As filed with the Securities and Exchange Commission on December 3, 2003
Commission File No.: 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MFA MORTGAGE INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
350 Park Avenue, 21st Floor
Maryland New York, New York 10022 13-3974868
(State or other jurisdiction of (212) 207-6400 (I.R.S. Employer
incorporation or organization) (Address, including zip code, and telephone Identification No.)
number, including area code, of registrant's
principal executive offices)
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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, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Timothy W. Korth, Esq. Jay L. Bernstein, Esq.
MFA Mortgage Investments, Inc. Clifford Chance US LLP
350 Park Avenue 200 Park Avenue
21st Floor New York, New York 10166
New York, New York 10022 Tel: (212) 878-8000
Tel: (212) 207-6400 Fax: (212) 878-8375
Fax: (212) 207-6420
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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities Registered Offering Aggregate Registration
to be Registered Price Per Share (1) Offering Price (1) Fee (2)
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Common stock, par value $.01
per share....................... 9,130,706 $9.73 $88,841,770 $7,188.00
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(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933, as amended. Estimate based on the high and low prices of the
registrant's common stock as reported on the New York Stock Exchange on
November 28, 2003 pursuant to Rule 457(c) under the Securities Act of 1933,
as amended.
(2) The prospectus forming a part of this registration statement, as such
prospectus may be amended or supplemented from time to time (or the
Prospectus), shall be deemed to relate to 9,130,706 shares of common stock
being registered pursuant to this registration statement and, pursuant to
Rule 429 under the Securities Act of 1933, as amended, to 869,294 shares of
common stock registered and issuable by the registrant pursuant to the
registration statement on Form S-3, registration no. 333-83620 (or the
Prior Registration Statement). The amount of filing fees associated with
the common stock registered pursuant to the Prior Registration Statement
(calculated at the fee in effect at the time of filing of the Prior
Registration Statement) is approximately $721.00.
Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectus constituting a part of this registration statement is a combined
prospectus and relates to securities of MFA Mortgage Investments, Inc.
registered pursuant to a registration statement on Form S-3 (registration no.
333-83620).
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 pursuant to said Section 8(a),
may determine.
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Subject To Completion
Preliminary Prospectus, Dated December 3, 2003
PROSPECTUS [LOGO]
MFA MORTGAGE INVESTMENTS, INC.
Discount Waiver, Direct Stock Purchase And Dividend Reinvestment Plan
Our Discount Waiver, Direct Stock Purchase and Dividend Reinvestment
Plan (or the Plan) provides new 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 (or $1,000 for new investors) 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:
o Any registered holder of our common stock may elect to participate in
the Plan.
o Interested new investors who are not currently holders of our common
stock may make their initial purchase through the Plan.
o Up to a 5% discount on shares of our common stock purchased under the
Plan.
o Full or partial dividend reinvestment options.
o Optional cash purchases of between $50 (or $1,000 for new investors)
and $10,000 per month and, with our prior approval, optional cash
purchases in excess of $10,000 per month.
o Available certificate safekeeping in book-entry form at no charge to
you.
o Detailed recordkeeping and reporting will be provided at no charge to
you.
o Optional automatic investment withdrawals from your bank account.
This prospectus relates to the offer and sale of up to 10,000,000
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 described in "Risk Factors" beginning on page
17 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 December ___, 2003
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and we are not soliciting an offer to buy these
securities, in any jurisdiction where the offer or sale is not permitted.
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...............................................................17
Federal Income Tax Considerations..........................................23
Plan of Distribution.......................................................37
Experts ..................................................................37
Legal Matters..............................................................38
Where You Can Find More Information........................................38
Incorporation of Certain Documents by Reference............................38
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:
o changes in the prepayment rates on the mortgage loans securing our
mortgage-backed securities;
o changes in short-term interest rates and the estimated fair value of
our mortgage-backed securities;
o our ability to use borrowings to finance our assets;
o changes in government regulations affecting our business;
o our ability to maintain our qualification as a real estate investment
trust (or a REIT) for federal income tax purposes; and
o 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, quarterly reports on Form 10-Q and current reports
on Form 8-K, 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.
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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 entireties. 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 are primarily engaged in the business of investing, on a leveraged
basis, in adjustable-rate mortgage-backed securities (or MBS), that we acquire
in the secondary market. Our assets consist primarily of adjustable-rate MBS
issued or guaranteed as to principal or interest by an agency of the U.S.
government, such as the Government National Mortgage Association (or Ginnie
Mae), or a federally chartered corporation, such as Fannie Mae or the Federal
Home Loan Mortgage Corporation (or Freddie Mac), high quality MBS rated "AAA" by
at least one nationally recognized rating agency and cash. We also own indirect
interests in multifamily apartment properties.
Investment Strategy
The MBS 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 MBS that are either issued
or guaranteed as to principal or interest by an agency of the U.S. government,
such as Ginnie Mae, or a federally chartered corporation, such as Fannie Mae or
Freddie Mac, 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 MBS
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 MBS are "hybrids," which have a fixed interest rate for a
specified period (generally three to five years) and, thereafter, typically
convert into a one-year adjustable interest rate for the remaining loan term.
The maximum adjustment, in any year, of the adjustable-rate mortgage loans
securing our MBS is usually limited to 1% to 2%. Generally, adjustable-rate
mortgage loans have a lifetime limit on interest rate increases of 5% to 6% over
the initial interest rate. We may also invest in mortgage loans and MBS that are
not guaranteed by a federal agency or corporation and/or that have fixed
interest rates.
Financing Strategy
We finance the acquisition of our MBS 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 estimated fair value of
the pledged collateral. We retain beneficial ownership of the pledged
collateral. 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
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the consent of the lender, we may 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 estimated fair 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 elsewhere or be in a position to satisfy these
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 estimated fair value of the collateral
pledged to such lender. To reduce our exposure, we enter into repurchase
agreements only with 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 a 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 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.
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 qualification 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."
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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, without limitation, the acquisition of additional MBS
consistent with our investment policy and the repayment of our repurchase
agreements. 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.
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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."
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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 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.
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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(R) 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 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.
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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 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 dividend reinvestment options?
Yes. You may change your dividend reinvestment 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.
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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, as
determined by us from time to time, 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, as determined by us from time to time, ranging from 0% to 5% from
the prevailing market price, which will be paid by us. 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.
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.
There are special rules for cash purchases of more than $10,000 per month
(see Question 17).
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.
8
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(R) 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(R) 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.
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.
9
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 (or as
otherwise indicated by the Plan Administrator). 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 the purchase price paid for shares of
our common stock during the Pricing Period be less than 95% of the average of
the high and low sale prices of our common stock on the date such shares are
acquired.
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 a particular Pricing Period. For example, we may determine, at any time or
from time to time, to alter the commencement date, ending date and duration of,
and other relevant dates relating to, any particular Pricing Period for one or
more participants in the Plan or new investors. For more information please
contact the Plan Administrator at (917) 320-6300.
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 (or such other
applicable percentage if the Pricing Period is less than ten investment dates)
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
10
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.
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
11
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.
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
12
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 or specific 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(R) 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 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.
13
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 altered, amended or supplemented by us in whole or in
part 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.
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.
14
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.
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.
15
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 website
at www.mfa-reit.com.
16
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 MBS may adversely affect
our profitability.
The MBS 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 MBS 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
quarter ended September 30, 2003, the prepayment rate on our portfolio of MBS
averaged an annualized 41.2% constant prepayment rate.
We often purchase MBS 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 MBS at an average portfolio purchase price of up to 103.5% of par value.
As of September 30, 2003, the average cost of our portfolio of MBS was
approximately 102.3% of par value.
As the holder of MBS, 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 MBS 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
MBS may adversely affect our profitability.
We earn money based upon the spread between the interest we receive on our
MBS, net of amortization of purchase premiums, and the interest we pay on our
borrowings. We rely primarily on short-term borrowings to acquire MBS with
long-term maturities. Even though most of our MBS 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 MBS. If the
interest payments on our borrowings increase relative to the interest we earn on
our MBS, our profitability may be adversely affected.
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o 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 MBS. During a period of
rising interest rates, our borrowing costs could increase at a faster
pace than our interest earnings from MBS. 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.
o 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 MBS are
"hybrid" mortgages that have a fixed interest rate for a specified
period (generally three to five years) and, thereafter, convert into a
one-year adjustable interest rate for the remaining loan term.
Accordingly, in a period of rising interest rates, our financing costs
could increase while the interest we earn on our MBS would be limited
by the number of underlying hybrid mortgages with fixed interest
rates. This would adversely affect our profitability.
o Interest rate caps on the mortgages underlying our MBS may adversely
affect our profitability if short-term interest rates increase.
The mortgages underlying our adjustable-rate MBS 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 MBS 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 MBS 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 MBS and other assets
involves a number of risks, including the following:
o 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 MBS, 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.
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o 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 MBS, will decline. A decline in the market value of our MBS
may result in our lenders initiating margin calls that require us to
pledge additional collateral, which may take the form of additional
securities or cash, 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 MBS under adverse market conditions.
o 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 MBS or hedging
instruments, may move inversely with changes in interest rates. A decline in the
market value of our MBS 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 September 30, 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.
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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 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; Timothy W.
Korth, General Counsel, Senior Vice President-Business Development and
Secretary; and Teresa D. Covello, Senior Vice President, Chief Accounting
Officer and Treasurer. 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.
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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.
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 (or the ADA), 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 ADA 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 ADA, 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 MBS 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 MBS 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 December 1, 2003, 61,997,811 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.
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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.
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
22
55% of our assets directly in these qualifying real estate interests. MBS 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 MBS 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 MBS issued with respect to an underlying pool as
to which we own and/or 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 MBS 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 MBS whose yield is somewhat
higher than the yield on MBS that could be purchased in a manner consistent with
the exemption. The net effect of these factors may be to lower our net income.
FEDERAL INCOME TAX CONSIDERATIONS
The following description of the 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
past, present and 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.
This discussion 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
23
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 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.
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. The
Jobs and Growth Tax Reconciliation Act of 2003 (or the 2003 Act) was recently
enacted by Congress and signed by President Bush. Among other provisions, the
2003 Act generally lowers the rate at which stockholders who are individual U.S.
stockholders (as defined herein) are taxed on corporate dividends to a maximum
of 15% (the same as long-term capital gains) for the 2003 through 2008 tax
years, thereby substantially reducing, though not completely eliminating, the
double taxation that has historically applied to corporate dividends. With
limited exceptions, however, dividends received from us or other entities that
are taxed as REITs will continue to be taxed at rates applicable to ordinary
income, which pursuant to the 2003 Act, will be as high as 35% through 2010.
Even if we qualify as a REIT, we will nonetheless be subject to federal
taxation in the following circumstances:
o We will be required to pay tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
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o We may be subject to the "alternative minimum tax" on our items of tax
preference, if any.
o 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.
o 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.
o 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.
o 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.
o If we acquire an asset from a C corporation (i.e., generally a
corporation subject to full corporate level tax) 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 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 the C
corporation will not elect in lieu of this treatment to be subject to
an immediate tax when the asset is acquired.
o 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 (or REMICs) to the extent our
stock is held by specified tax exempt organizations not subject to tax
on unrelated business taxable income.
o 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.
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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 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.
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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 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.
Any amount includable in our gross income with respect to a regular or
residual interest in a REMIC 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 REMIC consist of real estate
assets, we will be treated as receiving directly our proportionate share of the
income of the REMIC, 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.
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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:
o the failure to meet the gross income tests was due to reasonable cause
and not due to willful neglect;
o a schedule of the sources of our income is attached to our federal
income tax return; and
o 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.
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 of RCC. No
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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.
Any regular or residual interests we hold in a REMIC are generally treated
as a real estate asset for purposes of the asset tests described above. If,
however, less than 95% of the assets of a REMIC consist of real estate assets,
we will be treated as holding our proportionate share of the assets of the REMIC
which generally would include assets not qualifying as real estate assets.
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.
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:
o 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;
o for which the related loan was acquired by the REIT at a time when
default was not imminent or anticipated; and
o for which the REIT makes a proper election to treat such property as
foreclosure property.
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.
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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.
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:
o could not be offset by unrelated net operating losses of a
stockholder;
o would be subject to tax as "unrelated business taxable income" to a
tax-exempt stockholder;
o 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
o 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, in
the case of stockholders who are individual U.S. stockholders, at preferential
rates pursuant to the 2003 Act 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:
o a citizen or resident of the United States;
o 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;
o an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
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o 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 own tax
advisor regarding the consequences of the ownership and disposition of shares of
our capital stock.
Distributions. 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 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. Dividends received from REITs are generally not eligible
to be taxed at the preferential qualified dividend income rates applicable to
individual U.S. stockholders who receive dividends from taxable C corporations
pursuant to the 2003 Act. An exception applies, however, and individual U.S.
stockholders are taxed at such rates on dividends designated by and received
from REITs, to the extent that the dividends are attributable to (i) "REIT
taxable income" that the REIT previously retained in the prior year, and on
which it was subject to corporate level tax, (ii) dividends received by the REIT
from taxable domestic C corporations, and certain foreign corporations or (iii)
income from sales of appreciated property acquired from C corporations in
carryover basis transactions that has been subject to tax.
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.
Distributions designated as net capital gain dividends will be taxable to
U.S. stockholders as long-term capital gains to the extent they do not exceed
our actual net capital gains for the taxable year, without regard to the period
for which the U.S. stockholder has held its stock. Long-term capital gains are
generally taxable at maximum federal tax rates of 15% (through 2008) in the case
of U.S. stockholders who are individuals and 35% for corporations. Capital gains
attributable to the sale of depreciable real property held for more than 12
months are subject to a 25% maximum federal income tax rate for individual U.S.
stockholders who are individuals, to the extent of previously claimed
depreciation deductions. U.S. stockholders that are corporations may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
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:
o include their proportionate share of the undistributed net capital
gains in their taxable income;
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o receive a credit for their proportionate share of the tax paid by us
with respect to such retained capital gains; and
o 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. In general, capital gains recognized by individuals and other
non-corporate U.S. stockholders upon the sale or disposition of shares of our
common stock will, pursuant to the 2003 Act, be subject to a maximum federal
income tax rate of 15% for taxable years through 2008, if the shares are held
for more than 12 months, and will be taxed at ordinary income rates (of up to
35% through 2010) if the shares are held for 12 months or less. Gains recognized
by U.S. stockholders that are corporations are subject to federal income tax at
a maximum rate of 35%, whether or not classified as long-term capital gains.
Capital losses recognized by a U.S. stockholder upon the disposition of our
common stock if held for more than one year at the time of disposition will be
considered long-term capital losses, and are generally available only to offset
capital gain income of the U.S. stockholder but not ordinary income (except in
the case of individuals, who may offset up to $3,000 of ordinary income each
year). In addition, any loss upon a sale or exchange of shares of our common
stock by a U.S. stockholder who has held the shares for six months or less,
after applying holding period rules, will be treated as a long-term capital loss
to the extent of distributions received from us that are required to be treated
by the U.S. stockholder as long-term capital gain.
If a U.S. stockholder recognizes a loss upon a subsequent disposition of
shares of our common stock in an amount that exceeds a prescribed threshold, it
is possible that the provisions of recently adopted Treasury regulations
involving "reportable transactions" could apply, with a resulting requirement to
separately disclose the loss generating transaction to the IRS. While these
regulations are directed towards "tax shelters," they are written quite broadly,
and apply to transactions that would not typically be considered tax shelters.
In addition, legislative proposals have been introduced in Congress, that, if
enacted, would impose significant penalties for failure to comply with these
requirements. You should consult your tax advisors concerning any possible
disclosure obligation with respect to the receipt or disposition of shares of
our common stock, or transactions that might be undertaken directly or
indirectly by us. Moreover, you should be aware that we and other participants
in transactions involving us (including their advisors) might be subject to
disclosure or other requirements pursuant to these regulations.
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
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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:
o is described in Section 401(a) of the Code;
o is tax-exempt under Section 501(a) of the Code; and
o 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:
o 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
o 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.
The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:
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o 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
o 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 REMIC 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
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amount of any distribution normally will be subject to withholding at the same
rate as a 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).
36
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.
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.
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.
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
37
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 website 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:
o incorporated documents are considered part of this prospectus;
o we can disclose important information to you by referring you to those
documents; and
o 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:
o Our annual report on Form 10-K for the fiscal year ended December 31,
2002;
o Our quarterly reports on Form 10-Q for the fiscal quarters ended March
31, 2003, June 30, 2003 and September 30, 2003;
38
o Our current reports on Form 8-K filed with the SEC on March 11, 2003,
March 19, 2003, April 29, 2003, May 1, 2003, July 29, 2003, August 7,
2003, September 10, 2003, October 29, 2003 and December 1, 2003;
o Our definitive proxy statement filed with the SEC on April 8, 2003;
and
o 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 Items 9 and 12 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. Timothy W. Korth
MFA Mortgage Investments, Inc.
350 Park Avenue, 21st Floor
New York, New York 10022
(212) 207-6400
39
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
2005 January 12 January 14 January 18 January 31
February 9 February 11 February 14 February 28
March 14 March 16 March 17 March 31
April 13 April 15 April 18 April 29
May 12 May 16 May 17 May 31
June 14 June 16 June 17 June 30
July 13 July 15 July 18 July 29
August 15 August 17 August 18 August 31
September 14 September 16 September 19 September 30
October 14 October 17 October 18 October 31
November 11 November 15 November 16 November 30
December 13 December 15 December 16 December 30
PRICING PERIODS AND INVESTMENT AND OTHER DATES ARE AT THE DISCRETION OF MFA
MORTGAGE INVESTMENTS, INC. INVESTORS SHOULD NOT RELY SOLELY ON THE ABOVE
SCHEDULE AS PRICING PERIODS AND INVESTMENT AND OTHER DATES MAY VARY. MFA
MORTGAGE INVESTMENTS, INC. MAY, AT ANY TIME OR FROM TIME TO TIME, AMEND, ALTER,
SUPPLEMENT OR WAIVE, IN ITS SOLE DISCRETION, THE INFORMATION SET FORTH IN THE
ABOVE SCHEDULE WITH RESPECT TO LARGE CASH PURCHASES MADE BY ONE OR MORE
PARTICIPANTS IN THE PLAN OR NEW INVESTORS OR, AFTER 2005, SUPPLEMENT SUCH
INFORMATION WITH ADDITIONAL PRICING PERIODS. FOR MORE INFORMATION, PLEASE
CONTACT THE PLAN ADMINISTRATOR AT (917) 320-6300 OR VISIT OUR WEBSITE AT
WWW.MFA-REIT.COM.
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.............................................. $ 7,188
Legal fees and expenses(1)........................................ 10,000
Accounting fees and expenses(1)................................... 5,000
Printing(1)....................................................... 10,000
Miscellaneous(1).................................................. 20,000
-------
Total........................................................... $52,188
-----------
(1) Estimated
Item 15. Indemnification of Officers and Directors.
As permitted by the Maryland General Corporation Law (or the MGCL), Article
Eighth, Paragraph (a)(5) of our Amended and Restated Articles of Incorporation
(or 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
II-1
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.
As permitted by the MGCL, Article Eighth, Paragraph (a)(6) of our Articles
of Incorporation provides for limitation of liability of our directors and
officers 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 the 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
(Commission File No. 333-46179)).
5.1 Opinion of Clifford Chance US LLP.
8.1 Opinion of Clifford Chance US LLP as to tax matters.
II-2
Exhibit Description
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 (included on the signature page of the
registration statement).
99.1 Enrollment Form for MFA Mortgage Investments, Inc. Discount
Waiver, Direct Stock Purchase and Dividend Reinvestment Plan.
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 (a)(1)(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 with or furnished to the
SEC 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
II-3
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 SEC such indemnification is against
public 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.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on December 3, 2003.
MFA MORTGAGE INVESTMENTS, INC.
By: /s/Stewart Zimmerman
------------------------------------------
Name: Stewart Zimmerman
Title: Chairman of the Board, Chief Executive
Officer and President
Each person whose signature appears below hereby authorizes Stewart
Zimmerman, as attorney-in-fact, to sign on his behalf, individually and in each
capacity stated below, any amendment, including post-effective amendments to
this registration statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
--------------------------------------- -------------------------------------- ------------------------------------
/s/Stewart Zimmerman
---------------------------------------
Stewart Zimmerman Chairman of the Board, Chief Executive December 3, 2003
Officer and President
/s/William S. Gorin
---------------------------------------
William S. Gorin Chief Financial Officer December 3, 2003
/s/Stephen Blank
---------------------------------------
Stephen Blank Director December 3, 2003
/s/Michael L. Dahir
---------------------------------------
Michael L. Dahir Director December 3, 2003
/s/Alan Gosule
---------------------------------------
Alan Gosule Director December 3, 2003
/s/George H. Krauss
---------------------------------------
George H. Krauss Director December 3, 2003
/s/W. David Scott
---------------------------------------
W. David Scott Director December 3, 2003
II-5
EXHIBIT INDEX
--------------------------------------------------------------------------------
Exhibit Number 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 the 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
(Commission 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 (included on the signature page of the
registration statement).
99.1 Enrollment Form for MFA Mortgage Investments, Inc. Discount
Waiver, Direct Stock Purchase and Dividend Reinvestment Plan.
II-6