| Filed Pursuant to Rule 424(b)(5) | ||||||||
| Registration No. 333-159468 | ||||||||
| CALCULATION OF REGISTRATION FEE | ||||||||
| Proposed maximum | Proposed maximum | |||||||
| Title of each class of securities | Amount to be | offering price per | aggregate offering | Amount of | ||||
| to be registered | registered | unit | price | registration fee(1) | ||||
| Common Stock | 193,200,000 | $3.22 | $622,104,000 | $34,713.41 | ||||
|
|
| (1) | Calculated in accordance with Rule 457(r) of the Securities Act of 1933, as amended (or the Securities Act). Payment of the registration fee at the time of filing of the registration statement on May 26, 2009 was deferred pursuant to Rule 456(b) of the Securities Act and paid herewith. |
PROSPECTUS SUPPLEMENT
(To prospectus dated May 26, 2009)
168,000,000 Shares
Common Stock
We are offering 168,000,000 shares of our common stock to be sold in this offering. We expect to receive approximately $541.0 million in aggregate gross proceeds plus up to approximately $81.1 million in additional aggregate gross proceeds if the underwriters’ overallotment is exercised in full. The last reported sales price of our common stock on May 27, 2009 was $3.39 per share.
We are externally managed and advised by Fixed Income Discount Advisory Company, which we refer to as FIDAC or our Manager, an investment adviser registered with the Securities and Exchange Commission. FIDAC is a wholly-owned subsidiary of Annaly Capital Management, Inc., which we refer to as Annaly, a New York Stock Exchange-listed real estate investment trust.
Immediately after this offering, Annaly will purchase in a private offering approximately 4.72 million shares, the maximum number of shares allowable to Annaly based on the size of its current ownership under New York Stock Exchange rules without shareholder approval.
Our common stock is subject to certain restrictions on ownership designed to preserve our qualification as a real estate investment trust for federal income tax purposes. See “Description of Capital Stock” on page 6 of the accompanying prospectus.
Our common stock is listed on the New York Stock Exchange under the symbol “CIM.”
Investing in our common stock involves risks that are described under the caption “Risk Factors” beginning on page S-11 of this prospectus supplement, in the accompanying prospectus, and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009, which are incorporated by reference in the accompanying prospectus.
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Per Share |
Total |
||||||||||||
|
Public offering price |
|
$3.22 |
|
$540,960,000 |
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|
Underwriting discount |
|
$.1288 |
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$21,638,400 |
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|
Proceeds, before expenses, to us |
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$3.0912 |
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$519,321,600 |
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The underwriters may also purchase up to an additional 25,200,000 shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus supplement to cover overallotments, if any.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about June 2, 2009.
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Merrill Lynch & Co. |
Credit Suisse |
Deutsche Bank Securities |
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Citi |
Morgan Stanley |
UBS Investment Bank |
||
JMP Securities |
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|
Keefe, Bruyette & Woods |
The date of this prospectus supplement is May 27, 2009.
TABLE OF CONTENTS Prospectus Supplement S-1 S-11 S-12 S-13 S-14 S-15 S-19 Prospectus 1 2 4 5 5 Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends 5 6 14 36 38 38 38 39 You should rely only on the information contained or
incorporated by reference in this prospectus supplement or the accompanying
prospectus. We have not, and the underwriters have not, authorized anyone to
provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are offering to
sell, and seeking offers to buy, shares of our common stock only in
jurisdictions where offers and sales are permitted. You should assume that the
information appearing in this prospectus supplement and the accompanying
prospectus, as well as information we previously filed with the Securities and
Exchange Commission and incorporated by reference, is only accurate as of their
respective dates. Our business, financial condition, results of operations and
prospects may have changed since those dates. i A WARNING ABOUT FORWARD-LOOKING STATEMENTS We
make forward-looking statements in this prospectus supplement that are subject
to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of our business, financial
condition, liquidity, results of operations, plans and objectives. When we use
the words “believe,” “expect,” “anticipate,” “estimate,” “plan,”
“continue,”
“intend,” “should,” “may,” “would,” “will” or similar expressions, we intend to
identify forward-looking statements. Statements regarding the following
subjects, among others, are forward-looking by their nature: • our business
and investment strategy; • our
projected financial and operating results; • our ability
to maintain existing financing arrangements, obtain future financing
arrangements and the terms of such arrangements; • general
volatility of the securities markets in which we invest; • the
implementation, timing and impact of, and changes to, various government
programs, including the U.S. Treasury’s plan to buy U.S. government agency
residential mortgage-backed securities, the Term Asset-Backed Securities Loan
Facility, and the Public-Private Investment Program; • our expected
investments; • changes in
the value of our investments; • interest
rate mismatches between our investments and our borrowings used to fund such
purchases; • changes in
interest rates and mortgage prepayment rates; • effects of
interest rate caps on our adjustable-rate investments; • rates of
default or decreased recovery rates on our investments; • prepayments
of the mortgage and other loans underlying our mortgage-backed or other
asset-backed securities; • the degree
to which our hedging strategies may or may not protect us from interest rate
volatility; • impact of
and changes in governmental regulations, tax law and rates, accounting
guidance, and similar matters; • availability
of investment opportunities in real estate-related and other securities; • availability
of qualified personnel; • estimates
relating to our ability to make distributions to our stockholders in the
future; • our
understanding of our competition; • market
trends in our industry, interest rates, the debt securities markets or the
general economy; and • use of
proceeds of this offering. The
forward-looking statements are based on our beliefs, assumptions and
expectations of our future performance, taking into account all information
currently available to us. You should not place undue reliance on these
forward-looking statements. These beliefs, assumptions and expectations can
change as a result of many possible events or factors, not all of which are
known to us. Some of these factors are described under the captions “Prospectus
Supplement Summary,” “Risk Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and “Business” in this
prospectus supplement, the accompanying prospectus, and in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 and our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 2009, which are
incorporated by reference in the accompanying prospectus. If a change occurs,
our business, financial condition, liquidity and results of operations may vary
materially from those expressed in our forward-looking statements. Any
forward-looking statement speaks only as of the date on which it is made. New
risks and uncertainties arise from time to time, and it is impossible for us to
predict those events or how they may affect us. Except as required by law, we
are not obligated to, and do not intend to, update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. ii This summary
highlights some of the information in this prospectus supplement. It is not
complete and does not contain all of the information that you should consider
before investing in our common stock. You should read carefully the more
detailed information set forth under “Risk Factors” and the other information
included in this prospectus supplement, in the accompanying prospectus, and in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and
our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009,
which are incorporated by reference in the accompanying prospectus. Except
where the context suggests otherwise, the terms “Chimera,” “company,” “we,”
“us” and “our” refer to Chimera Investment Corporation; “our
Manager” and
“FIDAC” refer to Fixed Income Discount Advisory Company, our external
manager; and “Annaly” refers to Annaly Capital Management, Inc., the
parent company of FIDAC. Unless indicated otherwise, the information in this
prospectus supplement assumes (i) the common stock to be sold in this offering
is to be sold at $3.22 per share, (ii) the purchase by Annaly in a private
offering of 4,724,017 shares at $3.22 per share and (iii) no exercise by the
underwriters of their overallotment option to purchase or place up to an additional
25,200,000 shares of our common stock. The Company We
are a specialty finance company that invests in residential mortgage-backed
securities, or RMBS, residential mortgage loans, real estate-related securities
and various other asset classes. We elected to be taxed as a real estate
investment trust, or REIT, for federal income tax purposes commencing with our
taxable year ending on December 31, 2007. Therefore, we generally will not be
subject to federal income tax on our taxable income that is distributed to our
stockholders. We commenced operations in November 2007. We
are externally managed by Fixed Income Discount Advisory Company, which we
refer to as our Manager or FIDAC. Our Manager is an investment advisor
registered with the Securities and Exchange Commission, or SEC. Additionally,
our Manager is a wholly-owned subsidiary of Annaly, a NYSE-listed REIT, which
has a long track record of managing investments in U.S. government agency
residential mortgage-backed securities, or Agency RMBS. To date, Annaly has
invested approximately $155.5 million in shares of our common stock.
Immediately after this offering, Annaly will purchase in a private offering
approximately 4.72 million shares, the maximum number of shares allowable to
Annaly based on the size of its current ownership under NYSE rules without
shareholder approval. Our
objective is to provide attractive risk-adjusted returns to our investors over
the long-term, primarily through dividends and secondarily through capital
appreciation. We intend to achieve this objective by investing in a broad class
of financial assets to construct an investment portfolio that is designed to
achieve attractive risk-adjusted returns and that is structured to comply with
the various federal income tax requirements for REIT status and to maintain our
exemption from registration under the Investment Company Act of 1940, as
amended, or 1940 Act. We
recognize that investing in our targeted asset classes is highly competitive,
and that our Manager competes with many other investment managers for
profitable investment opportunities in these areas. Annaly and our Manager have
close relationships with a diverse group of financial intermediaries, ranging
from primary dealers, major investment banks and brokerage firms to leading
mortgage originators, specialty investment dealers and financial sponsors. In addition, we have benefited and expect to
continue to benefit from our Manager’s analytical and portfolio management
expertise and technology. We believe that the combined and complementary
strengths of Annaly and our Manager give us a competitive advantage over REITs
with a similar focus to ours. S-1 Our Manager We
are externally managed and advised by FIDAC pursuant to a management agreement.
All of our officers are employees of our Manager or its affiliates. Our Manager
is a fixed-income investment management company specializing in
managing investments in Agency RMBS, which are mortgage pass-through
certificates, collateralized mortgage obligations, or CMOs, and other
mortgage-backed securities representing interests in or obligations backed by
pools of mortgage loans issued or guaranteed by the Federal National Mortgage
Association, or Fannie Mae, the Federal Home Loan Mortgage Corporation, or
Freddie Mac, and the Government National Mortgage Association, or Ginnie
Mae. Our Manager also has experience in managing investments in non-Agency
RMBS and collateralized debt obligations, or CDOs; real estate-related securities;
and managing credit and interest rate-sensitive investment strategies. Our
Manager commenced active investment management operations in 1994. At March
31, 2009, our Manager was the adviser or sub-adviser for funds with approximately
$3.8 billion in net assets and $11.6 billion in gross assets, and which consisted
predominantly of Agency RMBS. Our
Manager is responsible for administering our business activities and day-to-day
operations. We have no employees other than our officers. Pursuant to the terms
of the management agreement, our Manager provides us with our management team,
including our officers, along with appropriate support personnel. Our Manager
is at all times subject to the supervision and oversight of our board of
directors and has only such functions and authority as we delegate to it. We do
not pay any of our officers any cash compensation. Rather, we pay our Manager a
base management fee pursuant to the
terms of the management agreement. We do not pay our Manager any
incentive-based fees or other compensation. Our Investment Strategy Our
objective is to provide attractive risk-adjusted returns to our investors over
the long-term, primarily through dividends and secondarily through capital
appreciation. We intend to achieve this objective by investing in a diversified
investment portfolio of RMBS, residential mortgage loans, real estate-related
securities and various other asset classes, subject to maintaining our REIT
status and exemption from registration under the 1940 Act. The RMBS,
asset-backed securities, or ABS, commercial mortgage backed securities, or
CMBS, and CDOs we purchase may include investment-grade and non-investment
grade classes, including the BB-rated, B-rated and non-rated classes. We
rely on our Manager’s expertise in identifying assets within our target asset
classes. Our Manager makes investment decisions based on various factors,
including expected cash yield, relative value, risk-adjusted returns, current
and projected credit fundamentals, current and projected macroeconomic
considerations, current and projected supply and demand, credit and market risk
concentration limits, liquidity, cost of financing and financing availability,
as well as maintaining our REIT qualification and our exemption from
registration under the 1940 Act. Since
we commenced operations in November 2007, we have focused our investment
activities on acquiring non-Agency RMBS and on purchasing residential mortgage
loans that have been originated by select high-quality originators, including
the retail lending operations of leading commercial banks. Over time, we will
modify our investment allocation strategy as market conditions change to seek
to maximize the returns from our investment portfolio. We believe this
strategy, combined with our Manager’s experience, will enable us to pay
dividends and achieve capital appreciation throughout changing interest rate
and credit cycles and provide attractive long-term returns to investors. S-2 Our
targeted asset classes and the principal investments we have made and expect to
make in each asset class are as follows: Asset
Class Principal
Investments Residential
Mortgage-Backed Securities, or RMBS • Non-Agency
RMBS, including investment-grade and non-investment grade classes, including
the BB-rated, B-rated and non-rated classes. • Agency RMBS. Residential
Mortgage Loans • Prime
mortgage loans, which are mortgage loans that conform to the underwriting
guidelines of Fannie Mae and Freddie Mac, which we refer to as Agency
Guidelines; and jumbo prime mortgage loans, which are mortgage loans that
conform to the Agency Guidelines except as to loan size. • Alt-A
mortgage loans, which are mortgage loans that may have been originated using
documentation standards that are less stringent than the documentation
standards applied by certain other first lien mortgage loan purchase
programs, such as the Agency Guidelines, but have one or more compensating
factors such as a borrower with a strong credit or mortgage history or
significant assets. Other
Asset-Backed Securities, or ABS • Commercial
mortgage-backed securities, or CMBS. • Debt and
equity tranches of collateralized debt obligations, or CDOs. • Consumer and
non-consumer ABS, including investment-grade and non-investment grade
classes, including the BB-rated, B-rated and non-rated classes. Our
investment portfolio at March 31, 2009 was weighted toward RMBS. After the
consummation of this offering, we expect that over the near term our investment
portfolio will continue to be weighted toward RMBS, subject to maintaining our
REIT qualification and our 1940 Act exemption. In addition, we have engaged in
and anticipate continuing to engage in transactions with residential mortgage
lending operations of leading commercial banks and other high-quality
originators in which we identify and re-underwrite residential mortgage loans
owned by such entities, and rather than purchasing and securitizing such
residential mortgage loans ourselves, we and the originator would structure the
securitization and we would purchase the resulting mezzanine and subordinate
non-Agency RMBS. We have and may continue to engage in similar transactions
with non-Agency RMBS in which we would acquire originally AAA-rated non-Agency
RMBS and re-securitize those securities. We sell all or a portion of the
securities issued by the securitization trust and retain the rated or unrated
mezzanine and other subordinated RMBS. Our investment decisions, however, will
depend on prevailing market conditions and will change over time. As a result,
we cannot predict the percentage of our assets that will be invested in each
asset class or whether we will invest in other classes of investments. We may
change our investment strategy and policies without a vote of our stockholders. We elected
to be taxed as a REIT commencing with our taxable year ending on December 31,
2007 and to operate our business so as to be exempt from registration under the
1940 Act, and therefore we will be required to invest a substantial majority of
our assets in loans secured by mortgages on real estate and real estate-related
assets. S-3 Subject to maintaining our REIT qualification and our 1940 Act
exemption, we do not have any limitations on the amounts we may invest in any
of our targeted asset classes. Our Financing Strategy We
use leverage to increase potential returns to our stockholders. We are not
required to maintain any specific debt-to-equity ratio as we believe the
appropriate leverage for the particular assets we are financing depends on the
credit quality and risk of those assets. Subject to maintaining our REIT
qualification, we may use a number of sources to finance our investments,
including repurchase agreements, warehouse facilities, securitization,
asset-backed commercial paper, and term financing structures. Our
ability to fund our investments on a leveraged basis depends to a large extent
upon our ability to secure warehouse, repurchase, credit, and/or commercial
paper financing on acceptable terms. The current dislocation in the non-Agency
mortgage sector has made it difficult for us to obtain short-term financing on favorable
terms. As a result, we have completed loan securitizations in order to obtain
long-term financing and terminated our un-utilized whole loan repurchase
agreements in order to avoid paying non-usage fees under those agreements. We
have entered into a RMBS repurchase agreement with Annaly. This agreement
contains customary representations, warranties and covenants contained in such
agreements. As of May 19, 2009, we were borrowing $406.2 million under this
repurchase agreement at an interest rate of 1.72%. Our RMBS repurchase
agreement with Annaly is rolled daily at market rates and is secured by the
RMBS pledged under the agreement. While we do not expect to increase
significantly the amount of securities pledged to Annaly or significantly
increase or decrease the funds we borrow from Annaly, until we invest the net
proceeds of this offering in other assets, we may use part of the net proceeds
to pay down amounts borrowed under our repurchase agreement with Annaly. We
cannot assure you that Annaly will continue to provide us with such financing.
If Annaly does not provide us with financing, we cannot assure you that we will
be able to replace such financing. If we are not able to replace this
financing, we could be forced to sell our assets at an inopportune time when
prices are depressed. We
have entered into a RMBS repurchase agreement with RCap Securities, Inc., or
RCap, a wholly-owned subsidiary of Annaly. This agreement contains customary
representations, warranties and covenants contained in such agreements. As of
May 19, 2009, we were borrowing $18.7 million under this repurchase agreement
at an interest rate of 0.55%. Our RMBS repurchase agreement with RCap has a
one-month term and is secured by the RMBS pledged under the agreement. We
cannot assure you that RCap will continue to provide us with such financing. If
RCap does not provide us with financing, we cannot assure you that we will be
able to replace such financing. Our Interest Rate Hedging and Risk Management
Strategy We
may, from time to time, utilize derivative financial instruments to hedge all
or a portion of the interest rate risk associated with our borrowings. Under
the federal income tax laws applicable to REITs, we generally enter into
certain transactions to hedge indebtedness that we incur, or plan to incur, to
acquire or carry real estate assets. Our Competitive Advantages We
believe that our competitive advantages include the following: Investment Strategy Designed to Perform in a
Variety of Interest Rate and Credit Environments We
seek to manage our investment strategy to balance both interest rate risk and
credit risk. We believe this strategy is designed to generate attractive,
risk-adjusted returns in a variety of market conditions because operating
conditions in which either of these risks are increased, or decreased, may
occur at different points in the economic cycle. For example, there may be
periods when interest-rate sensitive strategies outperform credit-sensitive strategies
whereby we would receive increased income over our cost of financing, in which
case our portfolio’s increased exposure to this risk would be beneficial. There
may be other periods when credit-sensitive strategies outperform interest-rate
sensitive strategies. Although we face interest rate risk and credit risk, we
believe that with S-4 appropriate
hedging strategies, as well as our ability to evaluate the quality of targeted
asset investment opportunities, we can reduce these risks and provide attractive
risk-adjusted returns. Credit-Oriented Investment Approach We
seek to minimize principal loss while maximizing risk-adjusted returns through
our Manager’s credit-based investment approach, which is based on rigorous
quantitative and qualitative analysis. Experienced Investment Advisor Our
Manager has a long history of strong performance across a broad range of
fixed-income assets. Our Manager’s most senior investment professionals have a
long history of investing in a variety of mortgage and real estate-related
securities and structuring and marketing CDOs. Our Manager is also acting as
liquidating agent for a number of CDOs, and has competitive advantages as a
result of its knowledge regarding the pipeline, values, supply and market
participants for liquidations of CDOs because of its involvement in these
liquidations. Investments will be overseen by an Investment Committee of our
Manager’s professionals, consisting of Michael A.J. Farrell, Wellington J.
Denahan-Norris, James P. Fortescue, Kristopher Konrad, Rose-Marie Lyght, Ronald
Kazel, Jeremy Diamond, Eric Szabo and Matthew Lambiase. Access to Annaly’s and Our Manager’s
Relationships Annaly
and our Manager have developed long-term relationships with a number of commercial
banks and other financial intermediaries. We believe these relationships
provide us with a range of high-quality investment opportunities. Access to Our Manager’s Systems and
Infrastructure Our
Manager has created a proprietary portfolio management system, which we believe
provides us with a competitive advantage. Our Manager’s personnel have created
a comprehensive finance and administrative infrastructure, an important
component of a complex investment vehicle such as a REIT. In addition, most of
our Manager’s personnel are also Annaly’s personnel; therefore, they have had
extensive experience managing Annaly, which is a REIT. Alignment of Interests between Annaly, Our
Manager and Our Investors To
date, Annaly has invested approximately $155.5 million in shares of our common
stock. Immediately after this offering, Annaly will purchase in a private
offering approximately 4.72 million shares, the maximum number of shares
allowable to Annaly based on the size of its current ownership under NYSE rules
without shareholder approval. Annaly will purchase these shares at the share price per share that we sell
shares in our public offering. Annaly has agreed with us to lock-up such shares
it acquires immediately after this offering in the private offering for three
years from the date of this offering. We
believe that Annaly’s investment aligns our Manager’s interests with our
interests. Compliance with REIT and Investment Company
Requirements We
monitor our investment securities and the income from these securities and, to
the extent we enter into hedging transactions, we monitor income from our
hedging transactions as well, so as to ensure at all times that we maintain our
qualification as a REIT and our exempt status under the 1940 Act, which may
include qualifying for an exemption from registration under the 1940 Act
pursuant to Section 3(a)(1) or Section 3(a)(6) of the 1940 Act in addition to
Section 3(c)(5)(C) of the 1940 Act. Recent Developments TALF On
November 25, 2008, the U.S. Treasury and the Federal Reserve announced the
creation of the Term Asset-Backed Securities Loan Facility, or the TALF. Under
the TALF, the Federal Reserve Bank of New York, or the FRBNY, provides
non-recourse loans to borrowers to fund their purchase of eligible assets,
which currently S-5 includes
certain ABS but not RMBS or CMBS. On March 23, 2009, the U.S. Treasury
announced preliminary plans to expand the TALF to include non-Agency RMBS and
CMBS. On May 1, 2009, the Federal Reserve provided more of the details as to
how TALF is to be expanded to newly issued CMBS and explained that beginning in
June 2009, up to $100 billion of TALF loans will be available to finance
purchases of CMBS created on or after January 1, 2009. In addition to the ability
of newly issued CMBS to become collateral under the TALF, on May 19, 2009, the
Federal Reserve provided details on the types of legacy CMBS that is eligible
to become collateral under the TALF. To become eligible collateral under the
TALF, the legacy CMBS must issued before January 1, 2009 and must be senior in
payment priority to all other interests in the underlying pool of commercial
mortgages meet certain other criteria designed to protect the Federal Reserve
and the U.S. Treasury from credit risk. Both newly issued CMBS and legacy CMBS
must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody’s
Investors Service, Realpoint, or Standard Poor’s and must not have a rating
below triple-A from any of these rating agencies to become eligible collateral
under the TALF. To date, neither the FRBNY nor the U.S. Treasury has announced
how the TALF will be expanded to cover non-Agency RMBS. While
we will consider utilizing the TALF program to the extent that it is feasible
for us to do so and the nature of eligible assets is extended to fit within our
investment strategy, we can provide no assurance that we will be eligible to do
so, or if eligible, will be able to utilize it successfully. Public-Private Investment Program On
March 23, 2009, the U.S. Treasury, in conjunction with the Federal Deposit
Insurance Corporation, or FDIC, and the Federal Reserve, announced the
establishment of the Public-Private Investment Program, or PPIP. The PPIP is
designed to encourage the transfer of certain illiquid legacy real
estate-related assets off of the balance sheets of financial institutions,
restarting the market for these assets and supporting the flow of credit and
other capital into the broader economy. The PPIP is expected to be $500 billion
to $1 trillion in size and has two primary components: the Legacy Securities
Program and the Legacy Loan Program. Under the Legacy Securities Program,
Legacy Securities Public-Private Investment Funds, or PPIFs, will be
established to purchase from financial institutions certain non-Agency RMBS and
CMBS that were originally rated in the highest rating category by one or more
of the nationally recognized statistical rating organizations. Under the Legacy
Loan Program, Legacy Loan PPIFs will be established to purchase troubled loans
(including residential and commercial mortgage loans) from insured depository
institutions. We
are currently actively evaluating these programs to determine if they are
appropriate in light of our investment strategy. As further details of these
programs emerge, we may deem them appropriate in light of our investment
strategy. We can provide no assurance, however, that we will be eligible to
utilize these programs, or if eligible, will be able to utilize them successfully.
Further, these programs are still in early stages of development and it is not
possible for us to predict how these programs will impact our current or future
investments. Recent Legislative Action and Litigation As
delinquencies and defaults in residential mortgages increase, there has been an
increasing amount of legislative action. For example, Congress has recently
considered amendments to the federal bankruptcy laws to allow judges to modify
residential mortgage loans with owner-occupant borrowers in Chapter 13
bankruptcy which could lead to reductions in interest rate and principal and
extensions of term of residential mortgage loans and thereby could affect the
return on the residential mortgage loan or RMBS secured by such residential
mortgage loans. These proposals, if enacted, may negatively impact our
business. In addition, state laws continue to be enacted that might restrict a
residential mortgage loan servicer’s ability to foreclose and resell the
property of a customer in default. These laws delay the initiation or
completion of foreclosure proceedings on specified types of residential
mortgage loans, or otherwise limit the ability of residential mortgage loan
servicers to take actions that may be essential to preserve the value of the
mortgage loans on behalf of the holders of RMBS. These laws may negatively
impact our business. In
May 2009, a securitizer of residential mortgage loans entered into a settlement
agreement with the Commonwealth of Massachusetts stemming from its
investigation of subprime lending and securitization markets. The securitizer
agreed to provide loan restructuring (including significant principal
write-downs) valued at approximately $50 million to Massachusetts borrowers of
subprime loans and to make a $10 million payment to the Commonwealth. If other
courts or regulators take similar actions, our business may be negatively
impacted. S-6 Amendment of Our Charter On
May 22, 2009, we amended our charter to raise the total number of
authorized shares we are permitted to issue from 550,000,000 shares, of which
500,000,000 shares were classified as “Common Stock” and 50,000,000
shares were classified as “Preferred Stock,” to 1,100,000,000 shares.
Our authorized capital stock now consists of 1,100,000,000 shares of capital
stock, of which 1,000,000,000 shares are classified as “Common Stock” and
100,000,000 shares are classified as “Preferred Stock.” The amendment
to our charter was approved by our board of directors on May 19, 2009. Dividend On
May 21, 2009, we announced that our board of directors declared a second
quarter cash distribution of $0.08 per share of our common stock. This dividend
will be paid on July 31, 2009 to common shareholders of record on June 1, 2009.
Common stock sold in this offering will not participate in this quarterly
distribution. We have not yet completed our 2009 second quarter or our
financial statements for the second quarter. Our Core Earnings per share for
the second quarter could be different from our dividends per share. Core
Earnings is a non-GAAP measure and is defined as GAAP net income (loss)
excluding non-cash equity compensation expense, excluding any unrealized gains,
losses or other items that do not affect realized net income (regardless of
whether such items are included in other comprehensive income or loss, or in
net income). GAAP is defined as accounting principles generally accepted in the
United States. Recent Offerings On
April 15, 2009, we announced the sale of 235,000,000 shares of our common stock
at $3.00 per share for proceeds, less the underwriters’ discount and offering
expenses, of approximately $674.8 million. Immediately following the sale of
these shares, Annaly purchased 24,955,752 shares at the same price per share as
the public offering, for proceeds of approximately $74.9 million. In addition,
on April 16, 2009 the underwriters exercised the option to purchase up to an
additional 35,250,000 shares of our common stock to cover over-allotments for
proceeds, less the underwriters’ discount, of approximately $101.3 million.
These sales were completed on April 21, 2009. We raised total net proceeds of
approximately $851.0 million in these offerings. We have deployed all of the
net proceeds of these offerings and used most of the net proceeds to purchase
unlevered non-Agency RMBS and the remainder of the net proceeds to purchase
Agency RMBS using what we believe to be a modest amount of leverage. Corporate Information Our
principal executive offices are located at 1211 Avenue of Americas, Suite 2902,
New York, New York 10036. Our telephone number is 1-866-315-9930. Our website
is http://www.chimerareit.com. The contents of our website are not a part of
this prospectus supplement or the accompanying prospectus. We have included our
website address only as an inactive textual reference and do not intend it to
be an active link to our website. S-7 Summary Financial Information The
following table presents summary financial data as of and for the period
indicated. We derived the summary financial data from our audited consolidated
financial statements for the period from November 21, 2007 (commencement of
operations) through December 31, 2007 and for the fiscal year ended December
31, 2008 and our unaudited consolidated financial statements for the three
months ended March 31, 2009 and 2008. The following summary financial
information should be read in conjunction with our more detailed information
contained in the consolidated financial statements and notes thereto in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009,
which are incorporated by reference into the accompanying prospectus and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 and in our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2009, which are incorporated by reference into the
accompanying prospectus. As of March 31, As of December 31, 2009 2008 2008 2007 (dollars
in thousands, except share and per share data) Statement of Financial Condition Highlights Mortgage-backed securities $ 1,085,792 $ 1,229,780 $ 855,467 $ 1,124,290 Loans held for investment — $ 361,594 — $ 162,371 Securitized loans $ 565,895 — $ 583,346 — Total assets $ 1,676,048 $ 1,910,044 $ 1,477,501 $ 1,565,636 Repurchase agreements $ 559,926 $ 1,439,534 $ 562,119 $ 270,584 Securitized debt $ 473,168 — $ 488,743 — Total liabilities $ 1,243,222 $ 1,490,732 $ 1,063,046 $ 1,026,747 Stockholders’ equity $ 432,826 $ 419,312 $ 414,455 $ 538,889 Book value per share $ 2.44 $ 11.11 $ 2.34 $ 14.29 Number of shares outstanding 177,196,945 37,744,918 177,198,212 37,705,563 For the
three For the
three For the
year For the
period (dollars
in thousands, except share and per share data) Statement of Operations Highlights Net interest income $ 18,965 $ 14,172 $ 44,715 $ 3,077 Net income (loss) $ 18,869 ($ 54,935 ) ($ 119,809 ) ($ 2,906 ) Earnings per share, or EPS (basic) $ 0.11 ($ 1.46 ) ($ 1.90 ) ($ 0.08 ) EPS (diluted) $ 0.11 ($ 1.46 ) ($ 1.90 ) ($ 0.08 ) Weighted average shares – basic 177,196,959 37,744,486 63,155,878 37,401,737 Weighted average shares – diluted 177,196,959 37,744,486 63,155,878 37,401,737 Taxable income per share (1) $ 0.09 $ 0.27 $ 0.62 $ 0.030 Dividend declared per share (2) $ 0.06 $ 0.26 $ 0.62 $ 0.025 Other Data(3) Yield on average interest earning assets 6.44 % 6.63 % 5.96 % 7.02 % Cost of funds on average interest bearing liabilities 3.48 % 4.23 % 4.64 % 5.08 % Interest rate spread 2.96 % 2.40 % 1.32 % 1.94 % G&A and management fee expense as percentage of average total
assets 0.94 % 1.10 % 0.85 % 1.55 % G&A and management fee expense as percentage of average
equity 3.51 % 4.00 % 3.50 % 3.05 % (1) See reconciliation on the
following page of non-GAAP financial measurements to GAAP financial
measurements. (2) For the applicable period. (3) Data for the period
November 21, 2007 through December 31, 2007 is provided on an annualized
basis. S-8 Reconciliation of non-GAAP financial
measurements to GAAP financial measurements As
a REIT, we are required to distribute to our shareholders substantially all of
our REIT taxable income in the form of dividends. Accordingly, we believe
taxable income per share is a meaningful financial measurement for investors
and management in assessing our performance. A reconciliation of REIT taxable
income per share to GAAP EPS (basic) follows: Reconciliation of REIT Taxable Income Per
Share to GAAP EPS For the
three For the
three For the
year ended For the
period November GAAP EPS $ 0.11 ($ 1.46 ) ($ 1.90 ) ($ 0.08 ) Unrealized loss on interest rate swaps — $ 0.83 $ 0.07 $ 0.11 Realized (gain) loss on sales of investments ($ 0.02 ) $ 0.87 $ 2.45 — Other book-to-tax differences — $ 0.03 — — REIT taxable income per share $ 0.09 $ 0.27 $ 0.62 $ 0.03 S-9 The Offering Issuer Chimera
Investment Corporation Common stock
offered by us 168,000,000
shares (plus up to an additional 25,200,000 shares of our common stock that
we may issue and sell upon the exercise of the underwriters’ overallotment
option). Common stock
to be outstanding NYSE symbol “CIM” Use of
proceeds We intend to
invest the net proceeds of this offering primarily in non-Agency RMBS, Agency
RMBS, prime and Alt-A mortgage loans, CMBS, CDOs, and other consumer or
non-consumer ABS. Our investment portfolio at March 31, 2009 was weighted toward
RMBS. After the consummation of this offering, we expect that over the near
term our investment portfolio will continue to be weighted toward RMBS,
subject to maintaining our REIT qualification and our 1940 Act exemption.
Until appropriate investments can be identified, our Manager may invest these
funds in interest-bearing short-term investments, including money market
accounts, which are consistent with our treatment as a REIT. These
investments are expected to provide a lower net return than we hope to
achieve from investments in our intended use of proceeds of this offering. In
addition, until appropriate investments can be found, we may also utilize the
net proceeds to pay down amounts borrowed under our repurchase agreement with
Annaly. See “Use of Proceeds.” Risk factors Investing in
our common stock involves a high degree of risk. You should carefully read
and consider the information set forth under “Risk Factors” and all other
information in this prospectus supplement, in the accompanying prospectus,
and in our Annual Report on Form 10-K for the fiscal year ended December 31,
2008 and our Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2009, which are incorporated by reference in the accompanying prospectus,
before investing in our common stock. S-10 In
evaluating an investment in our common stock, you should carefully consider the
risks set forth under the caption “Risk Factors” in this prospectus supplement,
in the accompanying prospectus, and in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 and our Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2009, which are incorporated by reference in
the accompanying prospectus. Continued
adverse developments in the broader residential mortgage market may adversely
affect the value of the assets in which we invest. In
2008 and so far in 2009, the residential mortgage market in the United States
has experienced a variety of difficulties and changed economic conditions, including
defaults, credit losses and liquidity concerns. Certain commercial banks,
investment banks and insurance companies have announced extensive losses from
exposure to the residential mortgage market. These losses have reduced
financial industry capital, leading to reduced liquidity for some institutions.
These factors have impacted investor perception of the risk associated with
RMBS, residential mortgage loans, real estate-related securities and various
other asset classes in which we invest. As a result, values for RMBS,
residential mortgage loans, real estate-related securities and various other
asset classes in which we invest have experienced a certain amount of
volatility. Further increased volatility and deterioration in the broader
residential mortgage and RMBS markets may adversely affect the performance and
market value of our investments. Any
decline in the value of our investments, or perceived market uncertainty about
their value, would likely make it difficult for us to obtain financing on
favorable terms or at all, or maintain our compliance with terms of any
financing arrangements already in place. The RMBS in which we invest are
classified for accounting purposes as available-for-sale. All assets classified
as available-for-sale are reported at fair value with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders’ equity. As a result, a decline in fair values may reduce the book
value of our assets. Moreover, if the decline in fair value of an
available-for-sale security is other-than-temporarily impaired, such decline
will reduce earnings. If market conditions result in a decline in the fair
value of our RMBS, our financial position and results of operations could be
adversely affected. The
lack of liquidity in our investments may adversely affect our business. We
may invest in securities or other instruments that are not liquid. It may be
difficult or impossible to obtain third party pricing on the investments we
purchase. Turbulent market conditions, such as those currently in effect, could
significantly and negatively impact the liquidity of our assets. Illiquid
investments typically experience greater price volatility as a ready market
does not exist and can be more difficult to value. In addition, validating
third party pricing for illiquid investments may be more subjective than more
liquid investments. The illiquidity of our investments may make it difficult
for us to sell such investments if the need or desire arises. In addition, if
we are required to liquidate all or a portion of our portfolio quickly, we may
realize significantly less than the value at which we have previously recorded
our investments. As a result, our ability to vary our portfolio in response to
changes in economic and other conditions may be relatively limited, which could
adversely affect our results of operations and financial condition. We
may allocate the net proceeds from this offering to investments with which you
may not agree. We
will have significant flexibility in investing the net proceeds of this
offering. You will be unable to evaluate the manner in which the net proceeds
of this offering will be invested or the economic merit of our expected
investments and, as a result, we may use the net proceeds from this offering to
invest in investments with which you may not agree. The failure of our
management to apply these proceeds effectively or find investments that meet
our investment criteria in sufficient time or on acceptable terms could result
in unfavorable returns, could cause a material adverse effect on you, and could
cause the value of our common stock to decline. In addition, although we
presently do not intend to use such net proceeds in the near term to pay down
permanently our repurchase facility with Annaly, until appropriate investments
can be found, we may also utilize the net proceeds to pay down amounts borrowed
under our repurchase agreement with Annaly. To the extent we raise more proceeds
in this offering, we will make more investments. S-11 We
estimate that our net proceeds from this public offering of our shares of
common stock, after deducting the underwriting discount and our estimated
offering expenses, will be approximately $519.0 million (based on the price on
the cover of this prospectus supplement). We estimate that our net proceeds
will be approximately $596.9 million if the underwriters exercise their
overallotment option in full. Immediately
after this offering, Annaly will purchase in a private offering approximately
4.72 million shares, the maximum number of shares allowable to Annaly based on
the size of its current ownership under NYSE rules without shareholder
approval. Annaly will purchase these shares at the share price per share that we sell
shares in our public offering. We will not pay any underwriting fees, commissions or discounts with
respect to the shares we sell to Annaly. We plan to invest the net proceeds of
this offering and the sale of shares to Annaly immediately after this offering
in accordance with our investment objectives and the strategies described in
this prospectus supplement. See “Prospectus Supplement Summary—Our Investment
Strategy.” We
intend to use the net proceeds of this offering to finance the acquisition of
non-Agency RMBS, Agency RMBS, prime and Alt-A mortgage loans, CMBS, CDOs and
other consumer or non-consumer ABS. Our investment portfolio at March 31, 2009
was weighted toward RMBS. After the consummation of this offering, we expect
that over the near term our investment portfolio will continue to be weighted
toward RMBS, subject to maintaining our REIT qualification and our 1940 Act
exemption. We
may also use the proceeds for other general corporate purposes such as
repayment of outstanding indebtedness, working capital, and for liquidity needs,
although we presently do not intend to use such net proceeds in the near term
to pay down permanently our repurchase facility with Annaly. Pending any such
uses, we may invest the net proceeds from the sale of any securities in
interest-bearing short-term investments, including money market accounts that
are consistent with our treatment as a REIT, or may use them to reduce short
term indebtedness. These investments are expected to provide a lower net return
than we hope to achieve from investments in our intended use of proceeds of
this offering. In addition, until appropriate investments can be found, we may
also utilize the net proceeds to pay down amounts borrowed under our repurchase
agreement with Annaly. To the extent we raise more proceeds in this offering,
we will make more investments. To the extent we raise less proceeds in this
offering, we will make fewer investments. S-12 To
maintain our qualification as a REIT, we must distribute substantially all of
our taxable income to our stockholders for each year. We have done this in the
past and intend to continue to do so in the future. We also have declared and
paid regular quarterly cash dividends in the past and intend to do so in the
future. The
following table sets forth the cash distributions declared per common share
during each fiscal quarter of our current fiscal year and our last two fiscal
years. Cash
Distributions 2009 Second
quarter $ .08 First quarter $ .06 2008 Fourth
quarter $ .04 Third
quarter $ .16 Second
quarter $ .16 First
quarter $ .26 2007 Fourth
quarter (from the period November 21, 2007 through December 31, 2007) $ .025 We
have not established a minimum distribution payment level on our common stock
and our ability to pay distributions on our common stock may be adversely
affected as a result of the risks set forth under the caption “Risk Factors” in
this prospectus supplement, in the accompanying prospectus, and in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 and our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009,
which are incorporated by reference in the accompanying prospectus. All
distributions will be made 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. S-13 The
following table sets forth our capitalization as of March 31, 2009 (i) on a
historical basis; (ii) as adjusted for (1) the sale of 270,250,000 shares of
common stock (including overallotment shares sold) at $3.00 per share in an
underwritten public offering, less the underwriters’ discount, that closed on
April 21, 2009 and (2) the sale of 24,955,752 shares to Annaly immediately
following the closing of the public offering on April 21, 2009 at the same
price per share as the public offering; and (iii) as adjusted for (1) the sale
of shares of our common stock set forth in (ii), (2) the sale of our common
stock in this offering at an offering price of $3.22 per share after deducting
the underwriters’ commissions and estimated offering expenses payable by us,
and (3) the private offering to Annaly of 4,724,017 shares of our common stock
immediately after this offering at the same price per share as the price per
share in this public offering. You should read this table together with “Use of
Proceeds” included elsewhere in this prospectus supplement. This presentation
should be read in conjunction with our more detailed information contained in
the consolidated financial statements and notes thereto in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 and our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 2009, which are
incorporated by reference into the accompanying prospectus and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2008 and in our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2009, which are incorporated by reference into the accompanying
prospectus. As of March
31, 2009 Actual(1) As Adjusted
for As Adjusted
for (dollars in
thousands, except share and per share amounts) Stockholders’ equity: Common stock: par value
$.01 per share; 500,000,000(3) shares authorized, 177,196,945,
472,401,769(4), and 645,125,786(4) shares issued and outstanding $ 1,761 $ 4,713 $ 6,440 Additional paid-in capital 832,070 1,680,028 2,212,509 Accumulated other
comprehensive loss (256,705 ) (256,705 ) (256,705 ) Accumulated deficit (144,300 ) (144,300 ) (144,300 ) Total
stockholders’ equity $ 432,826 $ 1,283,736 $ 1,817,944 (1) Does not include 1,127,875
unvested shares of restricted common stock granted pursuant to our equity
incentive plan as of March 31, 2009. (2) Does not include the
underwriters’ option to purchase or place up to 25,200,000 additional shares. (3) On May 22, 2009, we amended our charter to raise the total number
of authorized shares we are permitted to issue from 550,000,000 shares, of
which 500,000,000 shares were classified as “Common Stock” and
50,000,000 shares were classified as
“Preferred Stock,” to 1,100,000,000 shares. Our authorized capital
stock now consists of 1,100,000,000 shares of capital stock, of which 1,000,000,000
shares are classified as “Common Stock” and 100,000,000 shares are
classified as “Preferred Stock.” (4) Excludes 928
shares of restricted common stock granted pursuant to our equity incentive
plan as of March 31, 2009, which were forfeited or cancelled subsequent to
March 31, 2009. S-14 We
intend to offer the shares through the underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit
Suisse Securities (USA) LLC, and Deutsche Bank Securities Inc. are acting as
representatives of the underwriters named below. Subject to the terms and
conditions described in a purchase agreement among us and the underwriters, we
have agreed to sell to the underwriters and the underwriters severally have
agreed to purchase from us, the number of shares listed opposite their names
below. Underwriter Number Merrill
Lynch, Pierce, Fenner & Smith Incorporated 57,120,000 Credit
Suisse Securities (USA) LLC 24,360,000 Deutsche
Bank Securities Inc. 24,360,000 Citigroup
Global Markets Inc. 18,480,000 Morgan
Stanley & Co. Incorporated 18,480,000 UBS
Securities LLC 18,480,000 JMP
Securities LLC 3,360,000 Keefe,
Bruyette & Woods, Inc. 3,360,000 Total 168,000,000 The
underwriters have agreed to purchase all of the shares sold under the purchase
agreement if any of these shares are purchased. If an underwriter defaults, the
purchase agreement provides that the purchase commitments of the nondefaulting
underwriters may be increased or the purchase agreement may be terminated. We
have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the underwriters may be required to make in respect of
those liabilities. The
underwriters are offering the shares, subject to prior sale, when, as and if
issued to and accepted by them, subject to approval of legal matters by their
counsel, including the validity of the shares, and other conditions contained
in the purchase agreement, such as the receipt by the underwriters of officer’s
certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole
or in part. Commissions and Discounts The
representatives have advised us that the underwriters propose initially to
offer the shares to the public at the public offering price on the cover page
of this prospectus supplement and to dealers at that price less a concession
not in excess of $.07 per share. After
the public offering, the public offering price, concession and discount may be
changed. The
following table shows the public offering price, underwriting discount and
proceeds, before expenses, to us. The information assumes either no exercise or
full exercise by the underwriters of their overallotment options. Per Share Without Option With Option Public
offering price $ 3.22 $ 540,960,000 $ 622,104,000 Underwriting
discount $ .1288 $ 21,638,400 $ 24,884,160 Proceeds,
before expenses, to us $ 3.0912 $ 519,321,600 $ 597,219,840 The
expenses of the offering, not including the underwriting discount, are
estimated at $325,000 and are payable by us. S-15 Overallotment Option We
have granted options to the underwriters to purchase up to 25,200,000
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise these options for 30 days from the date of this
prospectus supplement solely to cover any overallotments. If the underwriters
exercise these options, each will be obligated, subject to conditions contained
in the purchase agreement, to purchase a number of additional shares proportionate
to that underwriter’s initial amount reflected in the above table. No Sales of Similar Securities Pursuant
to certain “lock-up” agreements, we and our executive officers and directors
have agreed, subject to certain exceptions, not to offer, sell, contract to
sell, announce any intention to sell, pledge or otherwise dispose of, directly
or indirectly, any common shares or securities convertible into or exchangeable
or exercisable for any common shares without the prior written consent of Merrill
Lynch for a period of 90 days after the date of this prospectus supplement.
Specifically, we and these other individuals have agreed, with certain
exceptions, not to directly or indirectly: • offer,
pledge, sell or contract to sell any common stock; • sell any
option or contract to purchase any common stock; • purchase any
option or contract to sell any common stock; • grant any
option, right or warrant for the sale of any common stock; • lend or
otherwise dispose of or transfer any common stock; or • enter into
any swap or other agreement that transfers, in whole or in part, the economic
consequence of ownership of any common stock whether any such swap or
transaction is to be settled by delivery of shares or other securities, in
cash or otherwise. This
lock-up provision applies to common stock and to securities convertible into or
exchangeable or exercisable for or repayable with common stock. It also applies
to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition. The 90-day restricted period will be automatically
extended if (1) during the last 17 days of the 90-day restricted period we
issue an earnings release or material news or a material event relating to us
occurs or prior to the expiration of the 90-day restricted period, we announce
that we will release earnings results or become aware that material news or a
material event will occur during the 16-day-period beginning on the last day of
the 90-day restricted period, in which case the restrictions described above
will continue to apply until the expiration of the 18-day period beginning on
the issuance of the earnings release or the occurrence of the material news or
a material event. The exceptions permit
us, among other things and subject to restrictions, to: (a) issue common stock
or options pursuant to our long term stock incentive plan or pursuant to the
exercise of employee stock options or other awards and (b) issue common stock
pursuant to a stock dividend reinvestment plan. New York Stock Exchange Listing Our
shares of common stock are listed on the New York Stock Exchange under the
symbol “CIM.” Price Stabilization, Short Positions Until
the distribution of the shares is completed, SEC rules may limit underwriters
and selling group members from bidding for and purchasing our common stock.
However, the representatives may engage in transactions that stabilize the
price of the common stock, such as bids or purchases to peg, fix or maintain
that price. If
the underwriters create a short position in the common stock in connection with
the offering, i.e., if they sell more shares than are listed on the cover of
this prospectus supplement, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the overallotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases. S-16 Neither
we nor any of the underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the common stock. In addition, neither we nor any of the
underwriters make any representation that the representatives will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice. Selling Restrictions This
prospectus supplement does not constitute an offer of, or an invitation by or
on behalf of us, or by or on behalf of the underwriters, to subscribe for or
purchase, any of the shares in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in that jurisdiction. The
distribution of this prospectus supplement and the offering of the shares in
certain jurisdictions may be restricted by law. We and the underwriters require
persons into whose possession this prospectus supplement comes to inform
themselves about and to observe any such restrictions. In
relation to each Member State of the European Economic Area which has
implemented the Prospectus Directive (or, individually, a Relevant Member
State), each underwriter has represented and agreed that with effect from and
including the date on which the Prospectus Directive is implemented in that
Relevant Member State (or the Relevant Implementation Date) it has not made and
will not make an offer of common stock to the public in that Relevant Member
State prior to the publication of a prospectus in relation to the common stock
which has been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member State, all in accordance
with the Prospectus Directive, except that it may, with effect from and
including the Relevant Implementation Date, make an offer of common stock to
the public in that Relevant Member State at any time: • to legal
entities which are authorized or regulated to operate in the financial
markets or, if not so authorized or regulated, whose corporate purpose is
solely to invest in securities; • to any legal
entity which has two or more of (i) an average of at least 250 employees
during the last financial year; (ii) a total balance sheet of more than
€43,000,000 and (iii) an annual net turnover of more than €50,000,000, as
shown in its last annual or consolidated accounts; or • in any other
circumstances which do not require the publication by the Issuer of a
prospectus pursuant to Article 3 of the Prospectus Directive. For
the purposes of this provision, the expression an “offer of common stock to the
public” in relation to any common stock in any Relevant Member State means the
communication in any form and by any means of sufficient information on the
terms of the offer and the common stock to be offered so as to enable an
investor to decide to purchase or subscribe the common stock, as the same may
be varied in that Relevant Member State by any measure implementing the
Prospectus Directive in that Relevant Member State and the expression
Prospectus Directive means Directive 2003/71/EC and includes any relevant
implementing measure in each Relevant Member State. Each underwriter
has represented and agreed that: • it has not
made and will not make an offer of the common stock to the public in the
United Kingdom prior to the publication of a prospectus in relation to the
common stock and the offer that has been approved by the FSA or, where
appropriate, approved in another Member State and notified to the FSA, all in
accordance with the Prospectus Directive, except that it may make an offer of
the common stock to persons who fall within the definition of “qualified investor”
as that term is defined in Section 86 (7) of FSMA, or otherwise in
circumstances which do not result in an offer of transferable securities to
the public in the United Kingdom within the meaning of FSMA; • it has only
communicated or caused to be communicated and will only communicate or cause
to be communicated any invitation or inducement to engage in investment
activity (within the meaning of Section 21 of FSMA) received by it in
connection with the issue or sale of any common stock in circumstances in
which Section 21(1) of FSMA does not apply to it; and S-17 • it has
complied and will comply with all applicable provisions of FSMA with respect
to anything done by it in relation to the common stock in, from or otherwise
involving the United Kingdom. Internet Distribution Merrill
Lynch will be facilitating internet distribution for this offering to certain
of its internet subscription customers. Merrill Lynch intends to allocate a
limited number of shares for sale to its online brokerage customers. An
electronic prospectus supplement is available on the internet web site
maintained by Merrill Lynch. Other than the prospectus supplement in electronic
format, the information on the Merrill Lynch web site is not part of this prospectus
supplement. Other Relationships Certain
of the underwriters and their respective affiliates have, from time to time,
performed, and may in the future perform, various financial advisory and
investment banking services for us and our affiliates, for which they received
or will receive customary fees and expenses. In
addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse
Securities (USA) LLC, Deutsche Bank Securities Inc., Citigroup Global Markets
Inc., Morgan Stanley & Co. Incorporated, and UBS Securities LLC or their
respective affiliates have been, may be, or are lenders under one or more of
our secured repurchase credit facilities, and we have entered into interest
rate swap agreements with certain of the underwriters or their affiliates. Certain
of the underwriters and their respective affiliates are or have been counterparties
to securities and other trading activities with us and our affiliates. S-18 Certain
legal matters relating to this offering will be passed upon for us by K&L
Gates LLP, Washington, D.C. In
addition, the opinion of counsel described in the section of the accompanying
prospectus entitled “Material Federal Income Tax Considerations” is being
rendered by K&L Gates LLP, Washington, D.C. and the description of federal
income tax consequences contained in the section of the accompanying prospectus
entitled “Material Federal Income Tax Considerations” is based on the opinion
of K&L Gates LLP, Washington, D.C.
Certain legal matters relating to this offering will be passed upon for
the underwriters by Fried, Frank, Harris, Shriver & Jacobson LLP, New York,
New York. S-19
PROSPECTUS Common
Stock and Preferred Stock By
this prospectus, we may offer, from time to time, shares of our: § common
stock; § preferred
stock; or § any
combination of the foregoing. We
will provide specific terms of each issuance of these securities in supplements
to this prospectus. You should read this prospectus and any supplement
carefully before you decide to invest. This
prospectus may not be used to consummate sales of these securities unless it is
accompanied by a prospectus supplement. The
New York Stock Exchange lists our common stock under the symbol “CIM.” To
assist us in qualifying as a real estate investment trust (or REIT) for federal
income tax purposes, no person may own more than 9.8% of the outstanding shares
of any class of our common stock or our preferred stock, unless our Board of
Directors waives this limitation. Investing in
these securities involves risks. You should carefully consider the information
referred to under the heading “Risk Factors” beginning on page 4 of this
prospectus. We
may sell these securities to or through underwriters, dealers or agents, or we
may sell the securities directly to investors on our own behalf. Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is May 26, 2009 TABLE OF CONTENTS Page 1 2 4 5 5 RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS 5 6 14 36 38 38 38 39 i This
prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission (or SEC) using a “shelf” registration
process. Under this process, we may offer and sell any combination of common
stock and preferred stock in one or more offerings. This prospectus provides
you with a general description of the securities we may offer. Each time we
offer to sell securities, we will provide a supplement to this prospectus that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. It is important for you to consider the information contained
in this prospectus and any prospectus supplement together with additional
information described under the heading “Where You Can Find More Information.” You
should rely only on the information incorporated by reference or set forth in
this prospectus or the applicable prospectus supplement. We have not authorized
anyone else to provide you with additional or different information. You should
not assume that the information in this prospectus, the applicable prospectus
supplement or any other offering material is accurate as of any date other than
the dates on the front of those documents. 1 A WARNING ABOUT FORWARD-LOOKING STATEMENTS Certain
statements contained in this prospectus, any prospectus supplement and any
other offering material, and the information incorporated by reference in this
prospectus, any prospectus supplement and/or any other offering material, and
certain statements contained in our future filings with the Securities and
Exchange Commission (the “SEC” or the “Commission”), in our press releases or
in our other public or shareholder communications may not be based on
historical facts and are “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (or the Exchange Act).
Forward-looking statements, which are based on various assumptions (some of
which are beyond our control), may be identified by reference to a future
period or periods or by the use of forward-looking terminology, such as “may,”
“will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or
variations on those terms or the negative of those terms. Actual results could
differ materially from those set forth in forward-looking statements due to a
variety of factors, including, but not limited to: • our business and investment strategy; • our projected financial and operating results; • our ability to maintain existing financing
arrangements, obtain future financing arrangements and the terms of such
arrangements; • general volatility of the securities markets in which
we invest; • the implementation, timing and impact of, and changes
to, various government programs, including the Treasury’s plan to buy U.S.
government agency residential mortgage-backed securities and its Public-Private Investment Program, and the
Federal Reserve Board’s Term Asset-Backed Securities Loan Facility; • our expected investments; • changes in the value of
our investments; • interest rate mismatches
between our investments and our borrowings used to fund such purchases; • changes in interest rates
and mortgage prepayment rates; • effects of interest rate
caps on our adjustable-rate investments; • rates of default or
decreased recovery rates on our investments; • prepayments of the
mortgage and other loans underlying our mortgage-backed or other asset-backed
securities; • the degree to which our
hedging strategies may or may not protect us from interest rate volatility; • impact of and changes in
governmental regulations, tax law and rates, accounting guidance, and similar
matters; • availability of investment
opportunities in real estate-related and other securities; 2 • availability of qualified
personnel; • estimates relating to our
ability to make distributions to our stockholders in the future; • our understanding of our
competition; • market trends in our
industry, interest rates, the debt securities markets or the general economy;
and • use of proceeds of our
offerings. For
a discussion of the risks and uncertainties which could cause actual results to
differ from those contained in the forward-looking statements, please see the
information under the caption “Risk Factors” described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 and any subsequent report
incorporated by reference in this prospectus. We do not undertake, and
specifically disclaim any obligation, to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the date
of such statements. 3 ABOUT CHIMERA INVESTMENT CORPORATION Our
Company We
are a specialty finance company that invests in residential mortgage-backed
securities, or RMBS, residential mortgage loans, real estate-related securities
and various other asset classes. We elected to be taxed as a real estate
investment trust, or REIT, for federal income tax purposes commencing with our
taxable year ending on December 31, 2007. Therefore, we generally will not be
subject to federal income tax on our taxable income that is distributed to our
stockholders. We commenced operations in November 2007. We
are externally managed by Fixed Income Discount Advisory Company, which we
refer to as our Manager or FIDAC. Our Manager is an investment advisor
registered with the Securities and Exchange Commission, or SEC. Additionally,
our Manager is a wholly-owned subsidiary of Annaly Capital Management, Inc., a
New York Stock Exchange-listed REIT, which has a long track record of managing
investments in U.S. government agency RMBS, or Agency RMBS. Our
Manager is responsible for administering our business activities and day-to-day
operations. We have no employees other than our officers. Pursuant to the terms
of the management agreement, our Manager provides us with our management team,
including our officers, along with appropriate support personnel. Our Manager
is at all times subject to the supervision and oversight of our board of
directors and has only such functions and authority as we delegate to it. We do
not pay any of our officers any cash compensation. Rather, we pay our Manager a
management fee pursuant to the terms of the management agreement. Our objective is to provide
attractive risk-adjusted returns to our investors over the long-term, primarily
through dividends and secondarily through capital appreciation. We intend to
achieve this objective by investing in a diversified investment portfolio of
RMBS; residential mortgage loans; including prime mortgage loans, which are
mortgage loans that conform to the underwriting guidelines of Fannie Mae and
Freddie Mac, which we refer to as Agency Guidelines; jumbo prime mortgage
loans, which are mortgage loans that conform to the Agency Guidelines except as
to loan size; and Alt-A mortgage loans, which are mortgage loans that may have
been originated using documentation standards that are less stringent than the
documentation standards applied by certain other first lien mortgage loan
purchase programs, such as the Agency Guidelines, but have one or more
compensating factors such as a borrower with a strong credit or mortgage
history or significant assets; real estate-related securities; and various
other asset classes, subject to maintaining our REIT status and exemption from
registration under the Investment Company Act of 1940. The RMBS, asset-backed
securities (ABS), commercial mortgage-backed securities (CMBS) and
collateralized debt obligations (CDOs) we purchase may include investment-grade
and non-investment grade classes, including the BB-rated, B-rated and non-rated
classes. Our
Corporate Information We are a Maryland corporation formed in June 2007 and
commenced operations in November 2007. Our principal executive offices are
located at 1211 Avenue of Americas, Suite 4 2902, New York, New York 10036. Our telephone number
is 1-866-315-9930. Our website is http://www.chimerareit.com. The contents of
our website are not a part of this prospectus. We have included our website
address only as an inactive textual reference and do not intend it to be an
active link to our website. Investing
in our securities involves risks. You should carefully consider the risks
described under “Risk Factors” in our most recent Annual Report on Form 10-K
and any subsequent Quarterly Reports on Form 10-Q (which descriptions are
incorporated by reference herein), as well as the other information contained
or incorporated by reference in this prospectus or in any prospectus supplement
hereto before making a decision to invest in our securities. See “Where You Can
Find More Information” below. Unless
otherwise indicated in an accompanying prospectus supplement, we intend to use
the net proceeds from the sale of the securities offered by this prospectus and
the related accompanying prospectus supplement to finance the acquisition of
non-Agency RMBS, Agency RMBS, prime and Alt-A mortgage loans, CMBS, CDOs and
other consumer or non-consumer ABS, and for other general corporate purposes
such as repayment of outstanding indebtedness, working capital, and for
liquidity needs. Pending any such uses, we may invest the net proceeds from the
sale of any securities in interest-bearing short-term investments, including
money market accounts that are consistent with our intention to qualify as a
REIT, or may use them to reduce our indebtedness. RATIO OF EARNINGS TO COMBINED The
following table sets forth our ratios of earnings to combined fixed charges and
preferred stock dividends for each of the periods indicated: For the
period November 21, For the
year For the
three Ratio of earnings to combined fixed charges and (5.99)x(1) (0.98)x(2) 3.09x (1) The dollar amount of the
deficiency for this period was $2,486,000. (2) The dollar amount of the
deficiency for the year ended December 31, 2008 was $59,253,000. The
ratios of earnings to combined fixed charges and preferred stock dividends were
computed by dividing earnings as adjusted by fixed charges and preferred stock
dividends (where applicable). For this purpose, earnings consist of net income
from continuing operations and fixed charges. We currently have no shares of
preferred stock outstanding and, therefore, 5 there are no amounts for preferred dividends included
in the above calculation. Fixed charges consist of interest expense. The
following summary description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Maryland General Corporation Law, or MGCL, and our charter and our bylaws,
copies of which will be available before the closing of this offering from us
upon request. See “Where You Can Find More Information.” The
MGCL and our charter and bylaws contain provisions that could make it more
difficult for a potential acquirer to acquire us by a tender offer, proxy
contest or otherwise. These provisions are expected to discourage certain
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to negotiate first with our board of
directors. We believe that the benefits of these provisions outweigh the
potential disadvantages of discouraging any such acquisition proposals because,
among other things, the negotiation of such proposals may improve their terms. General Our
charter provides that we may issue up to
550,000,000 shares of stock, consisting of up to 500,000,000 shares of
common stock having a par value of $0.01 per share and up to 50,000,000 shares
of preferred stock having a par value of $0.01 per share. As of May 22, 2009,
472,401,769 shares of common stock and no shares of preferred stock were issued
and outstanding. Our board of directors, with the approval of a majority of the
entire board and without any action on the part of our stockholders, may amend
our charter from time to time to increase or decrease the aggregate number of
shares of stock or the number of shares of stock of any class or series that
we have authority to issue. Under Maryland law, our stockholders generally
are not personally liable for our debts and obligations solely as a result
of their status as stockholders. Common Stock All
shares of our common stock have equal rights as to earnings, assets, dividends
and voting and, when they are issued, will be duly authorized, validly issued,
fully paid and non-assessable. Distributions may be paid to the holders of our
common stock if, as and when authorized by our board of directors and declared
by us out of funds legally available therefor. Shares of our common stock have
no preemptive, appraisal, preferential exchange, conversion or redemption
rights and are freely transferable, except where their transfer is restricted
by federal and state securities laws, by contract or by the restrictions in our
charter. In the event of our liquidation, dissolution or winding up, each share
of our common stock would be entitled to share ratably in all of our assets
that are legally available for distribution after payment of or adequate
provision for all of our known debts and other liabilities and subject to any
preferential rights of holders of our preferred stock, if any preferred stock
is outstanding at such time. Subject to our charter restrictions on the
transfer and ownership of our stock and except as may otherwise be specified in
the terms of any class or series of common stock, each share of our common
stock entitles the holder to one vote on all matters submitted to a vote of
stockholders, 6 including the election of
directors. Except as provided with respect to any other class or series of
stock, the holders of our common stock will possess exclusive voting power.
There is no cumulative voting in the election of directors, which means that
holders of a majority of the outstanding shares of common stock can elect all
of our directors, and holders of less than a majority of such shares will be
unable to elect any director. Preferred Stock The
following description sets forth general terms and provisions of the preferred
stock to which any prospectus supplement may relate. The statements below
describing the preferred stock are in all respects subject to and qualified in
their entirety by reference to our charter, as amended, by-laws, as amended,
and any articles supplementary to our charter, as amended, designating terms of
a series of preferred stock. The preferred stock, when issued, will be validly
issued, fully paid, and non-assessable. Because our board of directors has the
power to establish the preferences, powers and rights of each series of
preferred stock, our board of directors may afford the holders of any series of
preferred stock preferences, powers and rights, voting or otherwise, senior to
the rights of common stockholders. The
rights, preferences, privileges and restrictions of each series of preferred
stock will be fixed by the articles supplementary relating to the series. A
prospectus supplement, relating to each series, will specify the terms of the
preferred stock, as follows: • the title and stated value
of the preferred stock; • the voting rights of the
preferred stock, if applicable; • the preemptive rights of
the preferred stock, if applicable; • the restrictions on
alienability of the preferred stock, if applicable; • the number of shares
offered, the liquidation preference per share and the offering price of the
shares; • liability to further calls
or assessment of the preferred stock, if applicable; • the dividend rate(s),
period(s) and payment date(s) or method(s) of calculation applicable to the
preferred stock; • the date from which
dividends on the preferred stock will accumulate, if applicable; • the procedures for any
auction and remarketing for the preferred stock; • the provision for a
sinking fund, if any, for the preferred stock; • the provision for and any
restriction on redemption, if applicable, of the preferred stock; • the provision for and any
restriction on repurchase, if applicable, of the preferred stock; 7 • any listing of the
preferred stock on any securities exchange; • the terms and provisions,
if any, upon which the preferred stock will be convertible into common stock,
including the conversion price (or manner of calculation) and conversion
period; • the terms under which the
rights of the preferred stock may be modified, if applicable; • any other specific terms,
preferences, rights, limitations or restrictions of the preferred stock; • a discussion of certain
material federal income tax considerations applicable to the preferred stock; • the relative ranking and
preferences of the preferred stock as to dividend rights and rights upon the
liquidation, dissolution or winding-up of our affairs; • any limitation on issuance
of any series of preferred stock ranking senior to or on a parity with the
series of preferred stock as to dividend rights and rights upon the
liquidation, dissolution or winding-up of our affairs; and • any limitations on direct
or beneficial ownership and restrictions on transfer of the preferred stock,
in each case as may be appropriate to preserve our qualification as a REIT. Power to Reclassify Shares of Our Stock Our
charter authorizes our board of directors to classify and reclassify any unissued
shares of stock into other classes or series of stock, including preferred
stock. Before issuance of shares of each class or series, the board of
directors is required by Maryland law and by our charter to set, subject to our
charter restrictions on the transfer and ownership of our stock, the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each class or series. Thus, the board of directors
could authorize the issuance of shares of common stock or preferred stock with
terms and conditions which could have the effect of delaying, deferring or
preventing a transaction or a change in control that might involve a premium
price for holders of our common stock or otherwise be in their best interests.
No shares of our preferred stock are presently outstanding and we have no
present plans to issue any preferred stock. Power to Issue Additional Shares of Common Stock and Preferred
Stock We
believe that the power of our board of directors to amend the charter without
stockholder approval to increase the total number of authorized shares of our
stock or any class or series of our stock, to issue additional authorized but
unissued shares of our common stock or preferred stock and to classify or
reclassify unissued shares of our common stock or preferred stock and
thereafter to cause us to issue such classified or reclassified shares of stock
will 8 provide us with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which might arise. The additional classes or series, as
well as our common stock, will be available for issuance without further action
by our stockholders, unless stockholder action is required by applicable law or
the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. Although our board of directors has no
intention at the present time of doing so, it could authorize us to issue a
class or series that could, depending upon the terms of such class or series,
delay, defer or prevent a transaction or a change in control of us that might
involve a premium price for holders of our common stock or otherwise be in
their best interests. Restrictions on Ownership and Transfer To
qualify as a REIT under the Internal Revenue Code for each taxable year
beginning after December 31, 2007, our shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
Also, beginning after December 31, 2007, no more than 50% of the value of our
outstanding shares of capital stock may be owned, directly or constructively,
by five or fewer individuals (as defined in the Internal Revenue Code to
include certain entities) during the second half of any calendar year. Our
charter, subject to certain exceptions, contains restrictions on the number of
shares of our capital stock that a person may own. Our charter provides that
(subject to certain exceptions described below) no person may own, or be deemed
to own by the attribution provisions of the Internal Revenue Code, more than
9.8% in value or in number of shares, whichever is more restrictive, of any
class or series of our capital stock. Our
charter also prohibits any person from (i) beneficially or constructively
owning shares of our capital stock that would result in our being “closely
held” under Section 856(h) of the Internal Revenue Code or otherwise cause us
to fail to qualify as a REIT and (ii) transferring shares of our capital stock
if such transfer would result in our capital stock being owned by fewer than
100 persons. Any person who acquires or attempts or intends to acquire
beneficial or constructive ownership of shares of our capital stock that will
or may violate any of the foregoing restrictions on transferability and
ownership, or who is the intended transferee of shares of our stock which are
transferred to the trust (as described below), will be required to give notice
immediately to us and provide us with such other information as we may request
to determine the effect of such transfer on our status as a REIT. The foregoing
restrictions on transferability and ownership will not apply if our board of
directors determines that it is no longer in our best interests to attempt to
qualify, or to continue to qualify, as a REIT. Our
board of directors, in its sole discretion, may exempt a person from the
foregoing restrictions. The person seeking an exemption must provide to our
board of directors such representations, covenants and undertakings as our
board of directors may deem appropriate to conclude that granting the exemption
will not cause us to lose our status as a REIT. Our board of directors may also
require a ruling from the Internal Revenue Service or an opinion of counsel to
determine or ensure our status as a REIT. 9 Any
attempted transfer of our securities which, if effective, would result in a
violation of the foregoing restrictions will cause the number of securities
causing the violation (rounded to the nearest whole share) to be automatically
transferred to a trust for the exclusive benefit of one or more charitable
beneficiaries, and the proposed transferee will not acquire any rights in such
securities. The automatic transfer will be deemed to be effective as of the
close of business on the business day (as defined in our charter) before the
date of the transfer. If, for any reason, the transfer to the trust is
ineffective, our charter provides that the purported transfer in violation of
the restrictions will be void ab initio. Shares of our stock held in the
trust will be issued and outstanding shares. The proposed transferee will not
benefit economically from ownership of any securities held in the trust, will
have no rights to dividends and no rights to vote or other rights attributable
to the shares of stock held in the trust. The trustee of the trust will have
all voting rights and rights to dividends or other distributions with respect
to shares held in the trust. These rights will be exercised for the exclusive
benefit of the charitable beneficiary. Any dividend or other distribution paid
before our discovery that shares of stock have been transferred to the trust
will be paid by the recipient to the trustee upon demand. Any dividend or other
distribution authorized but unpaid will be paid when due to the trustee. Any
dividend or distribution paid to the trustee will be held in trust for the
charitable beneficiary. Subject to Maryland law, the trustee will have the
authority (i) to rescind as void any vote cast by the proposed transferee
before our discovery that the shares have been transferred to the trust and
(ii) to recast the vote in accordance with the desires of the trustee acting
for the benefit of the charitable beneficiary. However, if we have already
taken irreversible corporate action, then the trustee will not have the authority
to rescind and recast the vote. Within
20 days of receiving notice from us that the securities have been transferred
to the trust, the trustee will sell the securities to a person designated by
the trustee, whose ownership of the securities will not violate the above
ownership limitations. Upon such sale, the interest of the charitable
beneficiary in the securities sold will terminate and the trustee will
distribute the net proceeds of the sale to the proposed transferee and to the
charitable beneficiary as follows. The proposed transferee will receive the
lesser of (i) the price paid by the proposed transferee for the securities or,
if the proposed transferee did not give value for the securities in connection
with the event causing the securities to be held in the trust (e.g., a gift, devise or other similar
transaction), the market price (as defined in our charter) of the securities on
the day of the event causing the securities to be held in the trust and (ii)
the price received by the trustee from the sale or other disposition of the
securities. The trustee may reduce the amount payable to the proposed
transferee by the amount of dividends and distributions paid to the proposed
transferee and owed by the proposed transferee to the trustee. Any net sale
proceeds in excess of the amount payable to the proposed transferee will be
paid immediately to the charitable beneficiary. If, before our discovery that
the securities have been transferred to the trust, the securities are sold by
the proposed transferee, then (i) the securities shall be deemed to have been
sold on behalf of the trust and (ii) to the extent that the proposed transferee
received an amount for the securities that exceeds the amount the proposed
transferee was entitled to receive, the excess shall be paid to the trustee
upon demand. In
addition, the securities held in the trust will be deemed to have been offered
for sale to us, or our designee, at a price per share equal to the lesser of
(i) the price per share in the transaction that resulted in the transfer to the
trust (or, in the case of a devise or gift, the market price at the time of the
devise or gift) and (ii) the market price on the date we, or our designee, 10 accept the offer. We may
reduce the amount payable to the proposed transferee, however, by the amount of
any dividends or distributions paid to the proposed transferee on the
securities and owed by the proposed transferee to the trustee. We will have the
right to accept the offer until the trustee has sold the securities. Upon a
sale to us, the interest of the charitable beneficiary in the securities sold
will terminate and the trustee will distribute the net proceeds of the sale to
the proposed transferee. All
certificates representing the securities will bear a legend referring to the
restrictions described above or will state that we will furnish a full
statement about certain transfer restrictions to a stockholder upon request and
without charge. Every
owner of more than 5% (or such lower percentage as required by the Internal
Revenue Code or the regulations promulgated thereunder) in value of all classes
or series of our stock, including shares of common stock, within 30 days after
the end of each taxable year, will be required to give written notice to us
stating the name and address of such owner, the number of shares of each class
and series of shares of our stock which the owner beneficially owns and a
description of the manner in which the shares are held. Each owner shall
provide to us such additional information as we may request to determine the
effect, if any, of the beneficial ownership on our status as a REIT and to
ensure compliance with the ownership limitations. In addition, each such owner
shall upon demand be required to provide to us such information as we may
request, in good faith, to determine our status as a REIT and to comply with
the requirements of any taxing authority or governmental authority or to
determine such compliance. These
ownership limitations could delay, defer or prevent a transaction or a change
in control that might involve a premium price for the common stock or might
otherwise be in your best interests. Classification
of Board of Directors, Vacancies and Removal of Directors Our
charter and by-laws, as amended, provide for a staggered Board of Directors
consisting of up to fifteen directors. Our charter provides that our directors
shall be divided into three classes, with terms of three years each. The number
of directors in each class and the expiration of each class term is as follows: Class I 2 Directors Expires 2011 Class II 2 Directors Expires 2009 Class III 1 Directors Expires 2010 At
each annual meeting of our stockholders, successors of the class of directors
whose term expires at that meeting will be elected for a three-year term and
the directors in the other two classes will continue in office. A classified
Board of Directors may delay, defer or prevent a change in control or other
transaction that might involve a premium over the then prevailing market price
for our common stock or other attributes that our stockholders may consider
desirable. In addition, a classified Board of Directors could prevent
stockholders who do not agree with the policies of our Board of Directors from
replacing a majority of the Board of Directors for two years, except in the
event of removal for cause. 11 Our
by-laws, as amended, provide that any vacancy on our Board of Directors may be
filled by a majority of the remaining directors. Any individual so elected
director will hold office for the unexpired term of the director he or she is
replacing. Our by-laws, as amended, provide that a director may be removed at
any time only for cause upon the affirmative vote of at least two-thirds of the
votes entitled to be cast in the election of directors, but only by a vote
taken at a stockholder meeting. These provisions preclude stockholders from
removing incumbent directors, except for cause and upon a substantial
affirmative vote, and filling the vacancies created by such removal with their
own nominees. Indemnification Our
amended and restated charter obligates us to indemnify our directors and
officers and to pay or reimburse expenses for them before the final disposition
of a proceeding to the maximum extent permitted by Maryland law. The
Corporations and Associations Article of the Annotated Code of Maryland (or the
Maryland General Corporation Law) permits a corporation to indemnify its
present and former directors and officers against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities, unless it is established that (1) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (a) was committed in bad faith, or (b) was the result of
active and deliberate dishonesty, or (2) the director or officer actually
received an improper personal benefit in money, property or services, or (3) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. Limitation
of Liability The
Maryland General Corporation Law permits the charter of a Maryland corporation
to include a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages, except to the extent
that (1) it is proved that the person actually received an improper benefit or
profit in money, property or services, or (2) a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a
finding that the person’s action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding. Our amended and restated charter provides for elimination of
the liability of our directors and officers to us or our stockholders for money
damages to the maximum extent permitted by Maryland law from time to time. Maryland
Business Combination Act The
Maryland General Corporation Law establishes special requirements for “business
combinations” between a Maryland corporation and “interested stockholders”
unless exemptions are applicable. An interested stockholder is any person who
beneficially owns 10% or more of the voting power of our then outstanding
voting stock. Among other things, the law prohibits for a period of five years
a merger and other similar transactions between us and an interested
stockholder unless the Board of Directors approved the transaction prior to the
party becoming an interested stockholder. The five-year period runs from the
most recent date on which the interested stockholder became an interested
stockholder. The law also requires a supermajority 12 stockholder vote for such transactions after the end
of the five-year period. This means that the transaction must be approved by at
least: • 80% of the votes entitled to be cast by holders of
outstanding voting shares; and • two-thirds of the votes entitled to be cast by
holders of outstanding voting shares other than shares held by the interested
stockholder or an affiliate of the interested stockholder with whom the
business combination is to be effected. As
permitted by the Maryland General Corporation Law, we have elected not to be
governed by the Maryland business combination statute. We made this election by
opting out of this statute in our charter, as amended. If, however, we amend
our charter to opt back in to the statute, the business combination statute
could have the effect of discouraging offers to acquire us and of increasing
the difficulty of consummating any such offers, even if our acquisition would
be in our stockholders’ best interests. Maryland Control Share Acquisition Act Maryland
law provides that “control shares” of a Maryland corporation acquired in a
“control share acquisition” have no voting rights except to the extent approved
by a vote of the other stockholders. Two-thirds of the shares eligible to vote
must vote in favor of granting the “control shares” voting rights. “Control
shares” are shares of stock that, taken together with all other shares of stock
the acquirer previously acquired, would entitle the acquirer to exercise voting
power in electing directors within one of the following ranges of voting power: • one-tenth or more but less
than one-third of all voting power; • one-third or more but less
than a majority of all voting power; or • a majority or more of all
voting power. Control
shares do not include shares of stock the acquiring person is entitled to vote
as a result of having previously obtained stockholder approval. A “control
share acquisition” means the acquisition of control shares, subject to certain
exceptions. If
a person who has made (or proposes to make) a control share acquisition
satisfies certain conditions (including agreeing to pay expenses), he may
compel our Board of Directors to call a special meeting of stockholders to
consider the voting rights of the shares. If such a person makes no request for
a meeting, we have the option to present the question at any stockholders’
meeting. If
voting rights are not approved at a meeting of stockholders then, subject to
certain conditions and limitations, we may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value. We will determine the fair value of the shares, without regard to
the absence of voting rights, as of the date of either: • the last control share
acquisition; or 13 • the meeting where
stockholders considered and did not approve voting rights of the control
shares. If
voting rights for control shares are approved at a stockholders’ meeting and
the acquirer becomes entitled to vote a majority of the shares of stock
entitled to vote, all other stockholders may obtain rights as objecting
stockholders and, thereunder, exercise appraisal rights. This means that you
would be able to force us to redeem your stock for fair value. Under Maryland
law, the fair value may not be less than the highest price per share paid in
the control share acquisition. Furthermore, certain limitations otherwise
applicable to the exercise of dissenters’ rights would not apply in the context
of a control share acquisition. The control share acquisition statute would not
apply to shares acquired in a merger, consolidation or share exchange if we
were a party to the transaction. The control share acquisition statute could
have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offers, even if our acquisition would be in
our stockholders’ best interests. Transfer Agent and Registrar Mellon
Investor Services LLC, 480 Washington Blvd., Jersey City, New Jersey 07310, is
the transfer agent and registrar for our stock. Its telephone number is (800)
522-6645. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS This
section summarizes the material federal income tax considerations that you, as
an Owner (as defined in the immediately succeeding paragraph) of shares of
capital stock, may consider relevant. K&L Gates LLP has acted as our tax
counsel, has reviewed this section and is of the opinion that the discussion
contained herein fairly summarizes the federal income tax consequences that are
likely to be material to an Owner of our shares of capital stock. Because this
section is a summary, it does not address all aspects of taxation that may be
relevant to particular Owners of our capital stock in light of their personal
investment or tax circumstances, or to certain types of Owners that are subject
to special treatment under the federal income tax laws, such as insurance
companies, tax-exempt organizations (except to the extent discussed in
“—Taxation of Owners,—Taxation of Tax-Exempt Owners” below), regulated
investment companies, partnerships and other pass-through entities (including
entities classified as partnerships for federal income tax purposes), financial
institutions or broker-dealers, and non-U.S. individuals and foreign
corporations (except to the extent discussed in “—Taxation of Owners,—Taxation
of Foreign Owners” below) and other persons subject to special tax rules. You
should be aware that in this section, when we use the term: • “Code,” we mean the
Internal Revenue Code of 1986, as amended; • “Disqualified organization,”
we mean any organization described in section 860E(e)(5) of the Code,
including: i. the United States; ii. any state or political
subdivision of the United States; iii. any foreign government; 14 iv. any international
organization; v. any agency or
instrumentality of any of the foregoing; vi. any charitable remainder
trust or other tax-exempt organization, other than a farmer’s cooperative
described in section 521 of the Code, that is exempt both from income
taxation and from taxation under the unrelated business taxable income
provisions of the Code; and vii. any rural electrical or
telephone cooperative; • “Domestic Owner,” we mean
an Owner that is a U.S. Person; • “Foreign Owner,” we mean
an Owner that is not a U.S. Person; • “IRS,” we mean the
Internal Revenue Service; • “Owner,” we mean any
person having a beneficial ownership interest in shares of our capital stock; • “TMP,” we mean a taxable
mortgage pool as that term is defined in section 7701(i)(2) of the Code; • “TRS,” we mean a taxable
REIT subsidiary described under “—Requirements for Qualification—Taxable REIT
Subsidiaries” below; • “U.S. Person,” we mean (i)
a citizen or resident of the United States; (ii) a corporation (or entity
treated as a corporation for federal income tax purposes) created or
organized in the United States or under the laws of the United States or of
any state thereof, including, for this purpose, the District of Columbia;
(iii) a partnership (or entity treated as a partnership for tax purposes)
organized in the United States or under the laws of the United States or of
any state thereof, including, for this purpose, the District of Columbia (unless
provided otherwise by future Treasury regulations); (iv) an estate whose
income is includible in gross income for federal income tax purposes
regardless of its source; or (v) a trust, if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more U.S. Persons have authority to control all substantial
decisions of the trust. Notwithstanding the preceding clause, to the extent
provided in Treasury regulations, certain trusts that were in existence on
August 20, 1996, that were treated as U.S. Persons prior to such date, and
that elect to continue to be treated as U.S. Persons, also are U.S. Persons. The
statements in this section and the opinion of K&L Gates LLP are based on
the current federal income tax laws. We cannot assure you that new laws,
interpretations of law or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be inaccurate.
No assurance can be given that the IRS would not assert, or that a court would
not sustain, a position contrary to any of the tax consequences described
below. We have not sought and will not seek an advance ruling from the IRS
regarding any matter in this prospectus. This
summary provides general information only and is not tax advice. We urge you to
consult your tax advisor regarding the specific tax consequences to you of the
purchase, 15 ownership and
sale of our capital stock and of our election to be taxed as a REIT.
Specifically, you should consult your tax advisor regarding the federal, state,
local, foreign, and other tax consequences of such purchase, ownership, sale
and election, and regarding potential changes in applicable tax laws. Taxation of Our Company We
have elected to be taxed as a REIT under Sections 856 through 860 of the Code
commencing with our short taxable year ending on December 31, 2007. We believe
that we were organized and have operated and will continue to operate in such a
manner as to qualify for taxation as a REIT under the federal income tax laws,
but no assurances can be given that we will operate in a manner so as to
qualify or remain qualified as a REIT. This section discusses the laws
governing the federal income tax treatment of a REIT and the owners of REIT
stock. These laws are highly technical and complex. In
the opinion of K&L Gates LLP, our counsel, we have qualified to be taxed as
a REIT beginning with our taxable year ended on December 31, 2007, and our
organization and current and proposed method of operation will enable us to
continue to meet the requirements for qualification and taxation as a REIT.
Investors should be aware that K&L Gates LLP’s opinion is based upon
customary assumptions, is conditioned upon certain representations made by us
as to factual matters, including representations regarding the nature of our
assets and the conduct of our business, and is not binding upon the IRS or any
court. In
addition, K&L Gates LLP’s opinion is based on existing federal income tax
law governing qualification as a REIT, which is subject to change either
prospectively or retroactively. Moreover, our qualification and taxation as a
REIT depend upon our ability to meet on a continuing basis, through actual
annual operating results, certain qualification tests set forth in the federal
income tax laws. Those qualification tests involve the percentage of income
that we earn from specified sources, the percentage of our assets that falls
within specified categories, the diversity of our stock ownership, and the
percentage of our earnings that we distribute. K&L Gates LLP will not
review our compliance with those tests on a continuing basis. Accordingly, no
assurance can be given that our actual results of operations for any particular
taxable year will satisfy such requirements. For a discussion of the tax
consequences of our failure to qualify as a REIT, see “—Failure to Qualify.” If
we qualify as a REIT, we generally will not be subject to federal income tax on
our taxable income that we currently distribute to our stockholders, but
taxable income generated by our domestic TRSs, if any, will be subject to
regular federal (and applicable state and local) corporate income tax. However,
we will be subject to federal tax in the following circumstances: • We will pay
federal income tax on our taxable income, including net capital gain, that we
do not distribute to stockholders during, or within a specified time period
after, the calendar year in which the income is earned. • We may be
subject to the “alternative minimum tax.” • We will pay
federal income tax at the highest corporate rate on: 16 ™ net income
from the sale or other disposition of property acquired through foreclosure,
which we refer to as foreclosure property, that we hold primarily for sale to
customers in the ordinary course of business, and ™ other
non-qualifying income from foreclosure property. • We will pay
a 100% tax on net income earned from sales or other dispositions of property,
other than foreclosure property, that we hold primarily for sale to customers
in the ordinary course of business. • If we fail to
satisfy the 75% gross income test or the 95% gross income test, as described
below under “—Gross Income Tests,” but nonetheless continue to qualify as a
REIT because we meet other requirements, we will be subject to a 100% tax on: ™ the greater
of the amount by which we fail the 75% gross income test or the 95% gross
income test, multiplied, in either case, by ™ a fraction
intended to reflect our profitability. • If we fail
to satisfy the asset tests by more than a de minimis amount, as described
below under “—Asset Tests,” as long as the failure was due to reasonable
cause and not to willful neglect, we dispose of the assets or otherwise
comply with such asset tests within six months after the last day of the
quarter in which we identify such failure and we file a schedule with the IRS
describing the assets that caused such failure, we will pay a tax equal to
the greater of $50,000 or 35% of the net income from the non-qualifying
assets during the period in which we failed to satisfy such asset tests. • If we fail
to satisfy one or more requirements for REIT qualification, other than the
gross income tests and the asset tests, and such failure was due to
reasonable cause and not due to willful neglect, we will be required to pay a
penalty of $50,000 for each such failure. • We may be
required to pay monetary penalties to the IRS in certain circumstances,
including if we fail to meet recordkeeping requirements intended to monitor
our compliance with rules relating to the composition of a REIT’s
stockholders, as described below in “—Requirements for Qualification.” • If we fail
to distribute during a calendar year at least the sum of: (i) 85% of our REIT
ordinary income for the year, (ii) 95% of our REIT capital gain net income
for the year and (iii) any undistributed taxable income from earlier periods,
we will pay a 4% nondeductible excise tax on the excess of the required
distribution over the sum of the amount we actually distributed and any
retained amounts on which income tax has been paid at the corporate level. • We may elect
to retain and pay federal income tax on our net long-term capital gain. In
that case, a Domestic Owner would be taxed on its proportionate share of our
undistributed long-term capital gain (to the extent that we make a timely
designation of such gain to the stockholder) and would receive a credit or
refund for its proportionate share of the tax we paid. 17 • We will be
subject to a 100% excise tax on transactions between us and any of our TRSs
that are not conducted on an arm’s-length basis. • If (a) we
recognize excess inclusion income for a taxable year as a result of our
ownership of a 100% equity interest in a TMP or our ownership of a REMIC
residual interest and (b) one or more Disqualified Organizations is the
record owner of shares of our capital stock during that year, then we will be
subject to tax at the highest corporate federal income tax rate on the
portion of the excess inclusion income that is allocable to the Disqualified
Organizations. We do not anticipate owning REMIC residual interests; we may,
however, own 100% of the equity interests in one or more CDO offerings or one
or more trusts formed in connection with our securitization transactions, but
intend to structure each CDO offering and each securitization transaction so
that the issuing entity would not be classified as a TMP. See “—Taxable
Mortgage Pools.” • If we
acquire any asset from a C corporation, or a corporation that generally is
subject to full corporate-level tax, in a merger or other transaction in
which we acquire a basis in the asset that is determined by reference either
to the C corporation’s basis in the asset or to another asset, we will pay
tax at the highest corporate federal income tax rate if we recognize gain on
the sale or disposition of the asset during the 10-year period after we
acquire the asset. The amount of gain on which we will pay tax is the lesser
of: ™ the amount
of gain that we recognize at the time of the sale or disposition, and ™ the amount
of gain that we would have recognized if we had sold the asset at the time we
acquired it, assuming that the C corporation will not elect in lieu of this
treatment to an immediate tax when the asset is acquired. In
addition, notwithstanding our qualification as a REIT, we may also have to pay
certain state and local income taxes because not all states and localities
treat REITs in the same manner that they are treated for federal income tax
purposes. Moreover, as further described below, any domestic TRS in which we
own an interest will be subject to federal, state and local corporate income
tax on its taxable income. We could also be subject to tax in situations and on
transactions not presently contemplated. Requirements
for Qualification A
REIT is a corporation, trust, or association that meets each of the following
requirements: 1.
It is managed by one or more trustees or directors. 2.
Its beneficial ownership is evidenced by transferable shares or by transferable
certificates of beneficial interest. 3.
It would be taxable as a domestic corporation, but for the REIT provisions of
the federal income tax laws. 18 4.
It is neither a financial institution nor an insurance company subject to
special provisions of the federal income tax laws. 5.
At least 100 persons are beneficial owners of its shares or ownership
certificates. 6.
Not more than 50% in value of its outstanding shares or ownership certificates
is owned, directly or indirectly, by five or fewer individuals, which the
federal income tax laws define to include certain entities, during the last
half of any taxable year. For purposes of this requirement, indirect ownership
will be determined by applying attribution rules set out in section 544 of the
Code, as modified by section 856(h) of the Code. 7.
It elects to be taxed as a REIT, or has made such election for a previous
taxable year, and satisfies all relevant filing and other administrative
requirements that must be met to elect and maintain REIT qualification. 8.
It meets certain other qualification tests, described below, regarding the
nature of its income and assets. We
must meet requirements 1 through 4 during our entire taxable year and must meet
requirement 5 during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than twelve months.
Requirements 5 and 6 applied to us beginning with our 2008 taxable year. If we
comply with all the requirements for ascertaining the ownership of our
outstanding stock in a taxable year and have no reason to know that we violated
requirement 6, we will be deemed to have satisfied requirement 6 for that
taxable year. For purposes of determining share ownership under requirement 6,
an “individual” generally includes a supplemental unemployment compensation
benefits plan, a private foundation, or a portion of a trust permanently set
aside or used exclusively for charitable purposes. An “individual” generally
does not include a trust that is a qualified employee pension or profit sharing
trust under the federal income tax laws, however, and beneficiaries of such a
trust will be treated as owning our stock in proportion to their actuarial
interests in the trust for purposes of requirement 6. We
believe that our shares are held with sufficient diversity of ownership to
satisfy requirements 5 and 6. In addition, our charter restricts the ownership
and transfer of our stock so that we should continue to satisfy these
requirements. The provisions of our charter restricting the ownership and
transfer of our capital stock are described in “Description of Capital Stock—Restrictions
on Ownership and Transfer.” To
monitor compliance with the share ownership requirements, we generally are
required to maintain records regarding the actual ownership of our shares. To
do so, we must demand written statements each year from the record holders of
significant percentages of our stock pursuant to which the record holders must
disclose the actual owners of the shares (i.e., the persons required to include
our dividends in their gross income). We must maintain a list of those persons
failing or refusing to comply with this demand as part of our records. We could
be subject to monetary penalties if we fail to comply with these record keeping
requirements. If you fail or refuse to comply with the demands, you will be
required by Treasury Regulations to submit a statement with your tax return
disclosing your actual ownership of our shares and other 19 information.
In addition, we must satisfy all relevant filing and other administrative
requirements that must be met to elect and maintain REIT qualification and use
a calendar year for federal income tax purposes. We intend to continue to
comply with these requirements. Qualified
REIT Subsidiaries A
corporation that is a “qualified REIT subsidiary” is not treated as a
corporation separate from its parent REIT. All assets, liabilities, and items
of income, deduction and credit of a qualified REIT subsidiary are treated as
assets, liabilities, and items of income, deduction and credit of the REIT. A
qualified REIT subsidiary is a corporation, other than a TRS, all of the
capital stock of which is owned, directly or indirectly, by the REIT. Thus, in
applying the requirements described herein, any qualified REIT subsidiary that
we own will be ignored, and all assets, liabilities, and items of income,
deduction and credit of such subsidiary will be treated as our assets,
liabilities, and items of income, deduction and credit. If we own 100% of the
equity interests in a CDO issuer or other securitization vehicle that is
treated as a corporation for tax purposes, that CDO issuer or other
securitization vehicle would be a qualified REIT subsidiary, unless we and the
CDO issuer or other securitization vehicle jointly elect to treat the CDO
issuer or other securitization vehicle as a TRS. It is anticipated that CDO
financings we enter into will be treated as qualified REIT subsidiaries. Other
Disregarded Entities and Partnerships An
unincorporated domestic entity, such as a partnership, limited liability
company, or trust that has a single owner generally is not treated as an entity
separate from its parent for federal income tax purposes. An unincorporated
domestic entity with two or more owners generally is treated as a partnership
for federal income tax purposes. In the case of a REIT that is a partner in a
partnership that has other partners, the REIT is treated as owning its
proportionate share of the assets of the partnership and as earning its
allocable share of the gross income of the partnership for purposes of the
applicable REIT qualification tests. For purposes of the 10% value test (see
“—Asset Tests”), our proportionate share is based on our proportionate interest
in the equity interests and certain debt securities issued by the partnership.
For all of the other asset and income tests, our proportionate share is based
on our proportionate interest in the capital interests in the partnership. Our
proportionate share of the assets, liabilities, and items of income of any
partnership, joint venture or limited liability company that is treated as a
partnership for federal income tax purposes in which we acquire an interest,
directly or indirectly, will be treated as our assets and gross income for
purposes of applying the various REIT qualification requirements. If
a disregarded subsidiary of ours ceases to be wholly-owned—for example, if any
equity interest in the subsidiary is acquired by a person other than us or
another disregarded subsidiary of ours—the subsidiary’s separate existence
would no longer be disregarded for federal income tax purposes. Instead, the
subsidiary would have multiple owners and would be treated as either a
partnership or a taxable corporation. Such an event could, depending on the
circumstances, adversely affect our ability to satisfy the various asset and
gross income requirements applicable to REITs, including the requirement that
REITs generally may not own, directly or indirectly, more than 10% of the
securities of another corporation. See “—Asset Tests” and “—Gross Income
Tests.” 20 Taxable
REIT Subsidiaries A
REIT is permitted to own up to 100% of the stock of one or more TRSs. A TRS is
a fully taxable corporation that may earn income that would not be qualifying
income if earned directly by the parent REIT. The subsidiary and the REIT must
jointly elect to treat the subsidiary as a TRS. A corporation with respect to
which a TRS directly or indirectly owns more than 35% of the voting power or
value of the stock will automatically be treated as a TRS. We generally may not
own more than 10%, as measured by voting power or value, of the securities of a
corporation that is not a qualified REIT subsidiary unless we and such
corporation elect to treat such corporation as a TRS. Overall, no more than 25%
of the value of a REIT’s assets may consist of stock or securities of one or
more TRSs. The
separate existence of a TRS or other taxable corporation, unlike a qualified
REIT subsidiary or other disregarded subsidiary as discussed above, is not
ignored for U.S. federal income tax purposes. Accordingly, a domestic TRS would
generally be subject to federal (and applicable state and local income tax)
corporate income tax on its earnings, which may reduce the cash flow generated
by us and our subsidiaries in the aggregate and our ability to make
distributions to our stockholders. A
REIT is not treated as holding the assets of a TRS or other taxable subsidiary
corporation or as receiving any income that the subsidiary earns. Rather, the
stock issued by the subsidiary is an asset in the hands of the REIT, and the
REIT generally recognizes as income the dividends, if any, that it receives
from the subsidiary. This treatment can affect the gross income and asset test
calculations that apply to the REIT, as described below. Because a parent REIT
does not include the assets and income of such subsidiary corporations in
determining the parent’s compliance with the REIT requirements, such entities
may be used by the parent REIT to undertake indirectly activities that the REIT
rules might otherwise preclude it from doing directly or through pass-through
subsidiaries or render commercially unfeasible (for example, activities that
give rise to certain categories of income such as non-qualifying hedging income
or inventory sales). Certain
restrictions imposed on TRSs are intended to ensure that such entities will be
subject to appropriate levels of U.S. federal income taxation. If a TRS that
has for any taxable year both (i) a debt-to-equity ratio in excess of 1.5 to 1,
and (ii) accrued interest expense in excess of accrued interest income, then
the TRS may be denied an interest expense deduction for a portion of the
interest expense accrued on indebtedness owed to the parent REIT (although the
TRS can carry forward the amount disallowed to subsequent taxable years). In
addition, if amounts are paid to a REIT or deducted by a TRS due to
transactions between the REIT and a TRS that exceed the amount that would be
paid to or deducted by a party in an arm’s-length transaction, the REIT
generally will be subject to an excise tax equal to 100% of such excess. We
intend to scrutinize all of our transactions with any of our subsidiaries that
are treated as a TRS in an effort to ensure that we do not become subject to
this excise tax; however, we cannot assure you that we will be successful in
avoiding this excise tax. 21 Gross Income Tests We
must satisfy two gross income tests annually to maintain qualification as a
REIT. First, at least 75% of our gross income for each taxable year must
consist of defined types of income that we derive from investments relating to
real property or mortgages on real property, or from qualified temporary
investments. Qualifying income for purposes of the 75% gross income test
generally includes: • rents from
real property; • interest on
debt secured by a mortgage on real property or on interests in real property; • dividends or
other distributions on, and gain from the sale of, shares in other REITs; • gain from
the sale of real estate assets; • any amount
includible in gross income with respect to a regular or residual interest in
a REMIC, unless less than 95% of the REMIC’s assets are real estate assets,
in which case only a proportionate amount of such income will qualify; and • income
derived from certain temporary investments. Second,
in general, at least 95% of our gross income for each taxable year must consist
of income that is qualifying income for purposes of the 75% gross income test,
other types of interest and dividends, gain from the sale or disposition of
stock or securities (provided that such stock or securities are not inventory
property, i.e., property held
primarily for sale to customers in the ordinary course of business) or any
combination of these. Gross
income from the sale of inventory property is excluded from both the numerator
and the denominator in both income tests. Income and gain from hedging
transactions that we enter into to hedge indebtedness incurred or to be
incurred to acquire or carry real estate assets will generally be excluded from
both the numerator and the denominator for purposes of the 95% gross income
test and the 75% gross income test. We intend to monitor the amount of our
non-qualifying income and manage our investment portfolio to comply at all
times with the gross income tests but we cannot assure you that we will be
successful in this effort. Interest The
term “interest,” as defined for purposes of both gross income tests, generally
excludes any amount that is based in whole or in part on the income or profits
of any person. However, interest generally includes the following: (i) an
amount that is based on a fixed percentage or percentages of gross receipts or
sales and (ii) an amount that is based on the income or profits of a borrower,
where the borrower derives substantially all of its income from the real
property securing the debt by leasing substantially all of its interest in the
property, but only to the extent that the amounts received by the borrower
would be qualifying “rents from real property” if received directly by a REIT. If
a loan contains a provision that entitles a REIT to a percentage of the
borrower’s gain upon the sale of the real property securing the loan or a
percentage of the appreciation in the 22 property’s
value as of a specific date, income attributable to that loan provision will be
treated as gain from the sale of the property securing the loan, which
generally is qualifying income for purposes of both gross income tests. Interest,
including original issue discount or market discount, that we accrue on our
real estate-related investments generally will be qualifying income for
purposes of both gross income tests. However, many of our investments will not
be secured by mortgages on real property or interests in real property. Our
interest income from those investments will be qualifying income for purposes
of the 95% gross income test but not the 75% gross income test. In addition, as
discussed below, if the fair market value of the real estate securing any of
our investments is less than the principal amount of the underlying loan, a
portion of the income from that investment will be qualifying income for
purposes of the 95% gross income test but not the 75% gross income test. Where
a mortgage covers both real property and other property, an apportionment of
interest income must be made for purposes of the 75% gross income test. If a
mortgage covers both real property and other property and the fair market value
of the real property securing the mortgage loan at the time we commit to
originate or acquire the mortgage loan equals or exceeds the highest principal
amount of the loan during the year, then all of the interest we accrue on the
mortgage loan will qualify for purposes of the 75% gross income test. If,
however, the value of the real property were less than the highest principal
amount, then only a portion of the interest income we accrue on the mortgage
loan would qualify for purposes of the 75% gross income test; such portion
based on the percentage equivalent of a fraction, the numerator of which is the
fair market value of the real property and the denominator of which is the
principal amount of the mortgage loan. Fee
Income We
may receive various fees in connection with our operations. The fees will be
qualifying income for purposes of both the 75% gross income and 95% gross
income tests if they are received in consideration for entering into an
agreement to make a loan secured by a mortgage on real property or an interest
in real property and the fees are not determined by income or profits of any
person. Other fees are not qualifying income for purposes of either gross
income test. Any fees earned by our TRS will not be included for purposes of
the gross income tests. Dividends Our
share of any dividends received from any corporation (including any TRS that we
own, but excluding any REIT or any qualified REIT subsidiary) in which we own
an equity interest will qualify for purposes of the 95% gross income test but
not for purposes of the 75% gross income test. Our share of any dividends
received from any other REIT in which we own an equity interest will be
qualifying income for purposes of both gross income tests. Rents
from Real Property We
currently do not intend to acquire real property with the proceeds of offerings
of these securities. 23 Hedging
Transactions We
may, from time to time, enter into hedging transactions with respect to the
interest rate risk associated with our borrowings. To the extent that we enter
into a contract to hedge interest rate risk on indebtedness incurred to acquire
or carry real estate assets, any income and gain from such hedging transaction
will be excluded from gross income for purposes of the 95% gross income test
and the 75% gross income test. To the extent that we hedge for certain other
purposes, the resultant income or gain will be treated as income that does not
qualify under the 95% gross income test or the 75% gross income test. We intend
to structure any hedging transaction in a manner that does not jeopardize our
status as a REIT but we cannot assure you that we will be successful in this
regard. We may conduct some or all of our hedging activities through a TRS, the
income from which may be subject to federal income tax, rather than
participating in the arrangements directly or through a partnership, qualified
REIT subsidiary or other disregarded subsidiary. No assurance can be given,
however, that our hedging activities will not give rise to income that does not
qualify for purposes of either or both of the REIT gross income tests, and will
not adversely affect our ability to satisfy the REIT qualification
requirements. Failure
to Satisfy Gross Income Tests We
intend to monitor the amount of our non-qualifying income and manage our assets
to comply with the gross income tests for each taxable year for which we seek
to maintain our status as a REIT. We cannot assure you, however, that we will
be able to satisfy the gross income tests. If we fail to satisfy one or both of
the gross income tests for any taxable year, we may nevertheless qualify as a
REIT for such year if we qualify for relief under certain provisions of the
Code. These relief provisions will be generally available if (i) our failure to
meet such tests was due to reasonable cause and not due to willful neglect, and
(ii) we file with the IRS a schedule describing the sources of our gross income
in accordance with Treasury Regulations. We cannot predict, however, whether in
all circumstances, we would qualify for the benefit of these relief provisions.
In addition, as discussed above under “—Taxation of Our Company,” even if the
relief provisions apply, a tax would be imposed upon the amount by which we
fail to satisfy the particular gross income test. Asset Tests To
qualify as a REIT, we also must satisfy the following asset tests at the end of
each quarter of each taxable year. First, at least 75% of the value of our
total assets must consist of some combination of “real estate assets,” cash,
cash items, government securities, and, under some circumstances, stock or debt
instruments purchased with new capital. For this purpose, the term “real estate
assets” includes interests in real property (including leaseholds and options
to acquire real property and leaseholds), stock of other corporations that
qualify as REITs and interests in mortgage loans secured by real property
(including certain types of mortgage-backed securities). Assets that do not
qualify for purposes of the 75% test are subject to the additional asset tests
described below. Second,
the value of our interest in any one issuer’s securities (other than debt and
equity securities issued by any of our TRSs, qualified REIT subsidiaries, any
other entity that is 24 disregarded as
an entity separate from us, and any equity interest we may hold in a
partnership) may not exceed 5% of the value of our total assets. Third, we may
not own more than 10% of the voting power or 10% of the value of any one
issuer’s outstanding securities (other than debt and equity securities issued
by any of our TRSs, qualified REIT subsidiaries, any other entity that is
disregarded as an entity separate from us, and any equity interest we may hold
in a partnership). Fourth, no more than 25% of the value of our total assets
may consist of the securities of one or more TRSs. For purposes of the 10%
value test, the term “securities” does not include certain “straight debt”
securities. Notwithstanding
the general rule that, for purposes of the gross income and asset tests, a REIT
is treated as owning its proportionate share of the underlying assets of a
partnership in which it holds a partnership interest, if a REIT holds
indebtedness issued by a partnership, the indebtedness will be subject to, and
may cause a violation of the asset tests, unless it is a qualifying mortgage
asset or otherwise satisfies the rules for “straight debt.” Similarly, although
stock of another REIT qualifies as a real estate asset for purposes of the REIT
asset tests, non-mortgage debt issued by another REIT may not so qualify. Any
regular or residual interest that we own in a REMIC will generally qualify as
real estate assets. However, if less than 95% of the assets of a REMIC consist
of assets that qualify as real estate assets, then we will be treated as
holding directly our proportionate share of the assets of such REMIC for
purposes of the asset tests. We
believe that most of the assets that we hold and those we expect to hold will
be qualifying assets for purposes of the 75% asset test. However, our
investment in other asset-backed securities, bank loans and other instruments
that are not secured by mortgages on real property will not be qualifying
assets for purposes of the 75% asset test. We
have monitored and will continue to monitor the status of our assets for
purposes of the various asset tests and will seek to manage our portfolio to
comply at all times with such tests. There can be no assurance, however, that
we will be successful in this effort. In this regard, to determine our
compliance with these requirements, we will need to estimate the value of our
assets to ensure compliance with the asset tests. We will not obtain
independent appraisals to support our conclusions concerning the values of our
assets, and we will generally rely on representations and warranties of sellers
from whom we acquire mortgage loans concerning the loan-to-value ratios for
such mortgage loans. Moreover, some of the assets that we may own may not be
susceptible to precise valuation. Although we will seek to be prudent in making
these estimates, there can be no assurance that the IRS will not disagree with
these determinations and assert that a different value is applicable, in which
case we might not satisfy the 75% asset test and the other asset tests and
would fail to qualify as a REIT. Failure to Satisfy Asset Tests If
we fail to satisfy the asset tests as the end of a quarter, we will not lose
our REIT qualification if: • we satisfied
the asset tests at the end of the preceding calendar quarter; and 25 • the
discrepancy between the value of our assets and the asset test requirements
arose from changes in the market values of our assets and was not wholly or
partly caused by the acquisition of one or more non-qualifying assets. If
we did not satisfy the condition described in the second bullet above, we still
could avoid disqualification by eliminating any discrepancy within 30 days
after the close of the calendar quarter in which it arose. If
we violate the 5% value test, 10% voting test or 10% value test described above
at the end of any calendar quarter, we will not lose our REIT qualification if
(i) the failure is de minimis (up
to the lesser of 1% of our total assets or $10 million) and (ii) we dispose of
these assets or otherwise comply with the asset tests within six months after
the last day of the quarter. In the event of a more than de minimis failure of any of the
asset tests, as long as the failure was due to reasonable cause and not to
willful neglect, we will not lose our REIT qualification if we (i) file with
the IRS a schedule describing the assets that caused the failure, (ii) dispose
of these assets or otherwise comply with the asset tests within six months
after the last day of the quarter and (iii) pay a tax equal to the greater of
$50,000 per failure or an amount equal to the product of the highest corporate
income tax rate (currently 35%) and the net income from the non-qualifying
assets during the period in which we failed to satisfy the asset tests. 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: (A)
the sum of (i)
90% of our “REIT taxable income” (computed without regard to the dividends paid
deduction and our net capital gains), and (ii)
90% of the net income (after tax), if any, from foreclosure property (as
described below), minus (B)
the sum of certain items of non-cash income. In
addition, if we were to recognize “built-in-gain” (as defined below) on
disposition of any assets acquired from a “C” corporation in a transaction in
which our basis in the assets was determined by reference to the “C”
corporation’s basis (for instance, if the assets were acquired in a tax-free
reorganization), we would be required to distribute at least 90% of the
built-in-gain recognized net of the tax we would pay on such gain.
“Built-in-gain” is the excess of (a) the fair market value of an asset
(measured at the time of acquisition) over (b) the basis of the asset (measured
at the time of acquisition). Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if either (i) we declare the distribution before we file
a timely federal income tax return for the year and pay the distribution with
or before the first regular dividend payment after such declaration or (ii) we
declare the distribution in October, November or December of the taxable year,
payable to stockholders of record on a specified day in any such 26 month, and we
actually pay the dividends before the end of January of the following year. The
distributions under clause (i) are taxable to the Owners of our capital stock
in the year in which paid, and the distributions in clause (ii) are treated as
paid on December 31 of the prior taxable year. In both instances, these
distributions relate to our prior taxable year for purposes of the 90%
distribution requirement. We
will pay federal income tax at corporate tax rates on our taxable income, including
net capital gain, that we do not distribute to stockholders. Furthermore, if we
fail to distribute during each calendar year, or by the end of January
following the calendar year in the case of distributions with declaration and
record dates falling in the last three months of the calendar year, at least
the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of our
REIT capital gain income for such year and (iii) any undistributed taxable
income from prior periods, we will be subject to a 4% nondeductible excise tax
on the excess of such required distribution over the amounts actually
distributed. We generally intend to make timely distributions sufficient to
satisfy the annual distribution requirements and to avoid corporate federal income
tax and the 4% nondeductible excise tax. We
may elect to retain, rather than distribute, our net capital gain and pay tax
on such gains. In this case, we could elect to have our stockholders include
their proportionate share of such undistributed capital gains in income and to
receive a corresponding credit or refund, as the case may be, for their share
of the tax paid by us. Stockholders would then increase the adjusted basis of
their stock by the difference between the designated amounts of capital gains
from us that they include in their taxable income, and the tax paid on their
behalf by us with respect to that income. To
the extent that a REIT has available net operating losses carried forward from
prior tax years, such losses may reduce the amount of distributions that it
must make to comply with the REIT distribution requirements. Such losses,
however, will generally not affect the character, in the hands of stockholders,
of any distributions that are actually made by the REIT, which are generally
taxable to stockholders to the extent that the REIT has current or accumulated
earnings and profits. See “—Taxation of Stockholders, —Taxation of Taxable
Domestic Stockholders.” We
may find it difficult or impossible to meet distribution requirements in
certain circumstances. Due to the nature of the assets in which we will invest,
we may be required to recognize taxable income from those assets in advance of
our receipt of cash flow on or proceeds from disposition of such assets. For
instance, we may be required to accrue interest and discount income on mortgage
loans, mortgage-backed securities, and other types of debt securities or
interests in debt securities before we receive any payments of interest or
principal on such assets. Moreover, in certain instances we may be required to
accrue taxable income that we may not actually recognize as economic income.
For example, if we own a residual equity position in a mortgage loan
securitization, we may recognize taxable income that we will never actually
receive due to losses sustained on the underlying mortgage loans. Although
those losses would be deductible for tax purposes, they would likely occur in a
year subsequent to the year in which we recognized the taxable income. Thus,
for any taxable year, we may be required to fund distributions in excess of
cash flow received from our investments. If such circumstances arise, then to
fund our distribution requirement and maintain our status as a REIT we may have
to sell 27 assets at
unfavorable prices, borrow at unfavorable terms, make taxable stock dividends,
or pursue other strategies. We cannot be assured, however, any such strategy
would be successful if our cash flow were to become insufficient to make the
required distributions. Under
certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying “deficiency dividends” to
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 taxed
on amounts distributed as deficiency dividends; however, we will be required to
pay interest and a penalty to the IRS based on the amount of any deduction
taken for deficiency dividends. Failure to Qualify If
we fail to satisfy one or more requirements for REIT qualification, other than
the gross income tests and the asset tests, we could avoid disqualification if
our failure is due to reasonable cause and not to willful neglect and we pay a
penalty of $50,000 for each such failure. In addition, there are relief
provisions for a failure of the gross income tests and asset tests, as
described in “—Gross Income Tests” and “—Asset Tests.” If
we fail to qualify for taxation as a REIT in any taxable year, and the relief
provisions do not apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular federal corporate
income tax rates. Distributions to stockholders in any year in which we fail to
qualify will not be deductible by us nor will they be required to be made. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate stockholders may be eligible for
the dividends received deduction, and individual stockholders and other
non-corporate stockholders may be eligible to be taxed at the reduced 15% rate
currently applicable to qualified dividend income (through 2010). Unless
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. We cannot predict whether in all
circumstances we would be entitled to such statutory relief. Prohibited Transactions Net
income derived by a REIT from a prohibited transaction is subject to a 100%
excise tax. The term “prohibited transaction” generally includes a sale or
other disposition of property (other than foreclosure property) that is held
“primarily for sale to customers in the ordinary course of a trade or
business.” Although we do not expect that our assets will be held primarily for
sale to customers or that a sale of any of our assets will be in the ordinary
course of our business, these terms are dependent upon the particular facts and
circumstances, and we cannot assure you that we will never be subject to this
excise tax. The 100% tax does not apply to gains from the sale of property that
is held through a TRS or other taxable corporation, although such income will
be subject to tax in the hands of the corporation at regular federal corporate
income tax rates. 28 Foreclosure Property A
REIT is subject to tax at the maximum corporate rate (currently 35%) on any
income from foreclosure property, including gain from the disposition of such
foreclosure property, other than income that otherwise would be qualifying
income for purposes of the 75% gross income test. Foreclosure property is real
property and any personal property incident to such real property (i) that is
acquired by a REIT as result of the REIT having bid on such property at
foreclosure, or having otherwise reduced the 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 a mortgage loan held by
the REIT and secured by the property, (ii) for which the related loan or lease
was acquired by the REIT at a time when default was not imminent or anticipated
and (iii) for which such REIT makes a proper election to treat the property as
foreclosure property. Any gain from the sale of property for which a
foreclosure election has been made will not be subject to the 100% excise tax
on gains from prohibited transactions described above, even if the property
would otherwise constitute inventory or dealer property in the hands of the
selling REIT. We do not expect to receive income from foreclosure property that
is not qualifying income for purposes of the 75% gross income test. However, if
we do receive any such income, we intend to make an election to treat the
related property as foreclosure property. Taxable Mortgage Pools An
entity, or a portion of an entity, may be classified as a TMP under the Code if
(i) substantially all of its assets consist of debt obligations or interests in
debt obligations, (ii) more than 50% of those debt obligations are real estate
mortgage loans, interests in real estate mortgage loans or interests in certain
mortgage-backed securities as of specified testing dates, (iii) the entity has
issued debt obligations that have two or more maturities and (iv) the payments
required to be made by the entity on its debt obligations “bear a relationship”
to the payments to be received by the entity on the debt obligations that it
holds as assets. Under Treasury Regulations, if less than 80% of the assets of
an entity (or a portion of an entity) consist of debt obligations, these debt
obligations are considered not to comprise “substantially all” of its assets,
and therefore the entity would not be treated as a TMP. We
do not intend to structure or enter into securitization or financing
transactions that will cause us to be viewed as owning interests in one or more
TMPs. Generally, if an entity or a portion of an entity is classified as a TMP,
then the entity or portion thereof is treated as a taxable corporation and it
cannot file a consolidated federal income tax return with any other
corporation. If, however, a REIT owns 100% of the equity interests in a TMP,
then the TMP is a qualified REIT subsidiary and, as such, ignored as an entity
separate from the REIT. If,
notwithstanding our intent to avoid having the issuing entity in any of our
securitization or financing transactions classified as a TMP, one or more of
such transactions was so classified, then as long as we owned 100% of the
equity interests in the issuing entity, all or a portion of the income that we
recognize with respect to our investment in the issuing entity will be treated
as excess inclusion income. Section 860E(c) of the Code defines the term
“excess inclusion” with respect to a residual interest in a REMIC. The IRS,
however, has yet to issue guidance on the computation of excess inclusion
income on equity interests in a TMP held by a REIT. Generally, however, excess
inclusion income with respect to our investment in any TMP 29 and any
taxable year will equal the excess of (i) the amount of income we accrue on our
investment in the TMP over (ii) the amount of income we would have accrued if
our investment were a debt instrument having an issue price equal to the fair
market value of our investment on the day we acquired it and a yield to maturity
equal to 120% of the long-term applicable federal rate in effect on the date we
acquired our interest. The term “applicable federal rate” refers to rates that
are based on weighted average yields for treasury securities and are published
monthly by the IRS for use in various tax calculations. If we undertake
securitization transactions that are TMPs, the amount of excess inclusion
income we recognize in any taxable year could represent a significant portion
of our total taxable for that year. Although
we intend to structure our securitization and financing transactions so that we
will not recognize any excess inclusion income, we cannot assure you that we
will always be successful in this regard. If, notwithstanding our intent, we
recognized excess inclusion income, then under guidance issued by the IRS we
would be required to allocate the excess inclusion income proportionately among
the dividends we pay to our stockholders and we must notify our stockholders of
the portion of our dividends that represents excess inclusion income. The
portion of any dividend you receive that is treated as excess inclusion income
is subject to special rules. First, your taxable income can never be less than
the sum of your excess inclusion income for the year; excess inclusion income
cannot be offset with net operating losses or other allowable deductions.
Second, if you are a tax-exempt organization and your excess inclusion income
is subject to the unrelated business income tax, then the excess inclusion portion
of any dividend you receive will be treated as unrelated business taxable
income. Third, dividends paid to Foreign Owners who hold stock for investment
and not in connection with a trade or business conducted in the United Sates
will be subject to United States federal withholding tax without regard to any
reduction in rate otherwise allowed by any applicable income tax treaty. If
we recognize excess inclusion income, and one or more Disqualified
Organizations are record holders of shares of capital stock, we will be taxable
at the highest federal corporate income tax rate on the portion of any excess
inclusion income equal to the percentage of our stock that is held by
Disqualified Organizations. In such circumstances, we may reduce the amount of
our distributions to a Disqualified Organization whose stock ownership gave
rise to the tax. To the extent that our capital stock owned by Disqualified
Organizations is held by a broker/dealer or other nominee, the broker/dealer or
other nominee would be liable for a tax at the highest corporate tax rate on
the portion of our excess inclusion income allocable to our capital stock held
by the broker/dealer or other nominee on behalf of the Disqualified
Organizations. If
we own less than 100% of the equity interests in a TMP, the foregoing rules
would not apply. Rather, the entity would be treated as a corporation for
federal income tax purposes and would potentially be subject to federal
corporate income tax. This could adversely affect our compliance with the REIT
gross income and asset tests described above. We currently do not have, and
currently do not intend to enter into any securitization or financing
transaction that is a TMP in which we own some, but less than all, of the
equity interests, and we intend to monitor the structure of any TMPs in which
we have an interest to ensure that they will not adversely affect our status as
a REIT. We cannot assure you that we will be successful in this regard. 30 Taxation of Owners Taxation of Taxable
Domestic Owners Distributions.
As long as we qualify as a REIT, distributions we make to our taxable Domestic
Owners out of current or accumulated earnings and profits (and not designated
as capital gain dividends) will be taken into account by them as ordinary
income. Dividends we pay to a corporation will not be eligible for the
dividends received deduction. In addition, distributions we make to individuals
and other Owners that are not corporations generally will not be eligible for
the 15% reduced rate of tax currently (through 2010) in effect for “qualified
dividend income.” However, provided certain holding period and other
requirements are met, an individual or other non-corporate Owner will be
eligible for the 15% reduced rate with respect to (i) distributions
attributable to dividends we receive from certain “C” corporations, such as our
TRSs, and (ii) distributions attributable to income upon which we have paid
corporate income tax. Distributions
that we designate as capital gain dividends will be taxed as long-term capital
gains (to the extent that they do not exceed our actual net capital gain for
the taxable year) without regard to the period for which you have owned our
capital stock. However, corporate Owners may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Long-term capital gains are
generally taxable at maximum federal rates of 15% (through 2010) in the case of
individuals, trusts and estates, and 35% in the case of corporations. Rather
than distribute our net capital gains, we may elect to retain and pay the
federal income tax on them, in which case you will (i) include your
proportionate share of the undistributed net capital gains in income, (ii)
receive a credit for your share of the federal income tax we pay and (iii)
increase the basis in your capital stock by the difference between your share
of the capital gain and your share of the credit. Distributions
in excess of our current and accumulated earnings and profits will not be
taxable to you to the extent that they do not exceed your adjusted tax basis in
our capital stock you own, but rather, will reduce your adjusted tax basis in
your capital stock. Assuming that the capital stock you own is a capital asset,
to the extent that such distributions exceed your adjusted tax basis in the
capital stock you own, you must include them in income as long-term capital
gain (or short-term capital gain if the capital stock has been held for one
year or less). If
we declare a dividend in October, November or December of any year that is
payable to stockholders of record on a specified date in any such month, but
actually distribute the amount declared in January of the following year, then
you must treat the January distribution as though you received it on December
31 of the year in which we declared the dividend. In addition, we may elect to
treat other distributions after the close of the taxable year as having been
paid during the taxable year, but you will be treated as having received these
distributions in the taxable year in which they are actually made. To
the extent that we have available net operating losses and capital losses
carried forward from prior tax years, such losses may reduce the amount of
distributions that we must make to comply with the REIT distribution
requirements. See “—Annual Distribution 31 Requirements.”
Such losses, however, are not passed through to you and do not offset your
income from other sources, nor would they affect the character of any
distributions that you receive from us; you will be subject to tax on those
distributions to the extent that we have current or accumulated earnings and
profits. Although
we do not expect to recognize any excess inclusion income, if we did recognize
excess inclusion income, we would identify a portion of the distributions that
we make to you as excess inclusion income. Your taxable income can never be
less than the sum of your excess inclusion income for the year; excess
inclusion income cannot be offset with net operating losses or other allowable
deductions. See “—Taxable Mortgage Pools.” Dispositions
of Our Stock. Any gain or loss you recognize upon the sale or other
disposition of our capital stock will generally be capital gain or loss for
federal income tax purposes, and will be long-term capital gain or loss if you
held the capital stock for more than one year. In addition, any loss you
recognize upon a sale or exchange of our capital stock that you have owned for
six months or less (after applying certain holding period rules) will generally
be treated as a long-term capital loss to the extent of distributions received
from us that you are required to treat as long-term capital gain. If
you recognize a loss upon a disposition of our capital 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, recently enacted
legislation imposes significant penalties for failure to comply with these
requirements. You should consult your tax advisor concerning any possible
disclosure obligation with respect to the receipt or disposition of our capital
stock, or transactions that might be undertaken directly or indirectly by us.
Moreover, you should be aware that we and other participants in the
transactions involving us (including our advisors) may be subject to disclosure
or other requirements pursuant to these regulations. Amounts
that you are required to include in taxable income with respect to our capital
stock you own, including taxable distributions and the income you recognize
with respect to undistributed net capital gain, and any gain recognized upon
your disposition of our capital stock, will not be treated as passive activity
income. You may not offset any passive activity losses you may have, such as
losses from limited partnerships in which you have invested, with income you
recognize with respect to our shares of capital stock. Generally, income you
recognize with respect to our capital stock will be treated as investment
income for purposes of the investment interest limitations. Information
Reporting and Backup Withholding. We will report to our stockholders
and to the IRS the amount of distributions we pay during each calendar year and
the amount of tax we withhold, if any. Under the backup withholding rules, you
may be subject to backup withholding at a current rate of 28% with respect to
distributions unless you: • are a
corporation or come within certain other exempt categories and, when
required, demonstrate this fact; or 32 • provide a
taxpayer identification number, certify as to no loss of exemption from
backup withholding, and otherwise comply with the applicable requirements of
the backup withholding rules. Any
amount paid as backup withholding will be creditable against your federal
income tax liability. For a discussion of the backup withholding rules as
applied to foreign owners, see “—Taxation of Foreign Owners.” Taxation of Tax-Exempt Owners Tax-exempt
entities, including qualified employee pension and profit sharing trusts and
individual retirement accounts, are generally exempt from federal income
taxation. However, they are subject to taxation on their unrelated business
taxable income (“UBTI”). Provided that a tax-exempt Owner (i) has not held our
capital stock as “debt financed property” within the meaning of the Code and
(ii) has not used our capital stock in an unrelated trade or business, amounts
that we distribute to tax-exempt Owners generally should not constitute UBTI.
However, a tax-exempt Owner’s allocable share of any excess inclusion income
that we recognize will be subject to tax as UBTI. See “—Taxable Mortgage
Pools.” We intend to structure our securitization and financing transactions so
that we will avoid recognizing any excess inclusion income. Tax-exempt
Owners that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services
plans, exempt from taxation under special provisions of the federal income tax
laws, are subject to different UBTI rules, which generally will require them to
characterize distributions that they receive from us as UBTI. In
certain circumstances, a qualified employee pension trust or profit sharing
trust that owns more than 10% of our stock could be required to treat a
percentage of the dividends that it receives from us as UBTI if we are a
“pension-held REIT.” We will not be a pension-held REIT unless either (a) one
pension trust owns more than 25% of the value of our stock or (b) a group of
pension trusts individually holding more than 10% of our stock collectively
owns more than 50% of the value of our stock. However, the restrictions on
ownership and transfer of our stock, as described under “Description of Capital
Stock—Restrictions on Ownership and Transfer” are designed among other things
to prevent a tax-exempt entity from owning more than 10% of the value of our
stock, thus making it unlikely that we will become a pension-held REIT. Taxation of Foreign Owners The
following is a summary of certain U.S. federal income and estate tax consequences
of the ownership and disposition of our capital stock applicable to a Foreign
Owner. If
a partnership, including for this purpose any entity that is treated as a
partnership for U.S. federal income tax purposes, holds 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. An investor that is a
partnership having Foreign Owners as partners should consult its tax advisors
about the U.S. federal income tax consequences of the acquisition, ownership
and disposition of our capital stock. 33 The
discussion is based on current law and is for general information only. The
discussion addresses only certain and not all aspects of U.S. federal income
and estate taxation. Ordinary Dividend Distributions. The
portion of dividends received by a Foreign Owner payable out of our current and
accumulated earnings and profits that are not attributable to our capital gains
and that are not effectively connected with a U.S. trade or business of the
Foreign Owner will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by an applicable income tax treaty). In general, a Foreign
Owner will not be considered engaged in a U.S. trade or business solely as a
result of its ownership of our capital stock. In cases where the dividend
income from a Foreign Owner’s investment in our capital stock is (or is treated
as) effectively connected with the Foreign Owner’s conduct of a U.S. trade or
business, the Foreign Owner generally will be subject to U.S. tax at graduated
rates, in the same manner as Domestic Owners are taxed with respect to such
dividends (and may also be subject to the 30% branch profits tax in the case of
a foreign owner that is a foreign corporation). If a Foreign Owner is the
record holder of shares of our capital stock, we plan to withhold U.S. income
tax at the rate of 30% on the gross amount of any distribution paid to a
Foreign Owner unless: • a lower
income treaty rate applies and the Foreign Owner provides us with an IRS Form
W-8BEN evidencing eligibility for that reduced rate; or • the Foreign
Owner provides us with an IRS Form W-8ECI certifying that the distribution is
effectively connected income. Under
some income tax treaties, lower withholding tax rates do not apply to ordinary
dividends from REITs. Furthermore, reduced treaty rates are not available to
the extent that distributions are treated as excess inclusion income. See
“—Taxable Mortgage Pools.” We intend to structure our securitization and
financing transactions so that we will avoid recognizing any excess inclusion
income. Non-Dividend
Distributions. Distributions we make to a Foreign Owner that are not
considered to be distributions out of our current and accumulated earnings and
profits will not be subject to U.S. federal income or withholding tax unless
the distribution exceeds the Foreign Owner’s adjusted tax basis in our capital
stock at the time of the distribution and, as described below, the Foreign
Owner would otherwise be taxable on any gain from a disposition of our capital
stock. If it 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 distribution will be subject to withholding at the rate
applicable to dividends. A Foreign Owner may, however, seek a refund of such
amounts from the IRS if it is subsequently determined that the distribution was,
in fact, in excess of our current and accumulated earnings and profits,
provided the proper forms are timely filed with the IRS by the Foreign Owner. Capital Gain
Dividends. Distributions that we make to Foreign Owners that are
attributable to our disposition of U.S. real property interests (“USRPI,” which
term does not include interests in mortgage loans and mortgage-backed
securities) are subject to U.S. federal income and withholding taxes pursuant
to the Foreign Investment in Real Property Act of 1980, or FIRPTA, and may also
be subject to branch profits tax if the Foreign Owner is a corporation that is
not entitled to treaty relief or exemption. Although we do not anticipate
recognizing any gain attributable to the disposition of USRPI, as defined by
FIRPTA, Treasury Regulations 34 interpreting
the FIRPTA provisions of the Code could be read to impose a withholding tax at
a rate of 35% on all of our capital gain dividends (or amounts we could have
designated as capital gain dividends) paid to Foreign Owners, even if no
portion of the capital gains we recognize during the year are attributable to
our disposition of USRPI. However, in any event, the FIRPTA rules will not
apply to distributions to a Foreign Owner with respect to any class of our
capital stock so long as (i) such class of stock is regularly traded (as
defined by applicable Treasury Regulations) on an established securities
market, and (ii) the Foreign Owner owns (actually or constructively) no more
than 5% of such class of stock at any time during the one-year period ending
with the date of the distribution. Dispositions
of Our Stock. Unless our capital stock constitutes a USRPI, a sale
of our capital stock by a Foreign Owner generally will not be subject to U.S.
federal income tax under FIRPTA. We do not expect that our capital stock will
constitute a USRPI. Our capital stock will not constitute a USRPI if less than
50% of our assets throughout a prescribed testing period consist of interests
in real property located within the United States, excluding, for this purpose,
interest in real property solely in the capacity as a creditor. Even if the
foregoing test is not met, our capital stock will not constitute a USRPI if we
are a domestically controlled REIT. A “domestically controlled REIT” is a REIT
in which, at all times during a specified testing period, less than 50% in
value of its shares is held directly or indirectly by foreign owners. We do not
intend to maintain records to determine whether we are a domestically
controlled REIT for this purpose. Even
if we do not constitute a domestically controlled REIT, a Foreign Owner’s sale
of a class of our capital stock generally will still not be subject to tax
under FIRPTA as a sale of a USRPI provided that (i) such class of stock is
“regularly traded” (as defined by applicable Treasury Regulations) on an
established securities market and (ii) the selling Foreign Owner has owned
(actually or constructively) 5% or less of such class of stock at all times
during a specified testing period. If
gain on the sale of our capital stock were subject to taxation under FIRPTA,
the Foreign Owner would generally be subject to the same treatment as a
Domestic Owner with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of the capital stock could be required to
withhold 10% of the purchase price and remit such amount to the IRS. Capital
gains not subject to FIRPTA will nonetheless be taxable in the United States to
a Foreign Owner in two cases. First, if the Foreign Owner’s investment in our
capital stock is effectively connected with a U.S. trade or business conducted
by such Foreign Owner, the Foreign Owner will generally be subject to the same
treatment as a Domestic Owner with respect to such gain. Second, if the Foreign
Owner is a nonresident alien individual who was present in the United States
for 183 days or more during the taxable year and has a “tax home” in the United
States, the nonresident alien individual will be subject to a 30% tax on the
individual’s capital gain. Estate Tax.
Our capital stock owned or treated as owned by an individual who is not a
citizen or resident of the United States (as specially defined for U.S. federal
estate tax purposes) at the time of death will be includible in the
individual’s gross estate for U.S. federal estate tax 35 purposes,
unless an applicable estate tax treaty provides otherwise. Such individual’s
estate may be subject to U.S. federal estate tax on the property includible in
the estate for U.S. federal estate tax purposes. Other Tax Consequences Possible
Legislative or Other Actions Affecting Tax Consequences. Prospective
investors should recognize that the present federal income tax treatment of an
investment in our capital stock may be modified by legislative, judicial or
administrative action at any time, and that any such action may affect
investments and commitments previously made. The rules dealing with federal
income taxation are constantly under review by persons involved in the
legislative process and by the IRS and Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. Revisions in federal tax laws and interpretations
thereof could adversely affect the tax consequences of an investment in our
capital stock. State and
Local Taxes. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in
which we or they transact business or reside. The state and local tax treatment
may not conform to the federal income tax consequences discussed above.
Consequently, prospective investors should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in our
capital stock. We
may sell the securities offered pursuant to this prospectus and any accompanying
prospectus supplements to or through one or more underwriters or dealers or we
may sell the securities to investors directly or through agents. Each
prospectus supplement, to the extent applicable, will describe the number and
terms of the securities to which such prospectus supplement relates, the name
or names of any underwriters or agents with whom we have entered into
arrangements with respect to the sale of such securities, the public offering
or purchase price of such securities and the net proceeds we will receive from
such sale. Any underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement. We may sell
securities directly to investors on our own behalf in those jurisdictions where
we are authorized to do so. Underwriters
may offer and sell the securities at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
the prevailing market prices or at negotiated prices. We also may, from time to
time, authorize dealers or agents to offer and sell these securities upon such
terms and conditions as may be set forth in the applicable prospectus
supplement. In connection with the sale of any of these securities, underwriters
may receive compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the securities
for whom they may act as agent. Underwriters may sell the securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for which they may act as agents. 36 Shares
may also be sold in one or more of the following transactions: (a) block
transactions (which may involve crosses) in which a broker-dealer may sell all
or a portion of the shares as agent but may position and resell all or a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker-dealer as principal and resale by the broker-dealer for its own
account pursuant to a prospectus supplement; (c) a special offering, an
exchange distribution or a secondary distribution in accordance with applicable
New York Stock Exchange or other stock exchange rules; (d) ordinary brokerage
transactions and transactions in which a broker-dealer solicits purchasers; (e)
sales “at the market” to or through a market maker or into an existing trading
market, on an exchange or otherwise, for shares; and (f) sales in other ways
not involving market makers or established trading markets, including direct
sales to purchasers. Broker-dealers may also receive compensation from
purchasers of the shares which is not expected to exceed that customary in the
types of transactions involved. Any
underwriting compensation paid by us to underwriters or agents in connection
with the offering of these securities, and any discounts or concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable prospectus supplement. Dealers and agents participating in
the distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions. The maximum underwriting compensation to be received by any
Financial Industry Regulatory Authority member or independent broker-dealer
will not exceed 8% for any offering of these securities. Underwriters,
dealers and agents may be entitled, under agreements entered into with us, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act of 1933. Unless otherwise set
forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any of these securities will be subject to certain
conditions precedent. In
connection with the offering of the securities hereby, certain underwriters,
and selling group members and their respective affiliates, may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the applicable securities. These transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated
by the SEC pursuant to which these persons may bid for or purchase securities
for the purpose of stabilizing their market price. The
underwriters in an offering of securities may also create a “short position”
for their account by selling more securities in connection with the offering
than they are committed to purchase from us. In that case, the underwriters
could cover all or a portion of the short position by either purchasing securities
in the open market following completion of the offering of these securities or
by exercising any over-allotment option granted to them by us. In addition, the
managing underwriter may impose “penalty bids” under contractual arrangements
with other underwriters, which means that they can reclaim from an underwriter
(or any selling group member participating in the offering) for the account of
the other underwriters, the selling concession for the securities that are
distributed in the offering but subsequently purchased for the account of the
underwriters in the open market. Any of the transactions described in this
paragraph or comparable transactions that are described in any accompanying
prospectus 37 supplement may
result in the maintenance of the price of the securities at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph or in an accompanying prospectus supplement are
required to be taken by any underwriters and, if they are undertaken, may be
discontinued at any time. Our
common stock is listed on the New York Stock Exchange under the symbol “CIM.”
Any series of our preferred stock will be new issues of securities with no
established trading market and may or may not be listed on a national
securities exchange. Any underwriters or agents to or through which securities
are sold by us may make a market in the securities, but these underwriters or
agents will not be obligated to do so and any of them may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of or trading market for any securities sold by us. Underwriters,
dealers and agents may engage in transactions with, or perform services for, us
and our affiliates in the ordinary course of business. Underwriters have from
time to time in the past provided, and may from time to time in the future
provide, investment banking services to us for which they have in the past
received, and may in the future receive, customary fees. The
consolidated financial statements incorporated in this prospectus by reference
from the Company’s Annual Report on Form 10-K, and the effectiveness of Chimera
Investment Corporation’s internal control over financial reporting have been
audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report, which is incorporated herein by
reference. Such consolidated financial statements have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing. The
validity of the securities offered hereby is being passed upon for us by
K&L Gates LLP. The opinion of counsel described under the heading “Material
Federal Income Tax Considerations” is being rendered by K&L Gates LLP. This
opinion is subject to various assumptions and is based on current tax law. WHERE YOU CAN FIND MORE
INFORMATION We
file annual, quarterly, and current reports, proxy statements and other
information with the SEC. You may read and copy any reports or other
information that we file with the SEC at the SEC’s Public Reference Room
located at 100 F Street, N.E., Washington D.C. 20549. You may also receive
copies of these documents upon payment of a duplicating fee, by writing to the
SEC’s Public Reference Room. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room in Washington D.C. and other
locations. Our Securities and Exchange Commission filings, including our
registration statement, are also available to you, free of charge, on the
Securities and Exchange Commission’s website at www.sec.gov. Finally, we
also maintain an Internet site where you can find additional information. The
address of our Internet site is http://www.chimerareit.com. All internet
38 addresses
provided in this prospectus or in any accompanying prospectus supplement are
for informational purposes only and are not intended to be hyperlinks. In
addition, the information on our internet site is not a part of, and is not
incorporated or deemed to be incorporated by reference in, this prospectus or
any accompanying prospectus supplement or other offering materials.
Accordingly, no information in our or any of these other internet addresses is
included herein or incorporated or deemed to be incorporated by reference
herein. We
have filed a registration statement, of which this prospectus is a part,
covering the securities offered hereby. As allowed by SEC rules, this
prospectus does not contain all of the information set forth in the
registration statement and the exhibits, financial statements and schedules
thereto. We refer you to the registration statement, the exhibits, financial
statements and schedules thereto for further information. This prospectus is
qualified in its entirety by such other information. INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE The
SEC allows us to “incorporate by reference” information into this prospectus,
which means that we can disclose important information to you by referring you
to another document filed separately with the SEC. The information incorporated
by reference is deemed to be part of this prospectus, except for any
information superseded by information in this prospectus. We have filed the
documents listed below with the SEC (File No. 1-33796) under the Exchange Act,
and these documents are incorporated herein by reference: • Our Annual
Report on Form 10-K for the year ended December 31, 2008 as filed on March 3,
2009; • Our Current
Report on Form 8-K filed on April 17, 2009; • Our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 filed on
May 7, 2009; and • Description
of our common stock included in our Registration Statement on Form 8-A, filed
on November 11, 2007. All
documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus and prior to the termination of
the offering of the securities to which this prospectus relates (other than
information in such documents that is not deemed to be filed) shall be deemed
to be incorporated by reference into this prospectus and to be part hereof from
the date of filing of those documents. All documents we file pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the
initial registration statement that contains this prospectus and prior to the
effectiveness of the registration statement shall be deemed to be incorporated
by reference into this prospectus and to be part hereof from the date of filing
those documents. Any
statement contained in this prospectus or in a document incorporated by
reference shall be deemed to be modified or superseded for all purposes to the
extent that a statement 39 contained in
this prospectus or in any other document which is also incorporated by
reference modifies or supersedes that statement. We
will provide to each person, including any beneficial owner, to whom a copy of
this prospectus is delivered, a copy of any or all of the information that has
been incorporated by reference in this prospectus but not delivered with this
prospectus (other than the exhibits to such documents which are not
specifically incorporated by reference herein); we will provide this
information at no cost to the requester upon written or oral request to
Investor Relations, Chimera Investment Corporation, 1211 Avenue of the
Americas, Suite 2902, New York, New York 10036, telephone number (866) 315-9930. 40
168,000,000 Shares Common Stock PROSPECTUS SUPPLEMENT Merrill Lynch & Co. May 27, 2009
months ended
March 31,
2009
months
ended
March 31,
2008
ended
December 31,
2008
November 21,
2007 through
December 31,
2007
months ended
March 31, 2009
months ended
March 31, 2008
December 31, 2008
21, 2007 through
December 31, 2007
after this offering
645,125,786
shares, based upon 472,401,769 shares of common stock outstanding as of May
22, 2009. Does not include up to an additional 25,200,000 shares of our
common stock that we may issue and sell upon the exercise of the
underwriters’ overallotment option. Includes 1,127,875 shares of our
restricted common stock granted pursuant to our equity incentive plan that
were unvested as of March 31, 2009. Includes 4,724,017 shares to be sold to
Annaly immediately after this offering.
Declared Per
Common Share
the April 2009
offering(1)
the April 2009
offering and this
offering(1)(2)
of Shares
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
2007 (date operations
commenced) through December
31, 2007
ended December
31, 2008
months ended
March 31, 2009
preferred stock dividends
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