This summary contains highlights about the Company and the Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting, and the Company encourages you to read the entire Proxy Statement and the Company’s 2017 Annual Report on Form 10-K carefully before voting.

2018 Annual Meeting of Stockholders

 TIME AND DATE:

Wednesday, May 23, 2018 at 9:00 a.m. (Eastern Time)

 PLACE:

www.virtualshareholdermeeting.com/NLY2018

 RECORD DATE:

Close of business on March 26, 2018

 VOTING:

Stockholders are able to vote by Internet at www.proxyvote.com; telephone at 1-800-690-6903; by completing and returning their proxy card; or online at the Annual Meeting

Voting Matters

      Board Vote
Recommendation
   Page
Number
Proposal No. 1: Election of Directors   FOR each Director nominee   19
Proposal No. 2: Approval, on an advisory basis, of the Company’s executive compensation   FOR   45
Proposal No. 3: Ratification of the appointment of Ernst & Young LLP   FOR   49

Participate in the Annual Meeting

After years of declining attendance by stockholders at Annaly’s in-person annual meetings, the Company is moving to an online format for this year’s Annual Meeting. By hosting the Annual Meeting virtually, Annaly is able to communicate more effectively with its stockholders, enable increased attendance and participation from locations around the world and reduce costs for both the Company and its stockholders. This approach also aligns with the Company’s broader sustainability goals. The virtual meeting has been designed to provide the same rights to participate as you would have at an in-person meeting, including providing opportunities to make statements and ask questions.

You are entitled to participate and vote at the Annual Meeting by visiting www.virtualshareholdermeeting.com/NLY2018. An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at 1-877-328-2502. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the 16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting and you cannot vote from such audio broadcast. Stockholders can access Annaly’s interactive pre-meeting forum, where you can submit questions in advance of the Annual Meeting and view copies of the Company’s proxy materials, by visiting www.proxyvote.com.

If you wish to watch the webcast at a location provided by the Company, the Company’s Maryland counsel, Venable LLP, will air the webcast at its offices located at 750 E. Pratt Street, Suite 900, Baltimore, MD 2102. Please note that no members of management or the Board will be in attendance at this location. If you wish to view the Annual Meeting via webcast at Venable LLP’s office, please complete the Reservation Request Form found at the end of this Proxy Statement. For additional information on the Annual Meeting, and for copies of the Company’s Proxy Statement and 2017 Annual Report, please visit Annaly’s Annual Meeting informational website at www.annalyannualmeeting.com.

VOTING

Stockholders are entitled to vote by

INTERNET

www.proxyvote.com

TELEPHONE
1-800-690-6903

MAIL
completing and returning their proxy card

ONLINE
at the Annual Meeting

INFORMATION
www.annalyannualmeeting.com

Annaly at a Glance

NLY

New York Stock Exchange Traded

 

1997

Initial Public Offering

 

$15 billion(1)

Largest mortgage REIT in the world

The Company has been externally-managed by Annaly Management Company LLC (the “Manager”) since July 2013. The Manager is responsible for managing the Company’s affairs pursuant to a management agreement. The Manager pays all of the compensation, including benefits, to its employees (which include the named executive officers (“NEOs”) other than Mr. Keyes, who receives no compensation for his services as the Company’s Chief Executive Officer (“CEO”), but has an interest in the management fee as an indirect equityholder of the Manager). Although certain personnel (but none of the NEOs) are employed by subsidiaries of the Company for regulatory or corporate efficiency reasons, all compensation and benefits paid to such personnel by these subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. As of December 31, 2017, the Manager had 146 employees and Annaly’s subsidiaries collectively had six employees. For ease of reference, throughout this Proxy Statement, the NEOs and the other employees of the Manager, together with employees of Annaly’s subsidiaries, are sometimes referred to as Annaly’s employees.

Recent Operating Achievements

 Performance
 
 Capital Raising
 
 Dividends

32%

Total Shareholder Return in 2017, the single best year in the last decade

 

$2.8 billion

of capital raised across common and preferred markets over 6 months(2)

 

$1.4 billion

Common and preferred dividends declared in 2017; Q1 represents the 18th consecutive quarter of a $0.30 dividend(3)

Diversification
 
Optionality
 
Efficiency

24%

Capital dedicated to credit assets at the end of 2017, an increase from 11% in 2014

 

36

Available investment options is nearly 3x more than in 2013

 

48%

Lower operating expense as a percentage of equity than the mREIT index in 2017(4)

Alignment
 
Financing
 
Human Capital

$5.9 million

of common stock purchased by Annaly’s NEOs in 2017(5), with the CEO voluntarily increasing his stock ownership commitment to $15 million

 

7 

New financing relationships as part of initiative to broaden and diversify counterparties

 

27 

New hires in 2017, bringing total new hires since 2014 to 125+, including several members of management

  1. Represents capital as of December 31, 2017.

  2. Capital raising total proceeds include $425 million preferred offering completed in January 2018. Gross proceeds are before deducting underwriting discounts and other offering expenses.

  3. The first quarter 2018 common stock cash dividend was declared on March 15, 2018 and is payable on April 30, 2018.

  4. Represents the percentage difference of Annaly’s operating expense as a percentage of average equity vs. the BBREMTG for 2017. Operating expense is defined as: (i) for internally-managed BBREMTG members, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for externally-managed BBREMTG members, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses.

  5. Includes dividend reinvestments.

Annaly’s Diversified Investment Strategy

Diversification is a key component of the Annaly strategy. Since 2014, Annaly has diversified its business model by investing in credit assets, which complement the Company’s primary portfolio of interest rate sensitive investments. This strategy is designed to achieve stable risk-adjusted earnings and book value performance over various interest rate and economic cycles by pairing shorter duration floating-rate credit securities with the Company’s longer duration, fixed-rate agency portfolio. Annaly now has four distinct investment groups, which provide access to over 36 investment options and structures. While managing investment decisions, the Company combines a robust capital allocation process with careful risk management. This process enables Annaly to take advantage of market fluctuations and inefficiencies and rotate into credit markets when dislocations occur and pricing is attractive on a risk-adjusted, relative value basis.

  1. Agency assets include to be announced (“TBA”) purchase contracts (market value) and mortgage servicing rights (“MSRs”). Residential Credit and Annaly Commercial Real Estate (“ACREG”) assets include only the economic interest of consolidated variable interest entities (“VIEs”).

  2. Dedicated capital includes TBA purchase contracts, excludes non-portfolio related activity and varies from total stockholders’ equity.

  3. Sector rank compares Annaly dedicated capital in each of its four investment groups as of December 31, 2017 (adjusted for price to book as of December 31, 2017) to the market capitalization of the companies in each respective comparative sector as of December 31, 2017. Comparative sectors used for Agency, Residential Credit and Commercial Real Estate ranking are their respective sector within the BBREMTG as of December 31, 2017. Comparative sector used for Middle Market Lending ranking is the S&P BDC Index.

  4. Levered return assumptions are for illustrative purposes only and attempt to represent current market asset returns and financing terms for prospective investments of the same, or a substantially similar, nature in each respective group.

The Company has 36 investment options across its four investment groups, which is nearly three times more than in 2013 and up from 26 options at the end of 2015.

Number of Available Investment Options

Dividends

From Annaly’s IPO in 1997 through December 31, 2017, the Company has declared over $16 billion in common and preferred dividends to its stockholders. In 2017, Annaly declared over $1.4 billion in common and preferred dividends.

$16 billion

The cumulative dividends Annaly has delivered to stockholders since its IPO

 

$1.4 billion

of common and preferred dividends delivered to stockholders in 2017

 

18

Consecutive quarters of a $0.30 dividend through Q1 2018

Cumulative Dividends Declared since Annaly’s IPO

Delivering Significant Value for Stockholders

12.4%(1)

Economic return in 2017, which represents the change in book value plus dividends declared over the year

 

32%

Total shareholder return in 2017, the single best year in the last decade

 

883%

Total shareholder return since Annaly’s IPO (including reinvestment of dividends)

Since 2014 (the first full year the Company was externally-managed, as more fully described in “Management Structure” on page 38), Annaly has performed well against relevant benchmarks. As illustrated by the graphs below, shares of the Company’s common stock (including reinvestment of dividends) have returned significant value to stockholders over the long term relative to both the Company’s mREIT peers and other yield-focused investments.

Total Shareholder Return since 2014(2)

 

2017 Total Shareholder Return(2)

  1. Economic return is shown for full year 2017 and represents change in book value plus dividends declared over prior period book value.

  2. Source: Bloomberg. mREITs represent BBREMTG Index. Utilities represent the Russell 3000 Utilities Index. MLPs represent the Alerian MLP Index. Asset Managers represent the S&P 500 Asset Management and Custody Bank Index. Banks represent the KBW Bank Index. S&P represents the S&P 500 index. Note: Total shareholder return shown for period of December 31, 2013 to December 31, 2017 in top graph. Total shareholder return shown for period of December 31, 2016 to December 31, 2017 in bottom graph.

Stockholder Outreach and Results of 2017 Say-on-Pay Vote

7

Non-deal roadshows across the U.S., Canada and Europe

 

72

One-on-one meetings and phone calls with stockholders

 

100+

Participants attended Annaly’s inaugural Investor Day

The Company is committed to ongoing engagement with both retail and institutional stockholders through a wide range of mediums. These engagement efforts have yielded meaningful feedback on a variety of topics, including the Company’s diversified investment strategy and its corporate governance, compensation and management structures.

Following the results of Annaly’s 2017 advisory resolution on executive compensation (commonly known as a “Say-on-Pay” vote), which received support from 69% of votes cast, the Company continued its multi-pronged outreach campaign to solicit feedback from key stakeholders on a number of issues, including the Manager’s executive compensation program and proposed compensation disclosure for 2018, board composition and refreshment and corporate social responsibility initiatives.

Stockholder Engagement Efforts in 2017

The Company’s stockholder outreach efforts to solicit feedback on the Manager’s executive compensation program and the Company’s proposed disclosure were complemented by related initiatives, including:

  • Analysis of market practices at peer companies
  • Advice from compensation consultants
  • Attendance at investor conferences
  • Discussions with proxy advisory services and corporate governance research firms

These stockholder engagement efforts generated significant feedback for both the Board and management and resulted in a number of enhancements to corporate governance and compensation practices and disclosures. Annaly’s stockholders have been extremely instrumental to, and supportive of, these governance and disclosure enhancements and the Company looks forward to continuing to find innovative ways to engage over the course of 2018 and beyond.

Stockholder Engagement

WHAT THE
COMPANY HEARD
  WHAT THE COMPANY DID
Improve Disclosure to Enable Fully Informed Say-on-Pay Vote  
  • Provided additional clarity and transparency on the Manager’s executive compensation program, including disclosure of:
    • the portion of the management fee that is allocated to NEO compensation paid by the Manager
    • of this compensation, the portion of fixed vs. variable/incentive pay
    • the metrics utilized to measure performance to determine variable/incentive pay
Further Increase Alignment of Senior Executives with Stockholders  
  • CEO voluntarily increased his stock ownership commitment to $15 million (from his existing requirement of $10 million) and pledged to meet this amount through open market purchases within three years
  • Other members of senior management, including the Chief Investment Officer, Chief Credit Officer, Chief Financial Officer and Chief Legal Officer, also committed to voluntarily increase their stock ownership positions beyond the amounts required under their applicable stock ownership guidelines
Focus on Board Refreshment and Diversity  
  • Adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors, which will be facilitated by an external evaluator on a periodic basis
  • Assessed all Directors to ensure continued match of skills against the Company’s needs
  • Refreshed Board Committee memberships and chairmanships
  • Appointed 2 new highly qualified Directors to the Board as of January 1, 2018
    • Doubled the number of women Directors (from 2 to 4) as a result of these appointments
    • 36% of Directors are women
    • 4 of 11 Directors have tenure of less than 5 years
Elevate Board Education  
  • Board became a Full Board Member of the National Association of Corporate Directors (NACD), which gives Directors access to an extensive menu of board education programs, along with research on governance trends and board practices
Expand Corporate Social Responsibility  
  • Created Public Responsibility Committee of the Board to provide oversight of corporate philanthropy, culture and reputation, social impact investments and initiatives related to sustainability and public policy
  • The Company partnered with Capital Impact Partners to launch a new joint venture dedicated to supporting community development in underserved cities across the country
  • Recognized in the 2018 Bloomberg Gender-Equality Index, reflecting the Company’s commitment to creating a gender equal workplace
Increase Opportunities for Stockholder Engagement  
  • Hosted first investor day with over 100 attendees
  • Moving to an online format for the Annual Meeting to enable increased stockholder attendance and participation
  • Established interactive pre-meeting forum, where stockholders can submit questions in advance of the Annual Meeting

Enhanced Disclosure on the Manager's Executive Compensation Program

89.7%

of NEO compensation was variable and paid in the form of performance-based cash incentive bonuses

 

10.3%

of NEO compensation was paid in the form of fixed base salaries

 

16.2%

of the aggregate management fees paid to the Manager were allocated by the Manager as NEO compensation

Over the last two years, the Company has engaged in extensive outreach to understand the information stockholders need in order to fully evaluate the Manager’s executive compensation program for purposes of making an informed Say-on-Pay vote. In response to this feedback, the Manager has provided the information below about the compensation it paid to the NEOs for 2017.

  • With the exception of Mr. Keyes (who does not receive any direct or indirect compensation from the Manager or the Company for his services as the Company’s CEO, but does have an interest in the fees paid to the Manager as an indirect equityholder of the Manager), each of the NEOs received a base salary and a performance-based cash incentive bonus for 2017.

  • During 2017, the NEOs as a group received aggregate salaries of $2.8 million and aggregate performance-based cash incentive bonuses of $23.9 million from the Manager. These amounts collectively represent 16.2% of the aggregate management fees the Company paid to the Manager during 2017. On an aggregated basis, the NEOs received 10.3%of their total compensation in the form of base salaries and the remaining 89.7% in the form of performance-based cash incentive bonuses.

  • In determining the cash bonuses it paid to the NEOs for 2017, the Manager considered achievement of both rigorous Company performance metrics,(1) including core return on equity, core return on assets, and operating expenses as a percentage of average equity, along with individual performance objectives.

  • The Manager considered a list of specified peer companies (set forth on page 44 under “Company Market Data”), together with advice from the Manager’s compensation consultants, to develop appropriate compensation packages for the NEOs.

For additional information about the Manager, the management agreement and executive compensation, see “Certain Relationships and Related Transactions,” “Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”

  1. Each of the core performance metrics referred to in this Proxy Statement, including core return on equity and core return on assets, excludes the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities.

The Manager and the Management Agreement

1.05%

The Manager receives a fee equal to 1.05% of the Company’s stockholders’ equity

 

29%

Annaly’s management fee is 29% lower than the industry average of 1.48%(1)

 

$276 million

Approximate compensation savings since the Externalization in July 2013(2)

  • All of the NEOs are indirect owners and/or employees of the Manager

  • With the exception of Mr. Keyes, each of the other NEOs receives compensation paid by the Manager. Mr. Keyes receives no compensation for his services as CEO, although, as an indirect equityholder of the parent of the Manager, Mr. Keyes has an interest in the fees paid to the Manager

  • The Manager is responsible for the compensation of its employees (including the NEOs other than Mr. Keyes) who provide services to the Company. Annaly does not pay any cash or equity compensation to its executive officers, does not provide pension benefits, perquisites or other personal benefits, and has no employment agreements or arrangements to pay any cash severance upon their termination or a change in control of the Company

  • The Manager receives a flat management fee equal to 1.05% of the Company’s stockholders’ equity (as defined in the Management Agreement), which is used by the Manager to, among other things, pay the compensation and benefits of the Manager’s employees (including the NEOs). However, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocate any specific portion of the management fee it pays to the compensation of the NEOs, nor does the Company reimburse the Manager for the cost of such compensation

  • For 2017, the management fee was approximately $164.3 million

Over the past several years, the Manager has made significant investments in personnel corresponding to the diversification of its investment strategy into more people-intensive asset classes (including Residential Credit, Commercial Real Estate and Middle Market Lending assets), as well as to corporate infrastructure enhancements. These investments include the build out of teams for the Agency, Residential Credit, Commercial Real Estate and Middle Market Lending groups, and significant hires in business support functions, such as Risk Management, Legal and Compliance, Finance and Information Technology, among others.

Investment in Annaly’s People

91

Dedicated staff supporting best-in-class Risk Management, Technology, Legal, Finance and Business Development functions

 

96%

of employees feel Annaly is committed to exceeding stockholder expectations, compared to the Financial Services average of 88%(3)

10

Internal development programs in place with 100% employee participation

 

7

Management committees with broad representation designed to provide guidance and oversight

The costs of these personnel expansions and improvements have been paid by the Manager rather than by the Company. Unlike a number of other externally-managed REITs, Annaly does not reimburse the Manager for any portion or subset of employment costs, all of which are borne by the Manager. An increase to these costs does not result in any increase to the management fee, which is a fixed percentage of stockholders’ equity as described above.

Despite the costs associated with the diversification of its investment strategy, the Manager has continued to operate the business in an efficient manner with appropriately scaled operating costs (including the management fee). As illustrated by the table below, Annaly’s average operating expense levels have remained significantly lower than both its internally- and externally-managed mREIT peers over the last six years.

  1. The “industry average” reflects the average management fee of all externally-managed companies (excluding Annaly) included in the BBREMTG Index as of December 31, 2017. For additional information, including assumptions, about this calculation, please see “Management Agreement Terms” on pages 38 - 39.

  2. For additional information, including assumptions, about this calculation, please see “Continued Cost Savings Related to the Externalization” on page 40.

  3. “Financial Services” average is provided by Perceptyx based on a cross section of global and domestic banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, and investment funds.

Operating Expense as a Percentage of Average Equity(1)
  2012 2013 2014 2015 2016 2017    Average
1.45% 1.66% 1.61% 1.58% 1.65% 1.68%   1.61%
 Internally-Managed Peers 2.71% 3.95% 3.92% 3.68% 2.14% 2.10%   3.08%
Externally-Managed Peers 2.38% 3.06% 3.55% 3.82% 4.36% 4.00%   3.53%
mREIT Index 2.33% 3.30% 3.62% 3.80% 3.53% 3.25%   3.30%

For additional information about the Manager, the management agreement and executive compensation, see “Certain Relationships and Related Transactions,” “Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”

Governance Timeline

Annaly Strives for Best-in-Class Governance Practices

  1. Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of December 31st of each respective year. Note: Internally-Managed Peers and Externally-Managed Peers represent the respective internally- and externally-managed members of the BBREMTG Index as of December 31st of each respective year. The average for each excludes Annaly and companies during years in which they became public or first listed. Operating Expense is defined as: (i) for Internally-Managed Peers, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for Externally-Managed Peers and Annaly, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses. Annaly’s 2016 operating expenses exclude costs of $49 million related to the Company’s acquisition of Hatteras Financial Corp.

Board Composition and Refreshment

4

of 11 Directors have tenure of less than 5 years

 

82%

of Annaly’s Board of Directors is comprised of Independent Directors with deep and diverse expertise

 

36%

of Annaly’s Board of Directors are women

The Nominating/Corporate Governance Committee (the “NCG Committee”) of the Board seeks to achieve a balance of knowledge, experience and capability on the Board. Newer Directors offer fresh ideas and perspectives, while deeply experienced Directors bring extensive knowledge of the Company’s complex operations. On an annual basis, the NCG Committee evaluates the Board’s overall composition, including Director tenure and rigorously evaluates all Directors to ensure a continued match of their skill sets against the needs of the Company. This assessment also informs Board succession planning, and contributed to the appointment, effective January 1, 2018, of two new Independent Directors (Katie Beirne Fallon and Vicki Williams) with skills that complement the Company’s highly qualified Board. The table below summarizes key qualifications, skills, and attributes most relevant to the Directors’ service on the Board. For additional information about individual Director’s qualifications and experience, please see the Director biographies beginning on page 20.

Board Skill / Experience Summary