Zimmerman, Chairman of the Board, Chief
Executive Officer and President; William Gorin, Executive Vice President and
Chief Financial Officer; Ronald Freydberg, Executive Vice President and
Secretary; and Teresa D. Covello, Senior Vice President, Chief Accounting
Officer and Controller. The loss of any of their services could have an adverse
effect on our operations.
THE ECONOMIC RETURN FROM OUR INVESTMENTS AND INTERESTS IN REAL ESTATE WILL BE
AFFECTED BY A NUMBER OF FACTORS.
Our indirect interests in multifamily apartment properties expose us to
risks associated with investing in real estate. These risks include the
possibility that the properties will not perform in accordance with our
expectations. In addition, the economic returns from our interests in these
properties may be affected by a number of factors, many of which are beyond our
direct control. These factors include general and local economic conditions, the
relative supply of apartments and other housing in the applicable market area,
interest rates on mortgage loans, the need for and costs of repairs and
maintenance of the properties, government regulations and the cost of complying
with them, taxes and inflation.
THE CONCENTRATION OF REAL ESTATE IN A GEOGRAPHICAL AREA MAY MAKE US VULNERABLE
TO ADVERSE CHANGES IN LOCAL ECONOMIC CONDITIONS.
We do not have specific limitations on the total percentage of our real
estate investments that may be located in any one geographical area.
Consequently, real estate investments that we own may be located in the same or
a limited number of geographical regions. As a result, adverse changes in the
economic conditions of the geographic regions in which our real estate
investments are concentrated may have an adverse effect on real estate values,
rental rates and occupancy rates. Any of these could reduce the income we earn
from, or the market value of, these real estate investments.
OUR INTERESTS IN REAL ESTATE MAY BE ILLIQUID AND THEIR VALUE MAY DECREASE.
Our indirect interests in multifamily apartment properties are relatively
illiquid. Our ability to sell these assets, and the price we receive upon their
sale, will be affected by the number of potential buyers, the number of
competing properties on the market in the area and a number of other market
conditions. As a result, we cannot make any assurances that we will be able to
sell these interests without incurring a loss.
19
OWNING REAL ESTATE MAY SUBJECT US TO LIABILITY FOR ENVIRONMENTAL CONTAMINATION.
The owner or operator of real property may become liable for the costs of
removal or remediation of hazardous substances released on its property. Various
federal, state and local laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the release of
such hazardous substances. We cannot make any assurances that the multifamily
apartment properties in which we currently hold indirect interests, or those we
may acquire in the future, will not be contaminated. The costs associated with
the remediation of any such contamination may be significant and may exceed the
value of the property causing us to lose our entire investment. In addition,
environmental laws may materially limit the use of the properties underlying our
real estate investments and future laws, or more stringent interpretations or
enforcement policies of existing environmental requirements, may increase our
exposure to environmental liability.
COMPLIANCE WITH THE REQUIREMENTS OF THE AMERICANS WITH DISABILITIES ACT OF 1990
COULD BE COSTLY.
Under the Americans with Disabilities Act of 1990, all public accommodations
must meet federal requirements for access and use by disabled persons. A
determination that one or more of the multifamily apartment properties in which
we currently hold indirect interests does not comply with the Americans with
Disabilities Act of 1990 could result in liability for both government fines and
damages to private parties. If we were to make additional capital contributions
to the entities that hold these multifamily apartment properties in order to
fund unanticipated major modifications at these properties to bring them into
compliance with the Americans with Disabilities Act of 1990, it could adversely
affect our profitability.
BECAUSE OF COMPETITION, WE MAY NOT BE ABLE TO ACQUIRE INVESTMENT ASSETS AT
FAVORABLE PRICES.
Our profitability depends, in large part, on our ability to acquire
mortgage-backed securities or other investment assets at favorable prices. In
acquiring our investment assets, we compete with a variety of institutional
investors, including other REITs, insurance companies, mutual funds, pension
funds, investment banking firms, banks and other financial institutions. Many of
the entities with which we compete have greater financial and other resources
than us. In addition, many of our competitors are not subject to REIT tax
compliance or required to maintain an exemption from the Investment Company Act.
As a result, we may not be able to acquire mortgage-backed securities or other
investment assets for investment or we may have to pay more for these assets
than we otherwise would.
ISSUANCES OF LARGE AMOUNTS OF OUR STOCK COULD CAUSE OUR PRICE TO DECLINE.
As of June 27, 2003, 54,117,105 shares of our common stock were outstanding.
This prospectus may be used for the issuance of additional shares of our common
stock. If we issue a significant number of shares of our common 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 our common stock.
ONE OF OUR DIRECTORS HAS AN OWNERSHIP INTEREST IN OTHER COMPANIES THAT CREATE
POTENTIAL CONFLICTS OF INTEREST.
One of our directors owns an equity interest in America First Companies
L.L.C. (or America First). A subsidiary of America First provides on-site
management for the multifamily apartment properties in which we hold investments
and earns fees based on the gross revenues of these properties. Because of the
ownership in America First held by one of our directors, our agreements with
America First and its subsidiaries may not be considered to have been negotiated
at arm's length. This relationship may also cause a conflict of interest in
other situations where we are negotiating with America First.
20
OUR STATUS AS A REIT.
We believe that we qualify for taxation as a REIT for federal income tax
purposes and plan to operate so that we can continue to meet the requirements
for qualification and taxation as a REIT. If we qualify as a REIT, we generally
will not be subject to federal income tax on our income that we distribute
currently to our stockholders. Many of the REIT requirements, however, are
highly technical and complex. The determination that we are a REIT requires an
analysis of various factual matters and circumstances, some of which may not be
totally within our control and some of which involve questions of
interpretation. For example, to qualify as a REIT, at least 95% of our gross
income must come from specific passive sources, like mortgage interest, that are
itemized in the REIT tax laws. In addition, the composition of our assets must
meet certain requirements at the close of each quarter. There can be no
assurance that the IRS or a court would agree with any conclusions or positions
we have taken in interpreting the REIT requirements. We also are required to
distribute to our stockholders at least 90% of our REIT taxable income
(excluding capital gains). Such distribution requirement limits the amount of
cash 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 90% distribution requirement. 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 for federal income tax purposes, 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 failed to
qualify. If we failed to qualify as a REIT, we would have to pay significant
income taxes. This likely would have a significant adverse effect on the value
of our securities. In addition, we would no longer be required to pay any
dividends to stockholders.
Even if we qualify as a REIT for federal income tax purposes, we are
required to pay certain federal, state and local taxes on our income and
property. Any of these taxes will 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 borrowings 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 meeting the 55% requirement under
the Investment Company Act, we treat as qualifying interests mortgage-backed
securities issued with respect to an underlying pool as to which we hold all
issued certificates. If the SEC or its staff adopts a contrary interpretation,
we could be required to sell a substantial amount of our mortgage-backed
securities under potentially adverse market conditions. Further, in order to
insure that we at all times qualify for the exemption from the Investment
Company Act, we may be precluded from acquiring mortgage-backed securities whose
yield is somewhat higher than the yield on mortgage-backed securities that could
be purchased in a manner consistent with the exemption. The net effect of these
factors may be to lower our net income.
21
FEDERAL INCOME TAX CONSIDERATIONS
The following description of the material U.S. federal income tax
considerations relates to our taxation and qualification as a REIT and the
ownership and disposition of our capital stock. This discussion is not
exhaustive of all possible tax considerations and does not provide a detailed
discussion of any state, local, foreign or other tax laws or considerations.
Your tax consequences may vary depending on your particular situation and this
discussion does not purport to discuss all aspects of taxation that may be
relevant to a stockholder in light of his or her personal investment or tax
circumstances or to a stockholder subject to special treatment under the federal
income tax laws, except to the extent discussed under the headings "-- Taxation
of Tax-Exempt Stockholders" and "-- Taxation of Non-U.S. Stockholders."
Stockholders subject to special treatment include, without limitation, insurance
companies, financial institutions, broker-dealers, tax-exempt organizations,
those holding common stock as part of a conversion transaction, a hedge or
hedging transaction or as a position in a straddle for tax purposes, foreign
corporations or partnerships, and persons who are not citizens or residents of
the United States.
In the opinion of Clifford Chance US LLP, our counsel, commencing with our
taxable year ended December 31, 1998, we have been organized and operated in
conformity with the requirements for qualification as a REIT under the Code and
that our proposed method of operation will enable us to continue to so qualify.
Counsel's opinion will rely, with respect to all taxable periods beginning prior
to January 1, 2002, solely on an opinion issued by Kutak Rock LLP, which
previously served as our counsel. Investors should be aware that opinions of
counsel are not binding on the IRS or a court and there cannot be any assurance
that the IRS or a court will not take a contrary position. It also must be
emphasized that counsel's opinion is based on various assumptions and is
conditioned upon numerous representations made by us as to factual matters,
including representations regarding the nature of our assets and income and the
future conduct of our business. Moreover, our taxation and qualification as a
REIT depend upon our ability to meet on a continuous basis the annual operating
results, asset ownership tests, distribution requirements, diversity of stock
ownership and the various other qualification tests imposed by the Code
described below, the results of which will not be reviewed by our counsel.
Therefore, no assurance can be given that the actual results of our operations
for any given taxable year will satisfy the requirements for qualification and
taxation as a REIT. See "-- Failure to Qualify" below.
The information in this section is based on the Code, current, temporary and
proposed regulations promulgated under the Code, the legislative history of the
Code, current administrative interpretations and practices of the IRS and court
decisions, all as of the date of this prospectus. The administrative
interpretations and practices of the IRS upon which this summary is based
include its practices and policies as expressed in private letter rulings which
are not binding on the IRS, except with respect to the taxpayers who requested
and received such rulings. In each case, these sources are relied upon as of the
date of this prospectus. No assurance can be given that future legislation,
regulations, administrative interpretations and practices and court decisions
will not significantly change current law, or adversely affect existing
interpretations of existing law, on which the information in this section is
based. Even if there is no change in applicable law, no assurance can be
provided that the statements made in the following discussion will not be
challenged by the IRS or will be sustained by a court if so challenged.
EACH PROSPECTIVE STOCKHOLDER IS ADVISED TO CONSULT WITH ITS OWN TAX ADVISOR
TO DETERMINE THE IMPACT OF ITS PERSONAL TAX SITUATION ON THE ANTICIPATED TAX
CONSEQUENCES OF THE OWNERSHIP AND SALE OF OUR CAPITAL STOCK. THIS INCLUDES THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND
SALE OF OUR CAPITAL STOCK AND THE POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
22
TAXATION OF OUR COMPANY AS A REIT -- GENERAL
We elected to be taxed as a REIT under Sections 856 through 860 of the Code,
commencing with our taxable year ended December 31, 1998. We believe that we
were organized and have operated in a manner so as to qualify as a REIT under
the Code and we intend to continue to be organized and operate in such a manner.
No assurance, however, can be given that we in fact have qualified or will
remain qualified as a REIT.
The sections of the Code that relate to the qualification and taxation of
REITs are highly technical and complex. The following describes the material
aspects of the sections of the Code that govern the federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated under the Code,
and administrative and judicial interpretations of the Code.
Qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, the various
requirements under the Code and, as described in this prospectus, with regard
to, among other things, the source of our gross income, the composition of our
assets, our distribution levels and our diversity of stock ownership. While we
intend to operate so that we qualify as a REIT, 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 or in the law, no
assurance can be given that we so qualify or will continue to so qualify.
Provided we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income tax on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" that generally results from an investment in a corporation. Double
taxation means taxation once at the corporate level when income is earned and
once again at the stockholder level when such income is distributed. However,
even as a REIT, we will be subject to federal income taxation in the following
circumstances:
- We will be required to pay tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
- We may be subject to the "alternative minimum tax" on our items of tax
preference, if any.
- If we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (b) other nonqualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rate on this income. In general, foreclosure property is
property acquired through foreclosure after a default on a loan secured by
the property or on a lease of the property.
- We will be required to pay a 100% tax on any net income from prohibited
transactions. In general, prohibited transactions are sales or other
taxable dispositions of assets, other than foreclosure property, held for
sale to customers in the ordinary course of business.
- If we fail to satisfy the 75% or 95% gross income tests, as described
below, but have, nevertheless, maintained our qualification as a REIT, we
will be subject to a tax equal to the gross income attributable to the
greater of either (a) the amount by which 75% of our gross income exceeds
the amount qualifying under the 75% test for the taxable year or (b) the
amount by which 90% of our gross income exceeds the amount of our income
qualifying under the 95% test for the taxable year multiplied in either
case by a fraction intended to reflect our profitability.
- We will be required to pay a 4% excise tax on the amount by which our
annual distributions to our stockholders is less than the sum of (a) 85%
of our ordinary income for the year, (b) 95% of our REIT capital gain net
income for the year and (c) any undistributed taxable income from prior
periods.
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- If we acquire an asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the asset in our hands
is determined by reference to the basis of the asset in the hands of the C
corporation, and we subsequently sell or otherwise dispose of the asset
within the ten-year period beginning on the date on which we acquired the
asset, then under existing treasury regulations, we would be required to
pay tax at the highest regular corporate tax rate on this gain to the
extent of the excess of (a) the fair market value of the asset over
(b) our adjusted tax basis in the asset, in each case, determined as of
the date on which we acquired the asset. The results described in this
paragraph assume that we will not elect in lieu of this treatment to be
subject to an immediate tax when the asset is acquired.
- We will generally be subject to tax on the portion of any "excess
inclusion income" derived from an investment in residual interests in real
estate mortgage investment conduits to the extent our stock is held by
specified tax exempt organizations not subject to tax on unrelated
business taxable income.
- We will be subject to a 100% tax on any "redetermined rents,"
"redetermined deductions" or "excess interest." In general, redetermined
rents are rents from real property that are overstated as a result of
services furnished by a "taxable REIT subsidiary" of our company to any of
our tenants. See "Taxable REIT Subsidiaries." Redetermined deductions and
excess interest represent amounts that are deducted by a taxable REIT
subsidiary of our Company for amounts paid to us that are in excess of the
amounts that would have been deducted based on arm's length negotiations.
REQUIREMENTS FOR QUALIFICATION AS A REIT
GENERAL. The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to its
owners;
(3) that would be taxable as a regular corporation, but for its election
to be taxed as a REIT;
(4) that is not a financial institution or an insurance company under the
Code;
(5) that is owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half
of each year (or the 5/50 Rule); and
(7) that meets other tests, described below, regarding the nature of its
income and assets, and the amount of its distributions.
The Code provides that conditions (1) through (4), inclusive, must be met
during the entire year and that condition (5) must be met during at least
335 days of a taxable year of twelve months or during a proportionate part of a
shorter taxable year. Conditions (5) and (6) do not apply to the first taxable
year for which an election is made to be taxed as a REIT.
Our amended and restated articles of incorporation provide for restrictions
regarding ownership and transfer of our stock. These restrictions are intended
to assist us in satisfying the share ownership requirements described in
conditions (5) and (6) above. These restrictions, however, may not ensure that
we will, in all cases, be able to satisfy the share ownership requirements
described in conditions (5) and (6) above. If we fail to satisfy these share
ownership requirements, our status as a REIT may terminate. If, however, we
complied with the rules contained in applicable regulations that require a REIT
to determine the actual ownership of its shares and we do not know, or would not
have known
24
through the exercise of reasonable diligence, that we failed to meet the
requirement described in condition (6) above, we would not be disqualified as a
REIT.
In addition, a corporation may not qualify as a REIT unless its taxable year
is the calendar year. We have a calendar taxable year.
OWNERSHIP OF A PARTNERSHIP INTEREST. The Treasury regulations provide that
if we are a partner in a partnership, we will be deemed to own our proportionate
share of the assets of the partnership and to be entitled to our proportionate
share of the gross income of the partnership. The character of the assets and
gross income of the partnership generally retains the same character in our
hands for purposes of satisfying the gross income and asset tests described
below.
QUALIFIED REIT SUBSIDIARIES. A "qualified REIT subsidiary" is a
corporation, all of the stock of which is owned by a REIT. Under the Code, a
qualified REIT subsidiary is not treated as a separate corporation from the
REIT. Rather, all of the assets, liabilities and items of income, deduction and
credit of the qualified REIT subsidiary are treated as the assets, liabilities
and items of income, deduction and credit of the REIT for purposes of the REIT
income and asset tests described below.
TAXABLE REIT SUBSIDIARIES. A "taxable REIT subsidiary" is a corporation
which, together with a REIT, which owns an interest in such corporation, makes
an election to be treated as a taxable REIT subsidiary. A taxable REIT
subsidiary may earn income that would be nonqualifying income if earned directly
by a REIT and is generally subject to full corporate level tax. A REIT may own
up to 100% of the stock of a taxable REIT subsidiary.
Certain restrictions imposed on taxable REIT subsidiaries are intended to
ensure that such entities will be subject to appropriate levels of federal
income taxation. First, a taxable REIT subsidiary may not deduct interest
payments made in any year to an affiliated REIT to the extent that such payments
exceed, generally, 50% of the taxable REIT subsidiary's adjusted taxable income
for that year (although the taxable REIT subsidiary may carry forward to, and
deduct in, a succeeding year the disallowed interest amount if the 50% test is
satisfied in that year). In addition, if a taxable REIT subsidiary pays
interest, rent or another amount to a REIT that exceeds the amount that would be
paid to an unrelated party in an arm's length transaction, the REIT generally
will be subject to an excise tax equal to 100% of such excess. We had made a
taxable REIT subsidiary election with respect to our ownership interest in
Retirement Centers Corporation (or RCC), which election was effective, for
federal income tax purposes, as of March 30, 2002. During the time RCC was our
taxable REIT subsidiary, we and RCC engaged in certain transactions pursuant to
which RCC made interest and other payments to us. We believe that such
transactions were entered into at arm's length. However, no assurance can be
given that any such payments would not result in the limitation on interest
deductions or 100% excise tax provisions being applicable to us and RCC. We,
together with RCC, revoked RCC's election to be a taxable REIT subsidiary in
January 2003. As a result, effective January 2003, RCC became a qualified REIT
subsidiary.
INCOME TESTS. We must meet two annual gross income requirements to qualify
as a REIT. First, each year we must derive, directly or indirectly, at least 75%
of our gross income, excluding gross income from prohibited transactions, from
investments relating to real property or mortgages on real property, including
"rents from real property" and mortgage interest, or from specified temporary
investments. Second, each year we must derive at least 95% of our gross income,
excluding gross income from prohibited transactions, from investments meeting
the 75% test described above, or from dividends, interest and gain from the sale
or disposition of stock or securities. For these purposes, the term "interest"
generally does not include any interest of which the amount received depends on
the income or profits of any person. An amount will generally not be excluded
from the term "interest;" however, if such amount is based on a fixed percentage
of gross receipts or sales.
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Any amount includable in our gross income with respect to a regular or
residual interest in a real estate mortgage investment conduit is generally
treated as interest on an obligation secured by a mortgage on real property for
purposes of the 75% gross income test. If, however, less than 95% of the assets
of a real estate mortgage investment conduit consist of real estate assets, we
will be treated as receiving directly our proportionate share of the income of
the real estate mortgage investment conduit, which would generally include
non-qualifying income for purposes of the 75% gross income test. In addition, if
we receive interest income with respect to a mortgage loan that is secured by
both real property and other property and the principal amount of the loan
exceeds the fair market value of the real property on the date the mortgage loan
was made by us, interest income on the loan will be apportioned between the real
property and the other property, which apportionment would cause us to recognize
income that is not qualifying income for purposes of the 75% gross income test.
To the extent interest on a loan is based on the cash proceeds from the sale
or value of property, such income would be treated as gain from the sale of the
secured property, which generally should qualify for purposes of the 75% and 95%
gross income tests.
We inevitably may have some gross income from various sources that fails to
constitute qualifying income for purposes of one or both of the gross income
tests, such as qualified hedging income which would constitute qualifying income
for purposes of the 95% gross income test, but not the 75% gross income test.
However, we intend to maintain our REIT status by carefully monitoring any such
potential nonqualifying income.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any year, we may still qualify as a REIT if we are entitled to relief under the
Code. Generally, we may be entitled to relief if:
- the failure to meet the gross income tests was due to reasonable cause and
not due to willful neglect;
- a schedule of the sources of our income is attached to our federal income
tax return; and
- any incorrect information on the schedule was not due to fraud with the
intent to evade tax.
It is not possible to state whether in all circumstances we would be
entitled to rely on these relief provisions. If these relief provisions do not
apply to a particular set of circumstances, we would fail to qualify as a REIT.
As discussed above in "-- Taxation of Our Company as a REIT -- General," even if
these relief provisions apply and we retain our status as a REIT, a tax would be
imposed with respect to our income that does not meet the gross income tests. We
may not always be able to maintain compliance with the gross income tests for
REIT qualification despite periodically monitoring our income.
FORECLOSURE PROPERTY. REITs generally are subject to tax at the maximum
corporate rate on any income from foreclosure property (other than income that
would be qualifying income for purposes of the 75% gross income test), less
deductible expenses directly connected with the production of such income.
"Foreclosure property" is defined as any real property (including interests in
real property) and any personal property incident to such real property:
- that is acquired by a REIT as the result of such REIT having bid on such
property at foreclosure, or having otherwise reduced such property to
ownership or possession by agreement or process of law, after there was a
default (or default was imminent) on a lease of such property or on an
indebtedness owed to the REIT that such property secured;
- for which the related loan was acquired by the REIT at a time when default
was not imminent or anticipated; and
- for which the REIT makes a proper election to treat such property as
foreclosure property.
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We intend to make elections when available to treat property as foreclosure
property to the extent necessary or advisable to maintain REIT qualification.
Property acquired by us will not be eligible for the election to be treated
as foreclosure property if the related loan was acquired by us at a time when
default was imminent or anticipated. In addition, income received with respect
to such ineligible property may not be qualifying income for purposes of the 75%
or 95% gross income tests.
PROHIBITED TRANSACTION INCOME. Any gain realized by us on the sale of any
asset other than foreclosure property, held as inventory or otherwise held
primarily for sale to customers in the ordinary course of business will be
prohibited transaction income and subject to a 100% penalty tax. Prohibited
transaction income may also adversely affect our ability to satisfy the gross
income tests for qualification as a REIT. Whether an asset is held as inventory
or primarily for sale to customers in the ordinary course of a trade or business
depends on all the facts and circumstances surrounding the particular
transaction. While the regulations provide standards which, if met, would not
cause a sale of an asset to result in prohibited transaction income, we may not
be able to meet these standards in all circumstances.
HEDGING TRANSACTIONS. We may enter into hedging transactions with respect
to one or more of our assets or liabilities. Our hedging transactions could take
a variety of forms, including interest rate swaps or cap agreements, options,
futures contracts, forward rate agreements, or similar financial instruments. To
the extent that we enter into hedging transactions to reduce our interest rate
risk on indebtedness incurred to acquire or carry real estate assets, any income
or gain from the disposition of hedging transactions should be qualifying income
for purposes of the 95% gross income test, but not the 75% gross income test.
ASSET TESTS. At the close of each quarter of each calendar year, we also
must satisfy four tests relating to the nature and diversification of our
assets. First, at least 75% of the value of our total assets must be real estate
assets, cash, cash items and government securities. For purposes of this test,
real estate assets include real estate mortgages, real property, interests in
other REITs and stock or debt instruments held for one year or less that are
purchased with the proceeds of a stock offering or a long-term public debt
offering. Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset class.
Third, not more than 20% of the value of our total assets may be represented by
securities in one or more taxable REIT subsidiaries. Fourth, of the investments
included in the 25% asset class and except for investments in REITs, qualified
REIT subsidiaries and taxable REIT subsidiaries, the value of any one issuer's
securities that we hold may not exceed 5% of the value of our total assets, and
we may not own more than 10% of the total vote or value of the outstanding
securities of any one issuer (except in the case of the 10% value test, certain
"straight debt" securities).
We currently own 100% of RCC. RCC elected to be taxed as a REIT for its
taxable year ended December 31, 2001 and jointly elected, together with us, to
be treated as a taxable REIT subsidiary effective as of March 30, 2002. In
January 2003, we, together with RCC, revoked RCC's election to be treated as a
taxable REIT subsidiary. As a result, effective January 2003, RCC became a
qualified REIT subsidiary. We believe that RCC met all of the requirements for
taxation as a REIT with respect to its taxable year ended December 31, 2001 and
as a taxable REIT subsidiary commencing as of March 30, 2002 through
January 2003; however, the sections of the Code that relate to qualification as
a REIT are highly technical and complex and there are certain requirements that
must be met in order for RCC to have qualified as a taxable REIT subsidiary
effective March 30, 2002. Since RCC has been subject to taxation as a REIT or a
taxable REIT subsidiary, as the case may be, at the close of each quarter of our
taxable years beginning with our taxable year ended December 31, 2001, we
believe that our ownership interest in RCC has not caused us to fail to satisfy
the 10% value test. In addition, we believe that we have at all times prior to
October 1, 2002 owned less than 10% of the voting securities
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of RCC. No assurance, however, can be given that RCC in fact qualified as a REIT
for its taxable year ended December 31, 2001 or as a taxable REIT subsidiary as
of March 30, 2002, that the nonvoting preferred stock of RCC owned by us would
not be deemed to be "voting stock" for purposes of the asset tests or, as a
result of any of the foregoing, that we have qualified or will continue to
qualify as a REIT.
After meeting the asset tests at the close of any quarter, we will not lose
our status as a REIT if we fail to satisfy the asset tests at the end of a later
quarter solely by reason of changes in asset values. In addition, if we fail to
satisfy the asset tests because we acquire assets during a quarter, we can cure
this failure by disposing of sufficient nonqualifying assets within 30 days
after the close of that quarter.
Although we plan to take steps to ensure that we satisfy the various asset
tests for any quarter for which testing is to occur, there can be no assurance
that such steps will always be successful. If we fail to timely cure any
noncompliance with these asset tests, we would fail to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS. To qualify as a REIT, we are required to
distribute dividends, other than capital gain dividends, to our stockholders in
an amount at least equal to the sum of (a) 90% of our "REIT taxable income" and
(b) 90% of our after-tax net income, if any, from foreclosure property, minus
(c) the excess of the sum of certain items of non-cash income over 5% of our
"REIT taxable income." In general, "REIT taxable income" means taxable ordinary
income without regard to the dividends paid deduction.
We are generally required to distribute income in the taxable year in which
it is earned, or in the following taxable year if such dividend distributions
are declared during the last three months of the taxable year, payable to
stockholders of record on a specified date during such period and paid during
January of the following year. Such distributions are treated as paid by us and
received by our stockholders on December 31 of the year in which they are
declared. In addition, at our election, a distribution for a taxable year may be
declared before we timely file our tax return and paid on or before our first
regular dividend payment following such declaration, provided such payment is
made during the 12-month period following the close of such taxable year. These
distributions are taxable to holders of capital stock in the year in which paid,
even though these distributions related to our prior year for purposes of our
90% distribution requirement. To the extent that we do not distribute all of our
net capital gain or distribute at least 90%, but less than 100% of our "REIT
taxable income," we will be subject to tax at regular corporate tax rates.
From time to time, we may not have sufficient cash or other liquid assets to
meet the above distribution requirement due to timing differences between the
actual receipt of cash and payment of expenses and the inclusion of income and
deduction of expenses in arriving at our taxable income. If these timing
differences occur, in order to meet the REIT distribution requirements, we may
need to arrange for short-term, or possibly long-term, borrowings, or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet a
distribution requirement for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being subject
to tax on amounts distributed as deficiency dividends. We will be required,
however, to pay interest based upon the amount of any deduction claimed for
deficiency dividends. In addition, we will be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually distributed if we
should fail to distribute each year at least the sum of 85% of our ordinary
income for the year, 95% of our capital gain net income for the year and any
undistributed taxable income from prior periods.
RECORDKEEPING REQUIREMENTS. We are required to maintain records and request
on an annual basis information from specified stockholders. These requirements
are designed to assist in determining the actual ownership of our outstanding
stock and maintaining our qualification as a REIT.
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EXCESS INCLUSION INCOME. If we are deemed to have issued debt obligations
having two or more maturities, the payments on which correspond to payments on
mortgage loans owned by us, such arrangement will be treated as a "taxable
mortgage pool" for federal income tax purposes. If all or a portion of our
Company is considered a taxable mortgage pool, our status as a REIT generally
should not be impaired; however, a portion of our taxable income may be
characterized as "excess inclusion income" and allocated to our stockholders.
Any excess inclusion income:
- could not be offset by unrelated net operating losses of a stockholder;
- would be subject to tax as "unrelated business taxable income" to a
tax-exempt stockholder;
- would be subject to the application of federal income tax withholding
(without reduction pursuant to any otherwise applicable income tax treaty)
with respect to amounts allocable to Non-U.S. stockholders; and
- would be taxable (at the highest corporate tax rate) to us, rather than
our stockholders, to the extent allocable to our stock held by
disqualified organizations (generally, tax-exempt entities not subject to
unrelated business income tax, including governmental organizations).
FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and the relief provisions of the Code described above do not apply,
we will be subject to tax, including any applicable alternative minimum tax, and
possibly increased state and local taxes, on our taxable income at regular
corporate rates. Such taxation would reduce the cash available for distribution
by us to our stockholders. Distributions to our stockholders in any year in
which we fail to qualify as a REIT will not be deductible by us and we will not
be required to distribute any amounts to our stockholders. Additionally, if we
fail to qualify as a REIT, distributions to our stockholders will be subject to
tax to the extent of our current and accumulated earnings and profits and,
subject to certain limitations of the Code, corporate stockholders may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, we would also be disqualified from taxation as a
REIT for the four taxable years following the year during which we lost our
qualification. It is not possible to state whether in all circumstances we would
be entitled to statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
When using the term "U.S. stockholders," we mean a beneficial owner of
shares of our common stock who is, for U.S. federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or other entity treated as a corporation for U.S. federal
income tax purposes created or organized in or under the laws of the
United States or of any state thereof or in the District of Columbia,
unless regulations provide otherwise;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
If a partnership holds shares of our capital stock, the tax treatment of a
partner in the partnership will generally depend upon the status of the partner
and the activities of the partnership. If you are a partner of a partnership
holding shares of our capital stock, you should consult with your tax advisor
regarding the consequences of the ownership and disposition of shares of our
capital stock.
DISTRIBUTIONS GENERALLY. Distributions out of our current or accumulated
earnings and profits, other than capital gain dividends, will be taxable to U.S.
stockholders as ordinary income. For this purpose, our earnings and profits will
be allocated first to our outstanding preferred stock and then to
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our outstanding common stock. Provided we qualify as a REIT, dividends paid by
us will not be eligible for the dividends received deduction generally available
to U.S. stockholders that are corporations.
Under recently enacted legislation, certain dividends paid by us to
individual stockholders out of our current or accumulated earnings and profits
may be taxable at the lower capital gains tax rates. See "--Recent Legislation"
below.
To the extent that we make distributions in excess of our current and
accumulated earnings and profits, these distributions will be treated as a
tax-free return of capital to each U.S. stockholder, and will reduce the
adjusted tax basis which each U.S. stockholder has in its shares of our capital
stock by the amount of the distribution, but not below zero. Return of capital
distributions in excess of a U.S. stockholder's adjusted tax basis in our
capital stock will be taxable as capital gain, provided that the shares have
been held as capital assets, and will be taxable as long-term capital gain if
the shares have been held for more than one year. Dividends declared in October,
November or December of any year and paid to a stockholder of record on a
specified date in any of those months will be treated as both paid by us and
received by the stockholder on December 31 of that year, provided that the
dividend is actually paid in January of the following year. Stockholders may not
include on their own income tax returns any of our net operating losses or
capital losses.
CAPITAL GAIN DISTRIBUTIONS. Distributions designated as net capital gain
dividends will be taxable to U.S. stockholders as capital gain income. Such
capital gain income will be taxable to non-corporate U.S. stockholders at a
maximum 15% or 25% rate based on the characteristics of the asset sold that
produced the gain. U.S. stockholders that are corporations may be required to
treat up to 20% of certain capital gain dividends as ordinary income.
RETENTION OF NET CAPITAL GAINS. We may elect to retain, rather than
distribute as a capital gain dividend, all or a portion of our net capital
gains. If this election is made, we would pay tax on such retained capital
gains. In such a case, U.S. stockholders would generally:
- include their proportionate share of the undistributed net capital gains
in their taxable income;
- receive a credit for their proportionate share of the tax paid by us with
respect to such retained capital gains; and
- increase the adjusted basis of their stock by the difference between the
amount of their capital gain and their share of the tax paid by us.
PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS. Distributions
made by us and gain arising from the sale or exchange by a U.S. stockholder of
common stock will not be treated as passive activity income. As a result, U.S.
stockholders will not be able to apply any "passive losses" against income or
gain relating to our capital stock. Distributions made by us, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment interest limitation.
DISPOSITIONS OF STOCK. If you are a U.S. stockholder and you sell or
dispose of your shares of our capital stock, you will recognize gain or loss for
federal income tax purposes in an amount equal to the difference between the
amount of cash and the fair market value of any property you receive on the sale
or other disposition and your adjusted tax basis in the shares of our capital
stock. This gain or loss will be capital gain or loss if you have held the stock
as a capital asset and will be long-term capital gain or loss if you have held
the stock for more than one year. In general, if you are a U.S. stockholder and
you recognize loss upon the sale or other disposition of stock that you have
held for six months or less, the loss you recognize will be treated as a
long-term capital loss to the extent you received distributions from us which
were required to be treated as long-term capital gains.
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BACKUP WITHHOLDING. We will report to our U.S. stockholders and the IRS the
amount of dividends paid during each calendar year and the amount of any tax
withheld. Under the backup withholding rules, a U.S. stockholder may be subject
to backup withholding with respect to dividends paid unless the holder is a
corporation or comes within other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification number or social
security number, certifies as to no loss of exemption from backup withholding,
and otherwise complies with applicable requirements of the backup withholding
rules. A U.S. stockholder that does not provide his or her correct taxpayer
identification number or social security number may also be subject to penalties
imposed by the IRS. Backup withholding is not an additional tax. Any amount paid
as backup withholding will be creditable against the U.S. stockholder's income
tax liability. In addition, we may be required to withhold a portion of capital
gain distributions to any U.S. stockholders who fail to certify their
non-foreign status.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a REIT do not
constitute unrelated business taxable income when received by a tax-exempt
entity. Based on that ruling, provided that a tax-exempt U.S. stockholder has
not held its shares of capital stock as "debt financed property" within the
meaning of the Code, the shares are not otherwise used in an unrelated trade or
business and the REIT has not incurred any "excess inclusion income," as
described above, dividend income on such shares and income from the sale of such
shares should not be unrelated business taxable income to a tax-exempt U.S.
stockholder. Generally, debt financed property is property the acquisition or
holding of which was financed through a borrowing by the tax-exempt U.S.
stockholder.
For tax-exempt U.S. stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in our shares will constitute unrelated business taxable income
unless the organization is able to claim properly a deduction for amounts set
aside or placed in reserve for certain purposes so as to offset the income
generated by its investment in our shares. These prospective investors should
consult their tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" may be treated as unrelated business taxable income as to
any pension trust which:
- is described in Section 401(a) of the Code;
- is tax-exempt under Section 501(a) of the Code; and
- holds more than 10%, by value, of the interests in the REIT.
Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
A REIT is a "pension-held REIT" if:
- it would not have qualified as a REIT but for the fact that
Section 856(h)(3) of the Code provides that stock owned by a qualified
trust is treated, for purposes of the 5/50 Rule, as owned by the
beneficiaries of the trust, rather than by the trust itself; and
- either at least one qualified trust holds more than 25%, by value, of the
interests in the REIT, or one or more qualified trusts, each of which owns
more than 10%, by value, of the interests in the REIT, holds in the
aggregate more than 50%, by value, of the interests in the REIT.
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The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:
- the unrelated business taxable income earned by the REIT, treating the
REIT as if it were a qualified trust and therefore subject to tax on
unrelated business taxable income, to
- the total gross income of the REIT.
If, for any year, this percentage is less than 5%, no portion of REIT
dividends will be subject to tax as unrelated business income as a result of the
REIT being classified as a "pension-held REIT." As a result of the limitations
on the transfer and ownership of stock contained in our articles of
incorporation, we do not expect to be classified as a "pension-held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing federal income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders (or Non-U.S. stockholders) are complex and no attempt will be made
herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS TO
DETERMINE THE IMPACT OF FOREIGN, FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH
REGARD TO THE ACQUISITION AND HOLDING OF SHARES OF OUR CAPITAL STOCK AND OF OUR
ELECTING TO BE TAXED AS A REIT, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. stockholders that are not attributable to gain
from sales or exchanges by us of U.S. real property interests and are not
designated as capital gain dividends or retained capital gains will be treated
as dividends of ordinary income to the extent that they are made out of our
current or accumulated earnings and profits. Such distributions will generally
be subject to a withholding tax equal to 30% of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However, if income from an
investment in our capital stock is treated as effectively connected with the
Non-U.S. stockholder's conduct of a U.S. trade or business, the Non-U.S.
stockholder generally will be subject to federal income tax at graduated rates,
in the same manner as U.S. stockholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits tax in the case
of a Non-U.S. stockholder that is a corporation). We expect to withhold U.S.
income tax at the rate of 30% on the gross amount of any distributions made to a
Non-U.S. stockholder unless (a) a lower treaty rate applies and any required
form, such as IRS Form W-8BEN, evidencing eligibility for that reduced rate is
filed by the Non-U.S. stockholder with us or (b) the Non-U.S. stockholder files
an IRS Form W-8ECI with us claiming that the distribution is effectively
connected income.
Any portion of the dividends paid to Non-U.S. stockholders that is treated
as excess inclusion income from a real estate mortgage investment conduit will
not be eligible for exemption from the 30% withholding tax or a reduced treaty
rate. In addition, if Treasury regulations are issued allocating our excess
inclusion income from non-real estate mortgage investment conduits among our
stockholders, some percentage of our dividends would not be eligible for
exemption from the 30% withholding tax or a reduced treaty withholding tax rate
in the hands of Non-U.S. stockholders.
Distributions by us in excess of our current and accumulated earnings and
profits will not be taxable to a Non-U.S. stockholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's common
stock, but rather will reduce the adjusted basis of such stock. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. stockholder's common stock, such
distributions will give rise to tax liability if the Non-U.S. stockholder would
otherwise be subject to tax on any gain from the sale or disposition of its
stock, as described below. Because it generally cannot be determined at the time
a distribution is made whether or not such distribution will be in excess of our
current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
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dividend. However, amounts so withheld are refundable to the extent it is
subsequently determined that such distribution was, in fact, in excess of our
current and accumulated earnings and profits. We also may be required to
withhold 10% of any distribution in excess of our current and accumulated
earnings and profits. Consequently, although we intend to withhold at a rate of
30% on the entire amount of any distribution, to the extent that we do not do
so, any portion of a distribution not subject to withholding at a rate of 30%
may be subject to withholding at a rate of 10%.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of a U.S. real property interest,
which includes certain interests in real property, but generally does not
include mortgage loans, will be taxed to a Non-U.S. stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980 (or
FIRPTA). We hold both assets that constitute U.S. real property interests and
assets that do not. To the extent our assets do not constitute U.S. real
property interests, distributions by us from the sales of such assets should not
be subject to tax under the FIRPTA rules. Under FIRPTA, distributions
attributable to gain from sales of U.S. real property interests are taxed to a
Non-U.S. stockholder as if such gain were effectively connected with a U.S.
trade or business of such stockholder. Non-U.S. stockholders thus would be taxed
at the normal capital gain rates applicable to U.S. stockholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions subject to FIRPTA also may
be subject to the 30% branch profits tax in the hands of a Non-U.S. stockholder
that is a corporation. We are required to withhold 35% of any distribution that
could be designated by us as a capital gains dividend, even if such
distributions are not from the sale by us of U.S. real property interests, and,
therefore, not subject to tax under FIRPTA. The amount withheld is creditable
against the Non-U.S. stockholder's FIRPTA tax liability and, to the extent it
exceeds such Non-U.S. stockholder's tax liability, will be refundable.
Gain recognized by a Non-U.S. stockholder upon a sale of capital stock
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT," which is a REIT in which at all times during a specified testing period
less than 50% in value of the stock was held directly or indirectly by non-U.S.
persons. Although we currently believe that we are a "domestically controlled
REIT," because our capital stock is publicly traded, no assurance can be given
that we will remain a "domestically controlled REIT." Even if we do not qualify
as a "domestically controlled REIT," an alternative exemption to tax under
FIRPTA might be available if either (a) we are not (and have not been for the
five year period prior to the sale) a U.S. real property holding corporation (as
defined in the Code and applicable Treasury Regulations to generally include a
corporation, 50% or more of the assets of which consist of U.S. real property
interests) or (b) the selling Non-U.S. stockholder owns, actually or
constructively, 5% or less of our stock throughout a specified testing period
and our shares are regularly traded (as defined in applicable Treasury
Regulations) on an established securities market.
Gain not subject to FIRPTA will be taxable to a Non-U.S. stockholder if
(a) the Non-U.S. stockholder's investment in the stock is effectively connected
with a U.S. trade or business, in which case the Non-U.S. stockholder will be
subject to the same treatment as U.S. stockholders with respect to such gain or
(b) the Non-U.S. stockholder is a nonresident alien individual who was present
in the U.S. for 183 days or more during the taxable year and other conditions
are met, in which case the nonresident alien individual will be subject to a 30%
tax on the individual's capital gains. If the gain on the sale of the common
stock were to be subject to taxation under FIRPTA, the Non-U.S. stockholder
would be subject to the same treatment as U.S. stockholders with respect to such
gain (subject to applicable alternative minimum tax, a special alternative
minimum tax in the case of nonresident alien individuals and the possible
application of the 30% branch profits tax in the case of non-U.S. corporations).
33
STATE, LOCAL AND FOREIGN TAXATION
We may be required to pay state, local and foreign taxes in various state,
local and foreign jurisdictions, including those in which we transact business
or make investments, and our stockholders may be required to pay state, local
and foreign taxes in various state, local and foreign jurisdictions, including
those in which they reside. Our state, local and foreign tax treatment may not
conform to the federal income tax consequences summarized above. In addition,
your state, local and foreign tax treatment may not conform to the federal
income tax consequences summarized above. Consequently, you should consult your
tax advisor regarding the effect of state, local and foreign tax laws on the
holding of our capital stock.
RECENT LEGISLATION
On May 28, 2003, the President signed into law a bill, (or the Bill), that
provides for the taxation of "qualified dividend income" at capital gains rates,
the maximum such rate which, in the case of individuals, was reduced to 15%
under the Bill. "Qualifying dividend income" generally includes dividends
received from domestic corporations and from certain "qualified foreign
corporations." Additionally, qualified dividend income will qualify as "net
investment income" under Section 163(d)(4) of the Code only to the extent that
an election to treat it as such is made.
Under the Bill, dividends (other than capital gain dividends) received from
a REIT are only subject to the lower capital gains rates to the extent the REIT
has "qualifying dividend income" for the taxable year in which the dividend was
paid, and designates such dividends as qualifying for such capital gains rate
tax treatment. "Qualifying dividend income" of a REIT, for this purpose,
includes the sum of (i) the excess of the REIT's "real estate investment trust
taxable income" for the preceding year, over the tax payable by the REIT on such
income, and (ii) the excess of the income of the REIT subject to the built-in
gain tax (under the regulation under Section 337(d) of the Code), over the tax
payable by the REIT on any such income.
The provisions in the Bill relating to the taxation of dividends are
generally effective for taxable years beginning after December 31, 2002, and, in
the case of a REIT, which respect to taxable years ending after December 31,
2002; and the provisions relating to the lowering of the capital gains tax rate
are generally effective for taxable years ending after May 6, 2003. The
provisions of the Bill shall cease to apply to taxable years beginning after
December 31, 2008.
REITs are tax-advantaged relative to regular C corporations because they are
not subject to corporate-level federal income tax on income that they distribute
to stockholders. The Bill could decrease this tax advantage of a REIT relative
to a regular C corporation, because, under the Bill, part or all of the
dividends received by a stockholder from the regular C corporation may be
subject to a reduced level of federal income tax. It is not possible to predict
what effect the Bill may have on the value of REIT shares.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the tax law, which may have retroactive
application, could adversely affect us and our stockholders. It cannot be
predicted whether, when, in what forms or with what effective dates, the tax law
applicable to us or our stockholders will be changed.
34
PLAN OF DISTRIBUTION
In connection with the administration of the Plan, we may be requested to
approve investments made pursuant to requests for waiver by or on behalf of
participants or other investors who may be engaged in the securities business.
Persons who acquire shares of our common stock through the Plan and resell
them shortly after acquiring them, including coverage of short positions, under
certain circumstances, may be participating in a distribution of securities that
would require compliance with Regulation M under the Exchange Act and may be
considered to be underwriters within the meaning of the Securities Act. We will
not extend to any such person any rights or privileges other than those to which
they would be entitled as a participant, nor will we enter into any agreement
with any such person regarding the resale or distribution by any such person of
the shares of our common stock so purchased. We may, however, accept investments
made pursuant to requests for waiver in connection with Large Cash Purchases by
such persons.
From time to time, financial intermediaries, including brokers and dealers,
and other persons may engage in positioning transactions in order to benefit
from any waiver discounts applicable to investments made pursuant to requests
for waiver for Large Cash Purchases under the Plan. Those transactions may cause
fluctuations in the trading volume of our common stock. Financial intermediaries
and such other persons who engage in positioning transactions may be deemed to
be underwriters. We have no arrangements or understandings, formal or informal,
with any person relating to the sale of shares of our common stock to be
received under the Plan. We reserve the right to modify, suspend or terminate
participation in the Plan by otherwise eligible persons to eliminate practices
that are inconsistent with the purpose of the Plan.
Our common stock may not be available under the Plan in all states or
jurisdictions. We are not making an offer to sell our common stock in any
jurisdiction where the offer or sale is not permitted.
35
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 2002, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent auditors, given on the authority of said firm as experts in auditing
and accounting.
LEGAL MATTERS
The validity of the common stock offered by this prospectus is being passed
upon for us by Clifford Chance US LLP, New York, New York. The opinion of
counsel described under "Federal Income Tax Considerations" is being rendered by
Clifford Chance US LLP, which opinion is subject to various assumptions and is
based on current tax law. Alan L. Gosule, a partner at Clifford Chance US LLP,
is a member of our board of directors and owns 2,586 shares of our common stock.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy the materials we file at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room. Our SEC filings are also available to the public
on the internet from the SEC's web site at WWW.SEC.GOV. This site contains
reports, proxy statements and other information regarding issuers that file
electronically with the SEC. Our common stock is listed on the NYSE under the
symbol "MFA" and all 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 SEC rules, this prospectus
does not include all of the information contained in the registration statement
and the exhibits, financial statements and schedules thereto. We refer you to
the registration statement, and the exhibits, financial statements and schedules
thereto, for further information. This prospectus is qualified in its entirety
by such other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means:
- incorporated documents are considered part of this prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede the information in this prospectus and any information that was
previously incorporated in this prospectus.
We filed the following documents with the SEC (File No. 1-13991) under the
Exchange Act and incorporate them by reference into this prospectus:
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2002;
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2003;
- Our Current Reports on Form 8-K filed with the SEC on March 11, 2003,
March 19, 2003, April 28, 2003 and May 1, 2003;
- Our definitive Proxy Statement filed with the SEC on April 8, 2003; and
36
- The description of our common stock contained in our registration
statement on Form 8-A filed on March 26, 1998, including all amendments
and reports filed for the purpose of updating such description.
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 into 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 into this prospectus and to be part hereof from the
date of filing those documents.
Any statement contained in this prospectus or in any document incorporated,
or deemed to be incorporated, by reference into this prospectus shall be deemed
to be modified or superseded for purposes of this prospectus to the extent that
a statement contained in this prospectus or in any subsequently filed document
that also is or is deemed to be incorporated by reference into this prospectus
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus and the related registration statement. Nothing in this
prospectus shall be deemed to incorporate information furnished by us but not
filed with the SEC pursuant to Item 9 of Form 8-K.
You can obtain any of our filings incorporated by reference into this
prospectus from us or from the SEC on the SEC's website at the address listed
above. We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request, a copy of these filings or portions of
these filings by writing or telephoning:
Mr. William S. Gorin
MFA Mortgage Investments, Inc.
350 Park Avenue, 21st Floor
New York, New York 10022
(212) 207-6400
37
APPENDIX I
SCHEDULE OF LARGE CASH PURCHASES
THRESHOLD PRICE
AND WAIVER OPTIONAL CASH
DISCOUNT, IF ANY, INVESTMENTS MUST BE PRICING PERIOD PRICING PERIOD
YEAR WILL BE SET BY RECEIVED BY START DATE CONCLUSION DATE
- --------------------- ------------------- ------------------- ------------------- -------------------
2003 August 13 August 15 August 18 August 29
September 12 September 16 September 17 September 30
October 15 October 17 October 20 October 31
November 11 November 13 November 14 November 28
December 12 December 16 December 17 December 31
2004 January 13 January 15 January 16 January 30
February 10 February 12 February 13 February 27
March 15 March 17 March 18 March 31
April 14 April 16 April 19 April 30
May 12 May 14 May 17 May 28
June 14 June 16 June 17 June 30
July 14 July 16 July 19 July 30
August 13 August 17 August 18 August 31
September 14 September 16 September 17 September 30
October 13 October 15 October 18 October 29
November 11 November 15 November 16 November 30
December 14 December 16 December 17 December 31
PRICING PERIODS ARE AT THE DISCRETION OF MFA MORTGAGE INVESTMENTS, INC.
INVESTORS SHOULD NOT RELY SOLELY ON THE ABOVE SCHEDULE AS PRICING PERIODS AND
INVESTMENT DATES MAY VARY. MFA MORTGAGE INVESTMENTS, INC. MAY, AT ANY TIME OR
FROM TIME TO TIME, ALTER OR AMEND THE INFORMATION SET FORTH IN THE ABOVE
SCHEDULE OR SUPPLEMENT SUCH INFORMATION WITH ADDITIONAL PRICING PERIODS AFTER
2004. FOR MORE INFORMATION, PLEASE CONTACT THE PLAN ADMINISTRATOR AT
(917) 320-6300.
A-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the registrant in
connection with the offerings described in this registration statement. All such
expenses other than the SEC registration fee are estimates.
SEC registration fee........................................ $ 2,487
Legal fees and expenses(1).................................. 50,000
Accounting fees and expenses(1)............................. 15,000
Printing(1)................................................. 100,000
Miscellaneous(1)............................................ 5,000
--------
Total..................................................... $172,487
- ------------------------
(1) Estimated
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by the MGCL, Article Eighth, Paragraph (a)(5) of our Amended
and Restated Articles of Incorporation provides for indemnification of our
directors and officers of the Registrant, as follows:
We may provide any indemnification permitted by the general laws of Maryland
and shall indemnify current and former directors, officers, agents and
employees as follows: (A) the Corporation shall indemnify its directors and
officers, whether serving the Corporation, or at its request, any other
entity, to the full extent required or permitted by the general laws of the
State of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law and
(B) the Corporation shall indemnify other employees and agents, whether
serving the Corporation or at its request any other entity, to such extent
as shall be authorized by the board of directors or the Corporation's Bylaws
and be permitted by law. The foregoing rights of indemnification shall not
be exclusive of any other rights to which those seeking indemnification may
be entitled. The board of directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to
adopt, approve and amend from time to time such Bylaws, resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law. No amendment of the Charter of the
Corporation or repeal of any of its provisions shall limit or eliminate the
right to indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal or shall limit or
eliminate the rights granted under indemnification agreements entered into
by the Corporation and its directors, officers, agents and employees.
Our Bylaws contain indemnification procedures that implement those of our
Articles of Incorporation. The MGCL permits a corporation to indemnify its
directors and officers, among others, 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 (a) the act or omission
of the director or officer was material to the matter giving rise to such
proceeding and was (i) committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services, or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the action or omission was unlawful.
II-1
As permitted by the MGCL, Article Eighth, Paragraph (a)(6) of our
Registrant's Articles of Incorporation provides for limitation of liability of
our directors and officers of the Registrant as follows:
To the fullest extent permitted by Maryland statutory or decisional law, as
amended or interpreted, no current and former director or officer of the
Corporation shall be personally liable to the Corporation or its
stockholders for money damages. No amendment of the Charter of the
Corporation or repeal of any of its provisions shall limit or eliminate the
benefits provided to directors and officers under this provision with
respect to any act or omission which occurred prior to such amendment or
repeal.
The MGCL 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) the person actually received an improper benefit or profit in money,
property or services 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.
As permitted under Section 2-418(k) of the MGCL, we have purchased and
maintain insurance on behalf of our directors and officers against any liability
asserted against such directors and officers in their capacities as such.
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION
------- ------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the
registrant (incorporated herein by reference to Form 8-K,
dated April 10, 1998, filed by the registrant pursuant to
the Securities Exchange Act of 1934 (Commission File No.
1-13991)).
3.2 Articles of Amendment to the Amended and Restated Articles
of Incorporation of the registrant, dated August 6, 2002
(incorporated herein by reference to Form 8-K, dated August
13, 2002, filed by the registrant pursuant to the Securities
Exchange Act of 1934 (Commission File No. 1-13991)).
3.3 Articles of Amendment to the Amended and Restated Articles
of Incorporation of the registrant, dated August 16, 2002
(incorporated herein by reference to Exhibit 3.3 of the Form
10-Q, dated September 30, 2002, filed by the registrant
pursuant to the Securities Exchange Act of 1934 (Commission
File No. 1-13991)).
3.4 Amended and Restated Bylaws of the registrant (incorporated
herein by reference to the Form 8-K, dated August 13, 2002,
filed by the registrant pursuant to the Securities Exchange
Act of 1934 (Commission File No. 1-13991)).
4.1 Specimen of Common Stock Certificate of Registrant
(incorporated herein by reference to Exhibit 4.1 of the
Registration Statement on Form S-4 dated February 12, 1998,
filed by the Registrant pursuant to the Securities Act of
1933 (SEC File No. 333-46179)).
5.1 Opinion of Clifford Chance US LLP.
8.1 Opinion of Clifford Chance US LLP as to tax matters.
23.1 Consent of Clifford Chance US LLP (included in Exhibits 5.1
and 8.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney.*
- ------------------------
* previously filed
II-2
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;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement; notwithstanding the foregoing, any increase
or decrease in 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
SEC 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; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however that paragraphs (a)(1)(i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the registrant pursuant
to Section 13 or 15(d) of the Exchange Act that are incorporated by reference in
this registration statement.
(2) That, for the purposes of determining any liability under the
Securities Act, 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 offered 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, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this 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) 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 policy as expressed in the Securities 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 the controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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
Post-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York, New York, on
the 15th day of July 2003.
MFA MORTGAGE INVESTMENTS, INC.
By: /s/ STEWART ZIMMERMAN
------------------------------------------
Stewart Zimmerman, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Date: July 15, 2003 By: /s/ STEWART ZIMMERMAN
------------------------------------------------
Stewart Zimmerman, Chairman of the Board, Chief
Executive Officer and President
Date: July 15, 2003 By: /s/ WILLIAM S. GORIN
------------------------------------------------
William S. Gorin, Chief Financial Officer
Date: July 15, 2003 By:
------------------------------------------------
Stephen R. Blank, Director
Date: July 15, 2003 By: /s/ MICHAEL L. DAHIR*
------------------------------------------------
Michael L. Dahir, Director
Date: July 15, 2003 By: /s/ ALAN GOSULE
------------------------------------------------
Alan Gosule, Director
Date: July 15, 2003 By: /s/ GEORGE H. KRAUSS*
------------------------------------------------
George H. Krauss, Director
Date: July 15, 2003 By: /s/ W. DAVID SCOTT*
------------------------------------------------
W. David Scott, Director
* By Stewart Zimmerman
Attorney-in-fact
/s/ STEWART ZIMMERMAN
------------------------
Stewart Zimmerman
II-4