As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-69400
PROSPECTUS SUPPLEMENT DATED FEBRUARY 12, 2003
TO PROSPECTUS DATED JULY 25, 2001
ANTHRACITE CAPITAL, INC.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
This prospectus supplement must be used in conjunction with the accompanying
prospectus dated July 25, 2001. The information in this prospectus supplement
supercedes the information in the accompanying prospectus only to the extent
inconsistent therewith.
The following changes are effective beginning February 14, 2003:
- American Stock Transfer & Trust Company will serve as the administrator
(the "Plan Administrator") of our Dividend Reinvestment and Stock
Purchase Plan (the "Plan"). The Plan Administrator keeps records, sends
account statements to participants in the Plan and performs other
duties related to the Plan, including the safekeeping of the shares
purchased for each participant. The Plan Administrator also acts as the
dividend disbursing agent, transfer agent and registrar for our common
stock.
- The Plan Administrator can be reached and plan participants may obtain
the applicable discount rate, threshold price, instructions for Wire
Transfers and Electronic Funds Transfers, broker and nominee forms,
requests for waiver and other forms by calling 1-877-248-6416. Certain
forms, including authorization forms and investment forms can also be
obtained from our website: www.anthracitecapital.com. The information
on our website is not a part of this prospectus supplement or
accompanying prospectus.
- Checks or money orders should be made payable to "American Stock
Transfer & Trust Company--Anthracite Capital, Inc. Dividend
Reinvestment and Stock Purchase Plan" and should be mailed to:
American Stock Transfer & Trust Company
P.O. Box 922
Wall Street Station
New York, NY 10269-0560
Attn: Dividend Reinvestment Department
1-877-248-6416
If your check is returned as unpaid, the Plan Administrator will sell
shares it purchased for your account and will charge you a fee of
$25.00. If, however, the sale is not sufficient to cover the amount of
the unpaid check, the Plan Administrator reserves the right to sell
additional shares from your account.
- Optional cash investments less than or equal to $20,000 per month do
not require a waiver to be accepted by us.
- With respect to the dividend reinvestment portion of the Plan, the
authorization form (and the broker and nominee form if necessary) must
be received by the Plan Administrator on or before the record date
established for a particular dividend in order for a stockholder to be
eligible for reinvestment of such dividends under the Plan for that
related dividend; otherwise, reinvestment will begin on the dividend
reinvestment date following the next record date.
- You may only elect to have up to 500,000 shares registered in the Plan
at any one time, including any shares you choose to have participate in
the Plan through a broker, bank or other nominee, without obtaining a
waiver from us. To request a waiver please call 1-877-248-6416.
- The amount of common stock in a plan participant's account will be
computed to three decimal places, including any shares purchased by
dividend reinvestment or optional cash purchases.
Any questions regarding this prospectus supplement or the accompanying
prospectus, the Plan, your account or any other matters should be directed to:
Anthracite Capital, Inc. Dividend Reinvestment and Stock Purchase Plan
c/o American Stock Transfer & Trust Company
P.O. Box 922, Wall Street Station
New York, New York 10269-0560
Toll Free: 1-877-248-6416
E-mail address: info@amstock.com
Website address: www.investpower.com
or
Anthracite Capital, Inc.
Dividend Reinvestment and Stock Purchase Plan
40 East 52nd Street
New York, New York 10022
Telephone: 1-212-409-3333
Facsimile: 1-212-754-8758
E-mail address: ahr-info@ahr.blackrock.com
Website address: www.anthracitecapital.com
S-2
PROSPECTUS
ANTHRACITE CAPITAL, INC.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
Our Dividend Reinvestment and Stock Purchase Plan (the "Plan") provides both
existing holders of our common stock and interested new investors with a
convenient and cost effective method to purchase shares of our common stock. By
participating in the Plan you may purchase additional shares of our common stock
by reinvesting some or all cash dividends paid on our outstanding common stock.
Stockholders that elect to participate in the Plan may also make monthly
optional cash purchases which are subject to a minimum monthly purchase limit of
$100 and a maximum monthly purchase limit of $5,000. Interested investors not
currently stockholders may make initial cash purchases which are subject to a
minimum monthly purchase limit of $250 and a maximum monthly purchase limit of
$5,000. The price to be paid for each share of our common stock purchased
directly from us under the Plan will be a price equal to the average of the
daily high and low sales prices, computed to four decimal places, of our common
stock as reported on the NYSE during the twelve trading days prior to the date
of the cash investment less a discount ranging from 0% to 5%. The price of the
shares of our common stock purchased on the open market will be the average
price of all shares of our common stock purchased for all participants in the
Plan without any discount.
This prospectus relates to the offer and sale of up to 10,000,000 authorized
but unissued shares of our common stock under the Plan. Participants should
retain this prospectus for future reference.
Our common stock is listed on the New York Stock Exchange under the symbol
"AHR".
Plan Highlights:
-- Any registered stockholder may elect to participate in the Plan.
-- Interested investors, not currently holders of our common stock may make
their initial investment through the Plan.
-- 0% to 5% discount on shares of our common stock purchased directly from
us.
-- No brokerage fees on purchases made in the open market except to the
extent such fees exceed 5%.
-- Certificate safekeeping in book entry form at The Bank of New York, at
no charge to you.
-- Recordkeeping and reporting will be provided, at no charge to you.
-- Full or partial dividend reinvestment options.
-- Optional and initial cash purchases.
AN INVESTMENT IN THE SECURITIES BEING OFFERED INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this prospectus is July 25, 2001.
WHERE YOU CAN FIND INFORMATION
We file reports, proxy statements, and other information with the SEC. Such
reports, proxy statements, and other information concerning us can be read and
copied at the SEC's Public Reference Room at 450 Fifth Street, N.W, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room. The SEC maintains an internet site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC, including ours. Our
common stock is listed and traded on the New York Stock Exchange. These reports,
proxy statements and other information are also available for inspection at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
This prospectus is part of a registration statement filed with the SEC by
us. The full registration statement can be obtained from the SEC as indicated
above, or from us.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, filed with the Commission pursuant to the 1934 Act,
are incorporated by reference in this prospectus:
-- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2000 including exhibits thereto;
-- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
-- Our Current Reports on Form 8-K dated February 14, 2001, February 28,
2001, and June 8, 2001, including exhibits thereto; and
-- The description of the common stock contained in our registration
statement on Form 8-A under the 1934 Act, including any amendment or
report filed to update the description.
All documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act of 1934, prior to filing a post-effective amendment which
indicates that all securities offered hereby have been sold or which deregisters
all securities offered hereby then remaining unsold, shall be deemed to be
incorporated by reference herein and shall be deemed to be a part hereof from
the date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified, superseded or replaced by a statement or information contained in
any other subsequently filed document incorporated herein by reference. Any such
statement so modified, superseded or replaced shall not be deemed, except as so
modified, superseded or replaced, to constitute a part of this prospectus.
We will provide a prospectus without charge upon written or oral request,
and a copy of any of the documents incorporated by reference herein, except for
any exhibits to such documents. Written requests should be mailed to Anthracite
Capital, Inc., 345 Park Avenue, New York, New York 10154, or call
(212) 409-3333.
ANTHRACITE CAPITAL, INC. AND THE MANAGER
Anthracite Capital, Inc., a Maryland corporation, was formed in
November 1997 to invest in multifamily, commercial and residential mortgage
loans, mortgage-backed securities and other real estate related assets in both
U.S. and non-U.S. markets. We focus on opportunities in the commercial high
yield real estate sector. Specifically, we believe the trend towards more
conservative first lien lending has created
2
a shortage of capital in the mezzanine and second mortgage markets. We can
provide this capital to earn high yields and still have a secured interest in
real estate, which we believe will allow for a greater risk adjusted return for
shareholders. We also acquire investment grade real estate related securities.
We have elected to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code") beginning with our 1998
taxable year, and we will generally not be subject to federal income tax to the
extent that we distribute our net income to our stockholders and qualify for
taxation as a REIT. Our address is 345 Park Avenue, 29th Floor, New York, New
York 10154 and our Internet address is www.anthracitecapital.com. Our operations
are managed by BlackRock Financial Management, Inc. which is referred to in this
prospectus as "BlackRock." We have no ownership interest in BlackRock.
BlackRock is a subsidiary of PNC Bank, National Association, which is itself
a wholly owned subsidiary of the PNC Financial Services Group, Inc. Established
in 1988, BlackRock is a registered investment adviser under the Investment
Advisers Act of 1940 and is one of the largest fixed-income investment
management firms in the United States. BlackRock engages in investment and risk
management as its sole businesses and specializes in the management of domestic
and offshore fixed-income assets for pension and profit sharing plans, financial
institutions such as banking and insurance companies and mutual funds for retail
and institutional investors. The address of BlackRock is 345 Park Avenue,
29th Floor, New York, New York 10154 and BlackRock's Internet address is
www.blackrock.com.
RISK FACTORS
CONFLICTS OF INTEREST OF BLACKROCK MAY RESULT IN DECISIONS THAT DO NOT FULLY
REFLECT STOCKHOLDERS' BEST INTERESTS.
Anthracite and BlackRock have common officers and directors, which may
present conflicts of interest in Anthracite's dealings with BlackRock and its
affiliates, including Anthracite's purchase of assets originated by such
affiliates. For example, Anthracite may purchase certain mortgage assets from
PNC Bank, which owns 70% of the outstanding capital stock of BlackRock. PNC Bank
will be able to influence the investment decisions of Anthracite.
BlackRock and its employees may engage in other business activities which
could reduce the time and effort spent on the management of Anthracite.
BlackRock also provides services to REITs not affiliated with us. As a result,
there may be a conflict of interest between the operations of BlackRock and its
affiliates in the acquisition and disposition of mortgage assets. In addition,
BlackRock and its affiliates may from time to time purchase mortgage assets for
their own account and may purchase or sell assets from or to Anthracite. Such
conflicts may result in decisions and allocations of mortgage assets by
BlackRock that are not in our best interests.
Although we have adopted investment guidelines, those guidelines give
BlackRock significant discretion in investing. Anthracite's investment and
operating policies and the strategies that BlackRock uses to implement those
policies may be changed at any time without the consent of stockholders.
WE ARE DEPENDENT ON BLACKROCK AND THE TERMINATION BY US OF OUR MANAGEMENT
AGREEMENT WITH BLACKROCK COULD RESULT IN A TERMINATION FEE.
The management agreement between Anthracite and BlackRock provides for base
management fees payable to BlackRock without consideration of the performance of
Anthracite's portfolio and also provides for incentive fees based on certain
performance criteria, which could result in BlackRock recommending
3
riskier or more speculative investments. Termination of the management agreement
between Anthracite and BlackRock by Anthracite would result in the payment of a
substantial termination fee, which could adversely affect Anthracite's financial
condition. Termination of the management agreement by Anthracite could also
adversely affect Anthracite if Anthracite were unable to find a suitable
replacement.
INTEREST RATE FLUCTUATIONS WILL AFFECT THE VALUE OF OUR MORTGAGE ASSETS, NET
INCOME AND COMMON STOCK.
Interest rates are highly sensitive to many factors, including governmental
monetary and tax policies, domestic and international economic and political
considerations and other factors beyond our control. Interest rate fluctuations
can adversely affect the income and value of our common stock in many ways and
present a variety of risks, including the risk of a mismatch between asset
yields and borrowing rates, variances in the yield curve and changing prepayment
rates.
AN INTEREST RATE MISMATCH COULD OCCUR BETWEEN ASSET YIELDS AND BORROWING RATES
RESULTING IN DECREASED YIELD.
Our operating results depend in large part on differences between the income
from our assets (net of credit losses) and our borrowing costs. We fund a
substantial portion of our assets with borrowings which have interest rates that
reset relatively rapidly, such as monthly or quarterly. We anticipate that, in
most cases, the income from our assets will respond more slowly to interest rate
fluctuations than the cost of borrowings, creating a potential mismatch between
asset yields and borrowing rates. Consequently, changes in interest rates,
particularly short-term interest rates, may significantly influence our net
income. Increases in these rates tend to decrease our net income and market
value of our net assets. Interest rate fluctuations that result in our interest
expense exceeding interest income would result in Anthracite incurring operating
losses.
INTEREST RATE CAPS ON OUR MORTGAGE-BACKED SECURITIES MAY ADVERSELY AFFECT OUR
PROFITABILITY.
Our adjustable-rate mortgage-backed securities are typically subject to
periodic and lifetime interest rate caps. Periodic interest rate caps limit the
amount an interest rate can increase during any given period. Lifetime interest
rate caps limit the amount an interest rate can increase through maturity of a
mortgage-backed security. Our borrowings are not subject to similar
restrictions. Accordingly, in a period of rapidly increasing interest rates, we
could experience a decrease in net income or a net loss because the interest
rates on our borrowings could increase without limitation while the interest
rates on our adjustable-rate mortgage-backed securities would be limited by
caps.
BECAUSE WE ACQUIRE FIXED-RATE SECURITIES, AN INCREASE IN INTEREST RATES MAY
ADVERSELY AFFECT OUR PROFITABILITY.
We also invest in fixed-rate mortgage-backed securities. In a period of
rising interest rates, our interest payments could increase while the interest
we earn on our fixed-rate mortgage-backed securities would not change. This
would adversely affect our profitability.
A DISPROPORTIONATE RISE IN SHORT TERM INTEREST RATES AS COMPARED TO LONG TERM
INTEREST RATES MAY ADVERSELY AFFECT OUR INCOME.
The relationship between short-term and long-term interest rates is often
referred to as the "yield curve." Ordinarily, short-term interest rates are
lower than long-term interest rates. If short-term interest
4
rates rise disproportionately relative to long-term interest rates (a flattening
of the yield curve), our borrowing costs may increase more rapidly than the
interest income earned on our assets. Because our borrowings will primarily bear
interest at short-term rates and our assets will primarily bear interest at
medium-term to long-term rates, a flattening of the yield curve tends to
decrease our net income and market value of our net assets. Additionally, to the
extent cash flows from long-term assets that return scheduled and unscheduled
principal are reinvested, the spread between the yields of the new assets and
available borrowing rates may decline and also may tend to decrease the net
income and market value of our net assets. It is also possible that short-term
interest rates may adjust relative to long-term interest rates such that the
level of short-term rates exceeds the level of long-term rates (a yield curve
inversion). In this case, borrowing costs may exceed the interest income and
operating losses could be incurred.
OUR ASSETS INCLUDE SUBORDINATED COMMERCIAL MORTGAGE-BACKED SECURITIES WHICH ARE
SUBORDINATE IN RIGHT OF PAYMENT TO MORE SENIOR SECURITIES.
Our assets include a significant amount of subordinated commercial
mortgage-backed securities, which are the most subordinate class of securities
in a structure of securities secured by a pool of loans and accordingly are the
first to bear the loss upon a restructuring or liquidation of the underlying
collateral and the last to receive payment of interest and principal. We may not
recover the full amount or, in extreme cases, any of our initial investment in
such subordinated interests. Additionally, market values of these subordinated
interests tend to be more sensitive to changes in economic conditions than more
senior interests. As a result, such subordinated interests generally are not
actively traded and may not provide holders thereof with liquidity of
investment.
OUR ASSETS INCLUDE MEZZANINE LOANS WHICH HAVE GREATER RISKS OF LOSS THAN MORE
SENIOR LOANS.
Our assets include a significant amount of mezzanine loans which involve a
higher degree of risk than long-term senior mortgage loans. In particular, a
foreclosure by the holder of the senior loan could result in the mezzanine loan
becoming unsecured. Accordingly, we may not recover some or all of our
investment in such a mezzanine loan. Additionally, the Company may permit higher
loan to value ratios on mezzanine loans than it would on conventional mortgage
loans when it is entitled to share in the appreciation in value of the property
securing the loan.
PREPAYMENT RATES CAN INCREASE WHICH WOULD ADVERSELY AFFECT YIELDS ON OUR
INVESTMENTS.
The yield on investments in mortgage loans and mortgage-backed securities
and thus the value of our common stock is sensitive to changes in prevailing
interest rates and changes in prepayment rates, which results in a divergence
between Anthracite's borrowing rates and asset yields, consequently reducing
income derived from our investments.
OUR OWNERSHIP OF NON-INVESTMENT GRADE MORTGAGE ASSETS SUBJECTS US TO AN
INCREASED RISK OF LOSS.
We acquire mortgage loans and non-investment grade mortgage-backed
securities, which are subject to greater risk of credit loss on principal and
non-payment of interest in contrast to investments in senior investment grade
securities.
5
OUR MORTGAGE LOANS ARE SUBJECT TO CERTAIN RISKS.
We acquire, accumulate and securitize mortgage loans as part of our
investment strategy. While holding mortgage loans, we are subject to risks of
borrower defaults, bankruptcies, fraud and special hazard losses that are not
covered by standard hazard insurance. Also, the costs of financing and hedging
the mortgage loans can exceed the interest income on the mortgage loans. In the
event of any default under mortgage loans held by us, we will bear the risk of
loss of principal to the extent of any deficiency between the value of the
mortgage collateral and the principal amount of the mortgage loan. In addition,
delinquency and loss ratios on Anthracite's mortgage loans are affected by the
performance of third-party servicers and special servicers.
WE INVEST IN MULTIFAMILY AND COMMERCIAL LOANS WHICH INVOLVE A GREATER RISK OF
LOSS THAN SINGLE FAMILY LOANS.
Our investments include multifamily and commercial real estate loans which
are considered to involve a higher degree of risk than single family residential
lending because of a variety of factors, including generally larger loan
balances, dependency for repayment on successful operation of the mortgaged
property and tenant businesses operating therein, and loan terms that include
amortization schedules longer than the stated maturity which provide for balloon
payments at stated maturity rather than periodic principal payments. In
addition, the value of multifamily and commercial real estate can be affected
significantly by the supply and demand in the market for that type of property.
LIMITED RECOURSE LOANS LIMIT OUR RECOVERY TO THE VALUE OF THE MORTGAGED
PROPERTY.
A substantial portion of the mortgage loans we acquire may contain
limitations on the mortgagee's recourse against the borrower. In other cases,
the mortgagee's recourse against the borrower is limited by applicable
provisions of the laws of the jurisdictions in which the mortgaged properties
are located or by the mortgagee's selection of remedies and the impact of those
laws on that selection. In those cases, in the event of a borrower default,
recourse may be limited to only the specific mortgaged property and other
assets, if any, pledged to secure the relevant mortgage loan. As to those
mortgage loans that provide for recourse against the borrower and their assets
generally, there can be no assurance that such recourse will provide a recovery
in respect of a defaulted mortgage loan greater than the liquidation value of
the mortgaged property securing that mortgage loan.
THE VOLATILITY OF CERTAIN MORTGAGED PROPERTY VALUES MAY ADVERSELY AFFECT OUR
MORTGAGE LOANS.
Commercial and multifamily property values and net operating income derived
therefrom are subject to volatility and may be affected adversely by a number of
factors, including, but not limited to, national, regional and local economic
conditions (which may be adversely affected by plant closings, industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of housing, retail, industrial, office or other commercial space);
changes or continued weakness in specific industry segments; perceptions by
prospective tenants, retailers and shoppers of the safety, convenience, services
and attractiveness of the property; the willingness and ability of the
property's owner to provide capable management and adequate maintenance;
construction quality, age and design; demographic factors; retroactive changes
to building or similar codes; and increases in operating expenses (such as
energy costs).
6
WE INVEST IN FOREIGN MORTGAGE LOANS AND REAL PROPERTIES WHICH ARE SUBJECT TO
CURRENCY CONVERSION RISKS, FOREIGN TAX LAWS AND UNCERTAINTY OF FOREIGN LAWS.
We invest in mortgage loans secured by real property located outside the
United States, which exposes us to currency conversion risks, foreign tax laws
and the uncertainty of foreign laws.
LEVERAGING OUR INVESTMENTS MAY INCREASE OUR EXPOSURE TO LOSS.
Our charter does not expressly limit borrowings. We leverage our investments
and thereby increase the volatility of our income and net asset value which may
result in operating or capital losses. If borrowing costs increase, or if the
cash flow generated by our assets decreases, our use of leverage will increase
the likelihood that we will experience reduced or negative cash flow and reduced
liquidity.
OUR HEDGING TRANSACTIONS CAN LIMIT OUR GAINS AND INCREASE OUR EXPOSURE TO
LOSSES.
We use hedging strategies that involve risk and that may not be successful
in insulating us from exposure to changing interest and prepayment rates. There
can be no assurance that a liquid secondary market will exist for hedging
instruments purchased or sold, and we may be required to maintain a position
until exercise or expiration, which could result in losses.
FAILURE TO MAINTAIN REIT STATUS WOULD HAVE ADVERSE TAX CONSEQUENCES.
To continue to qualify as a REIT, we must comply with requirements regarding
the nature of our assets and our sources of income. If we are compelled to
liquidate our mortgage-backed securities, we may be unable to comply with these
requirements, ultimately jeopardizing our status as a REIT. For further
discussion of these asset and source of income requirements, and the
consequences of our failure to continue to qualify as a REIT, please see the
"Federal Income Tax Considerations" section of this prospectus.
POTENTIAL FUTURE OFFERINGS COULD DILUTE THE INTERESTS OF HOLDERS OF OUR COMMON
STOCK.
Stockholders will be subject to significant potential dilution from future
equity offerings, including offerings of preferred stock and conversions of
preferred stock or exercises of options or warrants which may have an adverse
effect on the market price of our common stock.
COMPETITION MAY ADVERSELY AFFECT OUR ABILITY TO ACQUIRE ASSETS.
Because of competition, we may not be able to acquire mortgage-backed
securities at favorable yields.
FAILURE TO MAINTAIN AN EXEMPTION FROM THE INVESTMENT COMPANY ACT WOULD RESTRICT
OUR OPERATING FLEXIBILITY.
We conduct our business so as not to become regulated as an investment
company under the Investment Company Act of 1940 (the "1940 Act"). Accordingly,
we do not expect to be subject to the restrictive provisions of the 1940 Act.
Failure to maintain an exemption from the 1940 Act would adversely affect our
ability to operate.
7
RESTRICTIONS ON OWNERSHIP OF OUR COMMON STOCK MAY INHIBIT MARKET ACTIVITY.
In order for Anthracite to meet the requirements for qualification as a REIT
at all times, our charter prohibits any person from acquiring or holding,
directly or indirectly, shares of capital stock in excess of 9.8% (in value or
in number of shares, whichever is more restrictive) of the aggregate of the
outstanding shares of any class of our capital stock. Our charter further
prohibits (i) any person from beneficially or constructively owning shares of
capital stock that would result in Anthracite being "closely held" under
Section 856(h) of the Code or would otherwise cause Anthracite to fail to
qualify as a REIT, and (ii) any person from transferring shares of capital stock
if such transfer would result in shares of capital stock being beneficially
owned by fewer than 100 persons. If any transfer of shares of capital stock
occurs which, if effective, would result in a violation of one or more ownership
limitations, then that number of shares of capital stock, the beneficial or
constructive ownership of which otherwise would cause such person to violate
such limitations (rounded to the nearest whole shares) shall be automatically
transferred to a trustee of a trust for the exclusive benefit of one or more
charitable beneficiaries, and the intended transferee may not acquire any rights
in such shares; provided, however, that if any transfer occurs which, if
effective, would result in shares of capital stock being owned by fewer than 100
persons, then the transfer shall be null and void and the intended transferee
shall acquire no rights to the stock. Subject to certain limitations, our Board
of Directors may waive the limitations for certain investors.
The authorized capital stock of Anthracite includes preferred stock issuable
in one or more series. The issuance of preferred stock could have the effect of
making an attempt to gain control of Anthracite more difficult by means of a
merger, tender offer, proxy contest or otherwise. The currently outstanding
preferred stock has a preference on dividend payments that could affect our
ability to make dividend distributions to the common stockholders.
The provisions of our charter or relevant Maryland law may inhibit market
activity and the resulting opportunity for the holders of our common stock to
receive a premium for their common stock that might otherwise exist in the
absence of such provisions. Such provisions also may make Anthracite an
unsuitable investment vehicle for any person seeking to obtain ownership of more
than 9.8% of the outstanding shares of our common stock.
Material provisions of the Maryland General Corporation Law relating to
"business combinations" and a "control share acquisition" and of the charter and
bylaws of Anthracite may also have the effect of delaying, deterring or
preventing a takeover attempt or other change in control of Anthracite that
would be beneficial to stockholders and might otherwise result in a premium over
then prevailing market prices. Although the bylaws of Anthracite contain a
provision exempting the acquisition of our common stock by any person from the
control share acquisition statute, there can be no assurance that such provision
will not be amended or eliminated at any time in the future.
WE MAY BECOME SUBJECT TO ENVIRONMENTAL LIABILITIES.
We may become subject to environmental risks when we acquire interests in
properties with material environmental problems. Such environmental risks
include the risk that operating costs and values of these assets may be
adversely affected by the obligation to pay for the cost of complying with
existing environmental laws, ordinances and regulations, as well as the cost of
complying with future legislation. Such laws often impose liability regardless
of whether the owner or operator knows of, or was responsible for, the presence
of such hazardous or toxic substances. The costs of investigation, remediation
or removal of hazardous substances could exceed the value of the property. Our
income and ability to make
8
distributions to our stockholders could be affected adversely by the existence
of an environmental liability with respect to our properties.
THERE IS A LIMITATION ON THE LIABILITY OF BLACKROCK.
Pursuant to the management agreement, BlackRock will not assume any
responsibility other than to render the services called for thereunder and will
not be responsible for any action of the Board of Directors in following or
declining to follow its advice or recommendations. BlackRock and its directors
and officers will not be liable to Anthracite, any of our subsidiaries, the
unaffiliated directors, our stockholders or any subsidiary's stockholders for
acts performed in accordance with and pursuant to the management agreement,
except by reason of acts constituting bad faith, willful misconduct, gross
negligence or reckless disregard of their duties under the management agreement.
We have agreed to indemnify BlackRock and its directors and officers with
respect to all expenses, losses, damages, liabilities, demands, charges and
claims arising from acts of BlackRock not constituting bad faith, willful
misconduct, gross negligence or reckless disregard of duties, performed in good
faith in accordance with and pursuant to the management agreement.
OUR INVESTMENTS MAY BE ILLIQUID AND THEIR VALUE MAY DECREASE.
Many of our assets are relatively illiquid. In addition, certain of the
mortgage-backed securities that we have acquired or we will acquire will include
interests that have not been registered under the relevant securities laws,
resulting in a prohibition against transfer, sale, pledge or other disposition
of those mortgage-backed securities except in a transaction that is exempt from
the registration requirements of, or otherwise in accordance with, those laws.
Our ability to vary our portfolio in response to changes in economic and other
conditions may be relatively limited. No assurances can be given that the fair
market value of any of our assets will not decrease in the future.
9
DIVIDEND AND DISTRIBUTION POLICY
We have paid and intend to continue to pay dividends and to make such
distributions to our stockholders in amounts such that we distribute all or
substantially all of our taxable income in each year (subject to certain
adjustments) so as to allow us to qualify as a REIT under the Code. Taxable
income, if any, not distributed through regular dividends may be distributed
annually in a special dividend. We will make distributions at the discretion of
the Board of Directors and the amount of distributions will depend on our
earnings, financial condition, the requirements for maintaining REIT status and
such other factors as the Board of Directors may deem relevant from time to
time.
DESCRIPTION OF THE PLAN
Our Dividend Reinvestment and Stock Purchase Plan is described in the
following questions and answers:
1. HOW DO I ENROLL?
Stockholders previously enrolled in the Plan will continue to participate
without any further action on their part. If your common shares are registered
in a name other than your own (e.g., in the name of a broker or bank nominee)
then you must either; (1) have your shares re-registered in your own name(s) and
then complete the authorization form, or (2) request that your broker or nominee
complete and sign the authorization form and a broker and nominee form and
return them to the Plan Administrator. See Question 5. Stockholders whose shares
are registered in the name of the broker or nominee must verify for themselves
the extent to which their broker or nominee is able to provide the services and
features of the Plan directly to them. All communications regarding the Plan by
these stockholders must be made directly to their broker or nominee.
2. WHAT IS THE PURPOSE OF THE PLAN AND WHAT USE WILL BE MADE OF THE
PROCEEDS?
The purpose of the Plan is to provide common stockholders with a convenient
and economical method to automatically reinvest their cash dividends in shares
of our common stock. It also provides current stockholders and interested new
investors with a way to purchase common stock directly from us at a discount.
The Plan is intended to benefit long term investors who want to increase their
investment in our common stock. We intend to use the net proceeds from the sale
of our common stock offered hereby for general corporate purposes.
3. WHAT ARE THE ADVANTAGES OF PARTICIPATING IN THE PLAN?
-- The Plan provides participants with the opportunity to purchase
additional shares of common stock, if desired, by automatically
reinvesting all or a portion of their cash dividends on our common stock
in the Plan.
-- In addition to the reinvestment of dividends, the Plan provides
stockholders with the opportunity to make monthly investments in our
common stock through optional cash purchases, subject to a minimum and
maximum amount. You may make optional cash purchases by check, money
order, wire transfer, or electronic funds transfer from a pre-designated
bank account. You may make optional cash purchases occasionally or at
regular intervals. Participants may make optional cash purchases even if
dividends on their shares of our common stock are not being reinvested.
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-- The Plan also provides non-stockholders the opportunity to become
participants by making an initial cash purchase in our common stock,
subject to a minimum and maximum amount.
-- Shares purchased directly from us through dividend reinvestment or cash
purchases under the Plan will be issued without a sales commission and
may be issued at a discount rate of 0% to 5% per share. If we should
elect that the shares of our common stock to be purchased under the Plan
are to be purchased in the open market instead of directly from us, we
will pay any brokerage fees or commissions on such purchases, up to 5%
of the purchase price of the shares of our common stock. Any commissions
in excess of 5% will be paid by the participants on a pro rata basis.
The discount rate will not apply to open market purchases or to
privately negotiated purchases of our common stock.
-- Funds invested in the Plan are fully invested through the purchase of
fractions of shares, as well as whole shares, and proportionate cash
dividends on fractions of shares are used to purchase additional shares.
-- Participants may direct the Plan Administrator to transfer, at any time
and at no cost to the Participant, all or a portion of the participant's
shares in the Plan to a Plan account for another person.
-- The Plan offers a "share safekeeping" service whereby, at no cost,
participants may deposit their common stock certificates with the Plan
Administrator and have their ownership of such common stock maintained
on the Plan Administrator's records as part of their Plan account.
-- Participants will receive statements containing year-to-date information
on all Plan transactions in a participant's account within a reasonable
time after a transaction occurs, designed to simplify the participants'
record keeping.
4. WHAT ARE THE DISADVANTAGES OF PARTICIPATING IN THE PLAN?
-- Participants in the Plan who reinvest dividends will be treated as
having received dividend income on the dividend payment date for federal
income tax purposes; such dividend will generally give rise to a tax
liability notwithstanding the fact that no cash was paid to
participants. See "Federal Income Tax Considerations."
-- No interest will be paid by us or the Plan Administrator on dividends or
funds for cash purchases held pending reinvestment or investment or to
be returned to the participant. In addition, cash purchases exceeding
$5,000 per month may be subject to return to the participant (in whole
or proportionate part) without interest in the event that (i) a price
has not been established with respect to shares to be purchased from us
with cash exceeding $5,000 per month, and (ii) such price is not met for
any day on which the New York Stock Exchange is open for trading during
the twelve trading days prior to the date scheduled for investment of
the funds contributed for cash purchases for that month).
-- Participants will have limited control regarding the specific timing of
purchases and sales under the Plan. Because purchases under the Plan
will be made no earlier than twelve trading days following receipt of an
investment instruction, and because sales under the Plan will be
effected by the Plan Administrator only as soon as practicable after its
receipt of such instructions, Participants may be unable to achieve the
same level of control over purchase and sale timing that they might have
for investments made outside the Plan. The market price of the shares of
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our common stock may fluctuate between the time of receipt of an
investment instruction and the time at which the shares of our common
stock are purchased.
-- A participant's investment in the shares of our common stock held in a
participant's account is no different than an investment in directly
held shares of common stock in this regard. A participant bears the risk
of loss and the benefits of gain from market price changes for all of a
participant's shares of common stock. NEITHER WE NOR THE PLAN
ADMINISTRATOR CAN GUARANTEE THAT SHARES OF COMMON STOCK PURCHASED UNDER
THE PLAN WILL, AT ANY PARTICULAR TIME, BE WORTH MORE OR LESS THAN THEIR
PURCHASE PRICE.
-- We may, in our sole discretion, without prior notice to participants,
change our determination as to whether shares of our common stock will
be purchased by the Plan Administrator directly from us or through open
market or privately negotiated purchases, instead of directly from us.
No discount rate will be applied on shares purchased under the Plan in
the open market or in privately negotiated purchases. We may, without
prior notice to participants, lower or eliminate the discount rate on
shares to be purchased directly from the us for future investment
periods. As a result, participants will generally be unable to depend on
the availability of a market discount regarding shares acquired under
the Plan. Participants may obtain the applicable discount rate by
calling the Plan Administrator at (800) 524-4458 three business days
prior to the first day of the twelve trading days prior to the date
scheduled for investment of the funds contributed for cash purchases for
that month.
-- With respect to cash purchases (including cash purchases exceeding
$5,000 per month), while the Plan allows us to establish a discount rate
from the market price for cash purchases of the shares, there can be no
assurance that such market price for cash purchases, as so discounted,
will not be equal to or greater than the purchase price of the shares on
the relevant date of investment of the funds contributed for cash
purchases.
5. WHO IS THE PLAN'S ADMINISTRATOR?
The Plan is being administered by The Bank of New York (the "Plan
Administrator"). The Plan Administrator keeps records, sends statements of
account to each participant in the Plan and performs other duties related to the
Plan, including the safekeeping of the shares purchased for each participant.
The Plan Administrator also acts as the dividend disbursing agent, transfer
agent and registrar for our common stock.
6. WHAT ARE THE RESPONSIBILITIES OF ANTHRACITE OR THE PLAN ADMINISTRATOR
UNDER THE PLAN?
The Plan Administrator has had no responsibility with respect to the
preparation or contents of this prospectus. Neither Anthracite nor the Plan
Administrator, in administering the Plan shall be liable hereunder for any act
done in good faith, or for any good faith omission to act, including without
limitation, any claims of liability (1) arising out of failure to terminate any
participant's account upon such participant's death prior to receipt of notice
in writing of such death, (2) with respect to the prices at which shares of our
common stock are purchased or sold for the participant's account and the times
such purchases or sales are made, or (3) with respect to any loss or fluctuation
in the market value after the purchase of shares.
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All notices from the Plan Administrator to a participant will be mailed to
the participant's last address of record, which will satisfy the Plan
Administrator's responsibility to give notice.
YOU SHOULD RECOGNIZE THAT WE CANNOT ASSURE A PROFIT OR PROTECT AGAINST A
LOSS IN VALUE OF THE SHARES OF COMMON STOCK YOU PURCHASE UNDER THE PLAN.
7. WHAT INVESTMENT OPTIONS ARE AVAILABLE?
You can purchase shares of our common stock through the following investment
options:
(1) FULL DIVIDEND REINVESTMENT--the Plan Administrator will apply all
cash dividends paid on all common shares registered in your name(s),
together with any funds for optional cash purchases, toward the purchase of
shares of our common stock.
(2) PARTIAL DIVIDEND REINVESTMENT--the Plan Administrator will apply
all cash dividends paid on only the number of participating common shares
you specify on the authorization form, together with any funds for optional
cash purchases, toward the purchase of shares of our common stock. Common
stock purchased by the Plan will be automatically enrolled in the Plan such
that the dividends paid on such shares will also be reinvested in shares of
our common stock.
(3) CASH PURCHASES--the Plan Administrator will apply voluntary cash
contributions received from you towards the purchase of shares of our common
stock. The optional cash purchases are subject to a minimum purchase limit
of $100 (except initial cash purchases by non-stockholders, which are
subject to a minimum purchase limit of $250) and a maximum purchase limit of
$5,000 for each month. You will continue to receive cash dividends on common
shares registered in your name(s). Dividends paid on common stock purchased
by the Plan will be automatically reinvested in shares of our common stock.
8. WHO IS ELIGIBLE TO PARTICIPATE?
You may participate in the Plan if: (a) you are a "registered holder;" that
is, your shares are registered in your name on our stock transfer books, or
(b) you are a "beneficial owner;" that is, your shares are registered in a name
other than your name (for example, in the name of a broker, bank or other
nominee) or (c) you are not presently a shareholder but wish to invest in our
common stock. Registered holders may participate in the Plan directly. If you
are a beneficial owner, you must either become a registered holder by having
shares transferred into your own name or make arrangements with your broker,
bank or other nominee to participate on your behalf. See Question 12.
Your right to participate in the Plan is not transferable to another person
apart from a transfer of your underlying shares. We reserve the right, in our
sole discretion, to exclude from participation in the Plan anyone who utilizes
the Plan to engage in short-term trading activities which cause aberrations in
the trading volume of our shares or otherwise fails to meet certain
requirements.
Persons who reside in jurisdictions in which it is unlawful for us to permit
their participation are not eligible to participate in the Plan.
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9. WHO MAY NOT BE ELIGIBLE TO PARTICIPATE IN THE PLAN?
Stockholders who are not citizens or residents of the United States for
federal income tax purposes, and stockholders owning, actually or constructively
(taking into account the constructive ownership provisions applicable to REITs
in the Internal Revenue Code of 1986, as amended (the "Code")), our common stock
in an amount equal to or greater than 9.8% of the outstanding common stock will
not be eligible to participate in the Plan. To the extent consistent with
Sections 856 through 860 of the Code, and in accordance with the provisions of
our Amended and Restated Articles of Incorporation, our Board of Directors may
waive the 9.8% ownership limit for, and at the request of, certain purchasers to
allow participation in the Plan.
The Plan is intended for the benefit of our investors and not for persons or
entities who accumulate accounts under the Plan over which they have control for
the purpose of exceeding the $5,000 per month maximum without seeking our
advance approval or who engage in transactions that cause or are designed to
cause aberrations in the price or trading volume of our common stock.
Notwithstanding anything in the Plan to the contrary, we reserve the right to
exclude from participation in the Plan, at any time, (i) persons or entities who
attempt to circumvent the Plan's standard $5,000 per month maximum by
accumulating accounts over which they have control or (ii) any other persons or
entities, as determined in our sole discretion. For purposes of this limitation,
we reserve the right to aggregate all cash purchases for participants with more
than one account using the same name, address or social security or taxpayer
identification number. For participants unable to supply a social security or
taxpayer identification number, participation may be limited by us to only one
participant's account. Also for the purpose of such limitations, all
participant's accounts that we believe to be under common control or management
or to have common ultimate beneficial ownership may be aggregated. In the event
we exercise our right to aggregate investments and the result would be an
investment in excess of $5,000 without our waiver, we will return, without
interest, as promptly as practicable, any amount in excess of the investment
limitations.
10. WHAT DOES THE AUTHORIZATION FORM PROVIDE?
The authorization form appoints the Plan Administrator as your agent for
purposes of the Plan. It also permits you to direct us to pay to the Plan
Administrator for purchase of additional shares of all the cash dividends on
(a) the specified number of shares owned by you on the applicable record date
and designated by you to be included in the Plan and (b) all whole and
fractional shares of common stock which have been credited to your Plan account.
The authorization form also permits you to direct the Plan Administrator to
purchase additional shares with any initial or optional cash investments that
you make. The options offered on the authorization form are described more fully
below:
FULL DIVIDEND REINVESTMENT. The Plan Administrator will apply any cash
dividends on all shares of our common stock then or subsequently registered in
the Plan under the participant's name, and all cash dividends on shares held in
the Plan, together with any optional cash purchases or initial cash purchases,
toward the purchase of additional shares of our common stock.
PARTIAL DIVIDEND REINVESTMENT. The Plan Administrator will apply cash
dividends on shares of our common stock then registered in the Plan under the
Participant's name and specified on the authorization form, and all cash
dividends on shares held in the Plan, together with any optional cash purchases
or initial cash purchases, toward the purchase of additional shares of our
common stock.
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CASH PURCHASES. The Plan Administrator will only apply voluntary cash
contributions for common stock. The participant will continue to receive cash
dividends on shares of our common stock registered in the Plan under the
participant's name in the usual manner.
Each participant may select either one of the dividend reinvestment options
and/or the cash purchase option. In each case, dividends will be reinvested on
all participating shares and on all shares held in the Plan account, including
dividends on our common stock purchased with any initial cash purchases, until a
participant specifies otherwise by contacting the Plan Administrator, or
withdraws from the Plan altogether, or until the Plan is terminated. If a
participant would prefer to receive cash payments of dividends on Plan shares
rather than reinvest such dividends, those shares must be withdrawn from the
Plan by written notification to the Plan Administrator. Participants may change
their investment options at any time by requesting a new authorization form and
returning it to the Plan Administrator.
11. WHEN WILL PARTICIPATION IN THE PLAN BEGIN?
Participation in the Plan will begin upon receipt of a properly completed
authorization form and/or broker and nominee form (and, in cases of cash
investments exceeding $5,000, receipt and approval by us of a properly completed
request for wavier of the $5,000 per month limit on optional cash investments).
The funds for a cash purchase may be submitted with the initial authorization
form. Thereafter, it will not be necessary to submit an additional authorization
form and cash purchases may be made monthly or periodically at the election of
the participant. Once an authorization form has been submitted, it is not
necessary to submit one with subsequent cash purchases. See Questions 15-18 for
more details on cash purchases and dividend reinvestments.
With respect to the dividend reinvestment portion of the Plan, the
authorization form (and the broker and nominee form if necessary) must be
received by the Plan Administrator at least two (2) calendar days prior to the
record date established for a particular dividend in order for a stockholder to
be eligible for reinvestment of such dividends under the Plan for that related
dividend; otherwise, reinvestment will begin on the dividend reinvestment date
following the next record date. With respect to cash purchases, the Plan
Administrator must receive the authorization form, good funds, and the broker
and nominee form if necessary, at least one business day prior to the
commencement of the twelve trading day period prior to the date scheduled for
investment of the funds contributed for cash purchases for that month in order
for a participant's cash purchase to be invested on the related date of
investment of the funds contributed for cash purchases, otherwise; such
authorization will be effective as of the next date of investment of the funds
contributed for cash purchases and the funds will be returned to the
participant. With respect to existing stockholders, if the authorization form
(and the broker and nominee form if necessary) is received in the period between
any record date and dividend payment dates that dividend will be paid in cash
and your initial dividend reinvestment will begin on the next dividend
reinvestment date.
12. WHAT IS THE PURPOSE OF AND WHEN MUST I USE A BROKER AND NOMINEE FORM?
The broker and nominee form provides the only means by which a broker, bank
or other nominee holding shares of a beneficial owner, or planning to hold
shares of an interested investor who is not currently one of our stockholders,
in the name of a major securities depository may invest cash purchases within
the minimum and maximum investment limitation established for the Plan (see
Question 19) on behalf of such beneficial owner or interested investor. A broker
and nominee form must be delivered to the Plan Administrator each time such
broker, bank or other nominee transmits cash purchases. Broker and nominee forms
may be obtained at any time by telephoning the Plan Administrator at
(800) 524-4458.
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The broker and nominee form and appropriate instructions must be received by
the Plan Administrator not later than 12:00 Noon, New York City time, on the
business day immediately preceding the relevant twelve trading days period prior
to the date scheduled for investment of the funds contributed for cash purchases
for that month in order to be invested on the relevant date of investment of the
funds contributed for cash purchases, otherwise the cash purchase will be
returned, without interest.
Shares issued pursuant to a properly completed broker and nominee form will
not be deemed Plan shares. Therefore, subsequent dividends will be paid in cash
unless otherwise instructed by the beneficial owner.
13. CAN I CHANGE MY INVESTMENT OPTIONS?
Yes. Participants may change their investment options at any time by
requesting an authorization form and returning it to the Plan Administrator.
14. HOW ARE THE SHARES PURCHASED FOR THE PLAN?
We will pay the Plan Administrator all dividends for shares of common stock
owned by participants in the Plan. At our direction, the Plan Administrator will
then apply such funds, together with any voluntary cash contributions received
from participants, towards the purchase of our common stock, either directly
from us or on the open market. The price of the shares purchased by the Plan
Administrator directly from us can be discounted by up to five percent (5%) from
the then current market price.
15. WHEN WILL DIVIDENDS BE REINVESTED?
Dividends on shares in the Plan will be reinvested generally on or within
thirty (30) days after such dividends are paid except where completion at a
later date is necessary or advisable under applicable securities laws. Under
normal market conditions, we expect to reinvest dividends on the date such
dividends are paid.
16. AT WHAT PRICE WILL DIVIDENDS BE REINVESTED?
SHARES ACQUIRED DIRECTLY FROM US. All shares acquired directly from us with
reinvested dividends will be acquired at a discount rate ranging from 0% to 5%
to the average of the daily high and low sales prices, computed up to four
decimal places, if necessary, of our common stock as reported on the New York
Stock Exchange on the applicable date of investment.
The discount rate is subject to change for future investment periods, or
complete discontinuance at our discretion, without prior notice to the
participants after a review of current market conditions, the level of
participation in the Plan and our current and projected capital needs.
Participants may obtain the applicable discount rate by telephoning the Plan
Administrator at (800) 524-4458 three business days prior to the dividend
reinvestment date. The discount rate will only be in effect for purchases of
shares of our common stock directly from us; the discount rate will not be
applied to purchases for the participant's account in the open market or in
privately negotiated transactions.
SHARES ACQUIRED ON THE OPEN MARKET. If we elect to purchase the shares on
the open market or in privately negotiated transactions, the price per share of
our common stock acquired through such open market or privately negotiated
transactions will be the weighted average of the actual prices paid, computed to
four decimal places, for all the common stock purchased by the Plan
Administrator in
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connection with such open market purchases, without application of the 0%--5%
discount rate. The Plan Administrator shall pay brokerage commissions in an
amount determined by the prevailing rates at the time of purchase. Such
commissions will be reimbursed by us, but in no event shall we be obligated to
pay commissions in excess of five percent (5%) of the purchase price of the
shares of our common stock. Any commissions in excess of five percent (5%) will
by paid by the participants on a pro rata basis. Such open market purchases may
be made, at the Plan Administrator's option, on any securities exchange where
the shares of our common stock are traded, in the over-the-counter market or in
negotiated transactions with third persons, and may be on such terms as to
price, delivery, and otherwise as the Plan Administrator may determine.
17. WHEN WILL OPTIONAL CASH INVESTMENTS AND INITIAL CASH INVESTMENTS BE
MADE?
The date for cash purchases will occur on or about the third day from the
last business day of each month, or in the case of purchases in the open market,
no later than the last business day of each month.
18. AT WHAT PRICE ARE OPTIONAL CASH INVESTMENTS AND INITIAL CASH INVESTMENTS
MADE?
SHARES ACQUIRED DIRECTLY FROM US. All shares acquired directly from us with
optional cash investments and initial cash investments not exceeding $5,000 per
month will be acquired at a discount rate ranging from 0% to 5% to the average
daily high and low sales prices, computed up to four decimal places, if
necessary, of our common stock as reported on the New York Stock Exchange during
a Pricing Period consisting of the twelve (12) trading days preceding the
investment date. A "trading day" means a day on which trades in shares of our
common stock are reported on the New York Stock Exchange. The period
encompassing the first twelve trading days immediately preceding the applicable
investment date constitutes the relevant "Pricing Period".
The discount rate is subject to change for future investment periods, or
complete discontinuance at our discretion, without prior notice to the
participants after a review of current market conditions, the level of
participation in the Plan and our current and projected capital needs.
Participants may obtain the applicable discount rate by telephoning the Plan
Administrator at (800) 524-4458 three business days prior to the dividend
reinvestment date. The discount rate will only be in effect for purchases of
shares of our common stock directly from us; the discount rate will not be
applied to purchases for the participant's account in the open market or in
privately negotiated transactions.
SHARES ACQUIRED ON THE OPEN MARKET. If we elect to purchase the shares on
the open market or in privately negotiated transactions, the price per share of
our common stock acquired through such open market or privately negotiated
transactions will be the weighted average of the actual prices paid, computed to
four decimal places, for all the common stock purchased by the Plan
Administrator in connection with such open market purchases, without application
of the 0%--5% discount rate. The Plan Administrator shall pay brokerage
commissions in an amount determined by the prevailing rates at the time of
purchase. Such commissions will be reimbursed by us, but in no event shall we be
obligated to pay commissions in excess of five percent (5%) of the purchase
price of the shares of our common stock. Any commissions in excess of five
percent (5%) will by paid by the participants on a pro rata basis. Such open
market purchases may be made, at the Plan Administrator's option, on any
securities exchange where the shares of our common stock are traded, in the
over-the-counter market or in negotiated transactions with third persons, and
may be on such terms as to price, delivery, and otherwise as the Plan
Administrator may determine.
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19. WHAT LIMITATIONS APPLY TO OPTIONAL CASH INVESTMENTS AND INITIAL CASH
INVESTMENTS?
MINIMUM/MAXIMUM LIMITS. Optional cash investments are subject to a $100
minimum per month, initial cash investments are subject to a $250 minimum, and
we reserve the right to refuse to accept any initial cash investment of more
than $5,000, or any optional cash investment in excess of $5,000 per month, from
any person or related or associated group of persons. Optional cash investments
or initial cash investments of less than $100 per month, (or any lower minimum
amount determined by us, in our sole discretion) and that portion of any initial
or optional cash investment which exceeds the $5,000 purchase limit, unless such
limit has been waived, are subject to return to you without interest. We reserve
the right to waive such limits on initial or optional cash investments in our
sole discretion.
REQUEST FOR WAIVER. Initial cash investments in excess of $5,000 and
optional cash investments in excess of $5,000 per month may only be made
pursuant to a written request for waiver accepted by us. A request for waiver
must be received by Anthracite at its corporate address or via facsimile at
(212) 754-8777 no later than 2:00 p.m., New York City time, on the second
business day preceding the relevant Pricing Period for such initial or optional
cash investment. Request for waiver forms may be obtained from the Plan
Administrator by telephone at (800) 524-4458 or directly from our website
www.anthracitecapital.com.
WAIVER DISCOUNT. We may establish a discount rate different than the
discount rate for initial cash investments and optional cash investments,
ranging from 0% to 5% regarding shares purchased from us for cash purchases
exceeding $5,000 per month and approved by us pursuant to a request for waiver.
Participants may obtain the applicable waiver discount by telephoning the Plan
Administrator at (800) 524-4458 three business days prior to the first day of
the Pricing Period.
It is solely within our discretion as to whether any such approval for cash
investments in excess of $5,000 will be granted. In deciding whether to approve
a request for waiver, we will consider relevant factors including, but not
limited to: whether the Plan is then acquiring newly issued or treasury shares
directly from us or acquiring shares from third parties in the open market or in
privately negotiated transactions; our need for additional funds; the
attractiveness of obtaining such additional funds through the sale of our common
stock as compared to other sources of funds; the purchase price likely to apply
to any sale of our common stock under the Plan; the participant submitting the
request; the extent and nature of such participant's prior participation in the
Plan; the number of shares of our common stock held by such participant and the
aggregate amount of cash investments for which Requests for Waiver have been
submitted by all participants. If such requests are submitted for any date of
investment of the funds contributed for cash purchases for an aggregate amount
in excess of the amount we are then willing to accept, we may honor such
requests in order of receipt, pro rata or by any other method that we determine
in our sole discretion to be appropriate. We anticipate that we will respond to
each request for waiver by the close of business (7:00 p.m., New York City time)
on the second business day preceding the relevant Pricing Period. Any request
for waiver accepted by us will be subject to all the terms and conditions
otherwise applicable to cash purchases, except those terms and conditions
expressly changed by this Section.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE PARTICIPATION IN THE
PLAN BY OTHERWISE ELIGIBLE HOLDERS OR BENEFICIAL OWNERS OF SHARES OF COMMON
STOCK IN ORDER TO DETER OR ELIMINATE PRACTICES WHICH ARE NOT CONSISTENT WITH THE
PURPOSES OF THE PLAN. SEE "PLAN OF DISTRIBUTION."
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THRESHOLD PRICE. Notwithstanding anything contained herein to the contrary,
we may establish for each Pricing Period a threshold price applicable to cash
purchases made pursuant to Requests for Waiver approved by us. The threshold
price, if any, will be established by us at least three business days prior to
the first day of the Pricing Period, and will be established in our sole
discretion after a review of current market conditions and other relevant
factors. Participants may obtain the applicable threshold price and waiver
discount by telephoning the Plan Administrator at (800) 524-4458. The threshold
price will be a stated dollar amount that the average of the high and low sale
prices of our common stock on the New York Stock Exchange for a trading day of
the Pricing Period must equal or exceed. In the event that such threshold price
is not satisfied for a trading day of the Pricing Period, then such trading day
and the trading prices for that day will be excluded from (i) the Pricing Period
and (ii) the determination of the purchase price of our common stock for all
cash investments made pursuant to Requests for Waiver approved by us. Thus, for
example, if the threshold price is not satisfied for three of the twelve trading
days, then the price of our common stock will be based upon the remaining nine
trading days for which the threshold price was satisfied.
Each trading day of a Pricing Period for which the threshold price is not
satisfied will cause the return of a portion of any cash investments made
pursuant to Requests for Waiver approved by us. The returned amount will equal
one-twelfth of such cash investments for each trading day that the threshold
price is not satisfied. Thus, for example, if the threshold price is not
satisfied for three trading days, then 3/12 (i.e., 25%) of such cash investments
will be returned without interest.
The threshold price and return procedure discussed above apply only to cash
purchases made pursuant to Requests for Waiver approved by us and not to the
reinvestment of dividends or cash purchases that do not exceed $5,000.
20. WHAT IS THE TIMING OF AND HOW ARE CASH PURCHASES MADE?
Each month the Plan Administrator will apply a cash purchase for which good
funds are timely received to the purchase of shares of our common stock for the
account of the participant on the next date of investment of the funds
contributed for cash purchases. In order for funds to be invested on the next
date of investment of the funds contributed for cash purchases, the Plan
Administrator must have received the following in a timely fashion: (i) the
authorization form (if the person is not yet enrolled as a participant) and the
broker and nominee form (if necessary) at least one business day before the
commencement of the Pricing Period; (ii) the request for waiver (if applicable)
no later than 2:00 p.m., New York City time, two business days before the
commencement of the Pricing Period; and (iii) a check, money order or wire
transfer no later than one business day prior to the commencement of the related
Pricing Period (the "Cash Purchase Due Date") although we may, within our sole
discretion, accept such funds after the Cash Purchase Due Date in cases of
unanticipated delay or inadvertence by the participant. Such check, money order
or wire transfer must have cleared before the related date of investment of the
funds contributed for cash purchases. Wire transfers may be used only if
approved verbally in advance by the Plan Administrator.
INSTRUCTIONS FOR WIRE TRANSFERS AND ELECTRONIC FUNDS
TRANSFERS. Instructions for Wire Transfers and Electronic Funds Transfers can
be obtained by telephoning the Plan Administrator at (800) 524-4458. Checks and
money orders are accepted subject to timely collection as good funds and
verification of compliance with the terms of the Plan. Checks or money orders
should be made payable to "The Bank of New York--Anthracite Capital, Inc.
Dividend Reinvestment and Stock Purchase Plan." Checks must be drawn on a U.S.
bank payable in U.S. funds or they will be returned to the Participant. In
addition, third
19
party checks will be returned to the Participant. Checks returned for any reason
will not be resubmitted for collection. Participants will be charged the Plan
Administrator's prevailing fees for dishonored checks and failed electronic fund
transfers due to insufficient funds. Generally, Cash Purchases received more
than ten business days before the commencement of the Pricing Period or after
the Cash Purchase Due Date will be returned to Participants without interest at
the end of the Pricing Period; such cash purchases may be resubmitted by a
participant prior to the commencement of the next or a later Pricing Period.
Upon a participant's written request using the transaction request form
attached to the bottom portion of the dividend reinvestment statement and
received by the Plan Administrator no later than two business days prior to the
Pricing Period, a timely cash purchase not already invested under the Plan will
be canceled or returned to the Participant as soon as practical. However, in the
latter event, no refund of a check or money order will be made until the funds
have been actually received by the Plan Administrator. Accordingly, such refunds
may be delayed up to three weeks. In making purchases for the participant's
account, the Plan Administrator may commingle the participant's funds with those
of other participants in the Plan.
NO INTEREST WILL BE PAID ON FUNDS HELD BY THE PLAN ADMINISTRATOR PENDING
INVESTMENT OR RETURN TO THE PARTICIPANT. FUNDS FOR CASH PURCHASES DO NOT
CONSTITUTE DEPOSITS OR SAVINGS ACCOUNTS AND ARE NOT INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
21. DOES THE PLAN ADMINISTRATOR HOLD MY SHARES IN AN ACCOUNT?
Yes, the Plan Administrator will establish an account under the Plan for
each participant, the "participant's account", and will credit to the
participant's account cash received by the Plan Administrator for the
participant from cash dividends paid on the shares of our common stock,
including those full and fractional shares of our common stock (computed to four
decimal places) acquired under the Plan, and all voluntary cash contributions
for cash purchases received by the Plan Administrator from the participant.
22. WHAT STATEMENTS WILL BE SENT TO PARTICIPANTS IN THE PLAN?
As soon as practicable following each purchase of our common stock for your
account, the Plan Administrator will mail to you a statement of account showing
amounts invested, the purchase price, the number of shares purchased, and other
information for the year to date. Each participant will receive a Form 1099
showing income reportable for Federal income tax purposes following the final
purchase in each calendar year. These statements are your record of the cost of
your purchases and should be retained for income tax and other purposes. In
addition, during the year you will receive copies of the same communications
sent to all other holders of shares. ACCOUNT STATEMENTS SHOULD BE RETAINED BY
YOU FOR YOUR RECORDS.
23. WILL I RECEIVE CERTIFICATES FOR COMMON STOCK PURCHASED UNDER THE PLAN?
Common stock purchased under the Plan for your account will be registered in
the name of a nominee and certificates for such shares will not be issued to you
until requested. The total number of shares credited to your account will be
shown on each account statement. This custodial service helps to protect you
against the risk of loss, theft or destruction of stock certificates.
Certificates for any number of whole shares credited to your account will be
issued to you at any time upon written request to the Plan Administrator using
the transaction request form attached to the bottom portion of your account
20
statement. Cash dividends with respect to shares represented by certificates
issued to you will continue to be automatically reinvested. Any remaining shares
will continue to be credited to your account.
If the written request to the Plan Administrator is for certificates to be
issued for all shares credited to your account, any fractional share will be
paid in cash. Certificates for fractions of shares will not be issued under any
circumstances.
24. MAY SHARES IN MY PLAN ACCOUNT BE ASSIGNED OR PLEDGED?
No. You must first request that certificates for shares credited to your
Plan account be issued to you before you can assign or pledge such shares.
25. CAN I VOTE SHARES IN MY PLAN ACCOUNT?
Yes. You will receive a proxy for the total number of shares held, both the
shares for which you hold certificates and those credited to your Plan account.
The total number of shares held may also be voted in person at a meeting. If the
proxy is not returned or if it is returned unsigned, none of your shares will be
voted unless you vote in person.
26. WHAT HAPPENS IF ANTHRACITE ISSUES A STOCK DIVIDEND, DECLARES A STOCK
SPLIT OR HAS A RIGHTS OFFERING?
Any stock dividends or stock splits distributed by us on shares of our
common stock held by the Plan Administrator for the participant will be credited
to the participant's account. In the event we make available to our stockholders
rights to purchase additional shares of our common stock or other securities,
the participant will receive appropriate instructions in connection with all
such rights directly from the Plan Administrator in order to permit a
participant to determine what action he or she desires to take. Transaction
processing under the Plan may be curtailed or suspended until the completion of
any stock dividend, stock split or stockholder rights offering.
27. IS THERE A COST TO PARTICIPATE IN THE PLAN?
We will pay all administrative costs of the Plan. Participants pay no
brokerage commissions, fees, expenses or service charges under the Plan in
connection with purchases under the Plan; provided, however, a beneficial owner
may be required to pay a fee to a broker, bank or other nominee participating on
behalf of such beneficial owner.
If we elect that the shares of common stock to be purchased under the Plan
are to be purchased in the open market instead of directly from us, we will pay
any brokerage fees or commissions on such purchases up to 5% of the purchase
price of the shares of common stock. Any commissions in excess of 5% will be
paid by the participants on a pro rata basis.
When shares of common stock are sold by the Plan Administrator for a
participant, the participant will be responsible for any commissions, fees,
expenses, service charges or other expenses incurred pursuant to the sale of
such shares of common stock. No service fees will be charged to participants
making optional cash purchases through electronic fund transfers. However, the
financial institution designated by a participant on the authorization form (and
the broker and nominee form if necessary) may charge a fee for participating in
the electronic fund transfer. Participants will be charged the Plan
Administrator's prevailing fees for dishonored checks and failed electronic fund
transfers due to insufficient funds.
21
28. WHAT LAW GOVERNS THE PLAN?
The terms and conditions of the Plan and its operation are governed by the
internal laws of the State of Maryland.
29. MAY THE PLAN BE CHANGED OR DISCONTINUED?
Yes. We reserve the right to suspend or terminate the Plan in whole or part
at any time. Notice will be sent to participants of any suspension or
termination as soon as practicable after such action by us.
The Plan may also be amended or supplemented by the Plan Administrator or us
at any time or times, including the period between the dividend record date and
the related dividend reinvestment date. Any such amendment may include an
appointment by the Plan Administrator of a successor Plan Administrator under
the terms and conditions contained herein. Notice will be sent to participants
of any amendments as soon as practicable after such action by us. Any amendment
or supplement shall conclusively be deemed to be accepted by the participant
unless, prior to the effective date thereof, the Plan Administrator receives
written notice of termination of the participant's account.
30. WHO INTERPRETS AND REGULATES THE PLAN?
WE RESERVE THE RIGHT, WITHOUT NOTICE TO PARTICIPANTS, TO INTERPRET AND
REGULATE THE PLAN AS WE DEEM NECESSARY OR DESIRABLE IN CONNECTION WITH OUR
OPERATION. ANY SUCH INTERPRETATION AND REGULATION SHALL BE CONCLUSIVE. Neither
we nor the Plan Administrator, in administering, interpreting or performing
their duties under the Plan, will be liable for any act committed or omitted in
good faith, including, without limitation, any act giving rise to a claim of
liability arising from (i) the times and prices at which shares of our common
stock are purchased or sold for a participant's account or (ii) fluctuations in
the market price of the common stock.
31. HOW DO I GET MORE INFORMATION?
Questions regarding the Plan should be directed to: THE BANK OF NEW YORK,
P.O. Box 1258, Church Street Station, New York, New York 10286-1254,
(800) 524-4458. E-mail address:
Shareowner-svcs@bankofny.com. Web site address: http://stkxfer.bankofny.com. If
your shares are not held in your name, contact your brokerage firm, bank, or
other nominee for more information. They can contact the Plan Administrator
directly for instructions on how to participate on your behalf. You can also get
more information from our website: www.anthracitecapital.com.
32. WHAT ARE THE CONTACTS FOR INQUIRIES AND ACTIONS BY PARTICIPANTS UNDER
THE PLAN?
All terminations, withdrawals, sale of shares and change of addresses should
be directed to:
The Bank of New York
Dividend Reinvestment Department
P.O. Box 1958
Newark, New Jersey 07101-9774
22
All other correspondence and questions regarding the Plan, a participant's
account, and the discount rate, waiver rate, or threshold price should be
directed to:
Anthracite Capital, Inc. Dividend Reinvestment and Stock Purchase Plan
c/o The Bank of New York
P.O. Box 1258
Church Street Station
New York, New York 10286-1254
Telephone: (800) 524-4458
E-mail address: Shareowner-svcs@bankofny.com
Web site address: http://stkxfer.bankofny.com
or
Anthracite Capital, Inc.
Dividend Reinvestment and Stock Purchase Plan
345 Park Avenue
New York, New York 10154
Telephone: (212) 409-3333
Facsimile: (212) 754-8777
E-mail address: ahr-info@ahr.blackrock.com
Web site address: http://www.anthracitecapital.com
23
FEDERAL INCOME TAX CONSIDERATIONS
33. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN THE
PLAN?
DIVIDEND REINVESTMENT: The reinvestment of dividends does not relieve you
of any income tax which may be payable on such dividends. When your dividends
are reinvested to acquire shares (including any fractional share), you will be
treated as having received a distribution in the amount of the fair market value
of our common stock on the dividend payment date (the "Fair Market Value"),
multiplied by the number of shares (including any fractional share) purchased,
plus any brokerage fees we pay on your behalf.
So long as we continue to qualify as a REIT under the Internal Revenue Code
of 1986 (the "Code"), the distribution will be taxable under the provisions of
the Code applicable to REITs and their shareholders, pursuant to which
(i) distributions will be taxable to shareholders as ordinary income to the
extent of our current or accumulated earnings and profits, (ii) distributions
which are designated as capital gain distributions by us will be taxed as
long-term capital gains to shareholders to the extent they do not exceed our net
capital gain for the taxable year, (iii) distributions which are not designated
as capital gains distributions and which are in excess of our current or
accumulated earnings and profits will be treated as a tax-free return of capital
to the shareholders and reduce the adjusted tax basis of a shareholder's shares
(but not below zero) and (iv) such distributions in excess of a shareholder's
adjusted tax basis in its shares will be treated as gain from the sale or
exchange of such shares.
You should be aware that, because shares purchased with reinvested dividends
may be purchased at up to a 5% discount and because we may pay brokerage on your
behalf, the taxable income received by you as a participant in the Plan may be
greater than the taxable income that would have resulted from the receipt of the
dividend in cash.
The Plan Administrator will report to you for tax purposes the dividends to
be credited to your account as well as any discounts or brokerage costs incurred
by us. Such information will also be furnished to the Internal Revenue Service
("IRS") to the extent required by law.
OPTIONAL CASH PURCHASES AND INITIAL CASH PURCHASES:. The IRS has privately
ruled that stockholders who participate in the optional cash purchases under a
dividend reinvestment plan of a REIT will not be treated as receiving a dividend
equal to the discount unless such stockholders also participate in the
reinvestment of dividends under such plan. Private letter rulings are not
precedent and may not be relied upon by any taxpayer other than those to whom
the ruling is addressed. Nevertheless such rulings often reflect the current
thinking of the IRS. Therefore the tax treatment of a purchase of shares under
the Plan with an initial cash investment or an optional cash investment may
differ depending on whether you are participating in the dividend reinvestment
feature of the Plan. If you are not participating in the dividend reinvestment
feature of the Plan, you may not be treated for federal income tax purposes as
having received a distribution from us upon the purchase of shares with an
initial cash investment or an optional cash investment. In that case, your tax
basis in the shares purchased will equal the purchase price for such shares.
On the other hand if you participate in the dividend reinvestment feature of
the Plan, you may be treated for federal income tax purposes as having received
a distribution from us upon the purchase of shares with an initial cash
investment or an optional cash investment in an amount equal to the excess, if
any, of (i) the Fair Market Value of the shares multiplied by the number of
shares (including any fractional share) purchased, plus any brokerage fees we
pay on your behalf, over (ii) the purchase price of such
24
shares, taking into account any discount. If you participate in the dividend
reinvestment feature of the Plan, you will receive a tax basis in shares
acquired with an initial cash investment or an optional cash investment equal to
the greater of the Fair Market Value or the purchase price of the shares.
The holding period for shares (including a fractional share) acquired under
the Plan generally will begin on the day after the shares were acquired. In the
case of participants whose dividends are subject to U.S. backup withholding (see
below), the Administrator will reinvest dividends less the amount of tax
required to be withheld.
RECEIPT OF SHARE CERTIFICATES AND CASH. You will not realize any income
when you receive certificates for the shares credited to your account under the
Plan. Any cash received for a fractional share held in your account will be
treated as an amount realized on the sale of the fractional share. You therefore
will recognize gain or loss equal to any difference between the amount of cash
received for a fractional share and your tax basis in the fractional share.
34. WHAT ARE THE EFFECTS OF THE FEDERAL INCOME TAX WITHHOLDING PROVISIONS?
We or the Plan Administrator, may be required to withhold on all dividend
payments to a shareholder if (i) such shareholder has failed to furnish his or
her taxpayer identification number, which for an individual is his or her social
security number, (ii) the IRS has notified us that the shareholder has failed to
properly report interest or dividends or (iii) the shareholder has failed to
certify, under penalties of perjury, that he or she is not subject to back-up
withholding. In the case of a shareholder who is subject to back-up withholding
tax on dividends under the Plan the amount of the tax to be withheld will be
deducted from the amount of the cash dividend and only the reduced amount will
be reinvested in Plan shares.
35. WHAT ARE THE FEDERAL INCOME TAX IMPLICATIONS OF INVESTMENT IN A REIT?
Based on various factual representations made by us regarding our operations
and income, in the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, our tax
counsel, commencing with our taxable year ended December 31, 1998, we have been
organized in conformity with the requirements for qualification as a REIT under
the Code, and our method of operating has enabled us, and will enable us, to
meet the requirements for qualification and taxation as a REIT. It must be
emphasized that this opinion is based on various assumptions relating to the
validity, authenticity, accuracy and enforceability of documents delivered by us
to Skadden, Arps, Slate, Meagher & Flom LLP and conditioned upon assumptions and
representations made by us as to various factual matters. Moreover, our
qualification as a REIT depends upon our ability to meet the various
requirements imposed under the Code through actual operations. Skadden, Arps,
Slate, Meagher & Flom LLP will not review our operations, and no assurance can
be given that actual operations will meet these requirements. The opinion of
Skadden, Arps, Slate, Meagher & Flom LLP is not binding on the IRS or any court.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is based upon existing
law, IRS regulations and currently published administrative positions of the IRS
and judicial decisions, all of which are subject to change either prospectively
or retroactively.
The information in this summary is based on the Internal Revenue Code of
1986, as amended, (the "Code") current, temporary and proposed Treasury
regulations promulgated under the Code, the legislative history of the Code,
current administrative interpretations and practices of the Internal Revenue
Service, and court decisions, all as of the date of this prospectus. The
administrative interpretations and practices of the Internal Revenue Service
upon which this summary is based include its practices and policies as expressed
in private letter rulings which are not binding on the Internal Revenue Service,
except with respect to the taxpayers who requested and received such rulings.
Future legislation, Treasury
25
regulations, administrative interpretations and practices, and court decisions
may affect the tax consequences contained in this summary, possibly on a
retroactive basis. We have not requested, and do not plan to request, any
rulings from the Internal Revenue Service concerning our tax treatment, and the
statements in this prospectus are not binding on the Internal Revenue Service or
a court. Thus, we can provide no assurance that the tax consequences contained
in this summary will not be challenged by the Internal Revenue Service or
sustained by a court if challenged by the Internal Revenue Service.
You are urged to consult your tax advisor regarding the specific tax
consequences to you of (1) the acquisition, ownership and sale or other
disposition of our securities, including the federal, state, local, foreign and
other tax consequences, (2) our election to be taxed as a real estate investment
trust for federal income tax purposes and (3) potential changes in applicable
tax laws.
TAXATION OF ANTHRACITE--GENERAL
Commencing with our taxable year ended December 31, 1998, we have elected to
be taxed as a REIT under Sections 856 through 860 of the Code. We believe we
have been organized and have operated in a manner which allows us to qualify for
taxation as a REIT under the Code, and we intend to continue to operate in this
manner. Our qualification and taxation as a REIT, however, depend upon our
ability to meet, through actual annual operating results, asset requirements,
distribution levels, diversity of stock ownership, and the various other
qualification tests imposed under the Code. Accordingly, there can be no
assurance that we have operated or will continue to operate in a manner so as to
qualify or remain qualified as a REIT. See "--Failure to Qualify."
The sections of the Code that relate to the qualification and taxation of
REITs are highly technical and complex. The following describes the material
aspects of the sections of the Code that govern the Federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated under the Code,
and administrative and judicial interpretations of the Code.
Provided we qualify for taxation as a REIT, we generally will not be subject
to Federal corporate income tax on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" that generally results from an investment in a corporation. Double
taxation means taxation once at the corporate level when income is earned and
once again at the stockholder level when such income is distributed. Even if we
qualify for taxation as a REIT, however, we will be subject to Federal income
taxation as follows:
-- We will be required to pay tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
-- We may be required to pay the "alternative minimum tax" on items of tax
preference, if any.
-- If we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (b) other nonqualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rate on this income. In general, foreclosure property is
property acquired through foreclosure after a default on a loan secured
by the property or on a lease of the property.
-- We will be required to pay a 100% tax on any net income from prohibited
transactions. In general, prohibited transactions are sales or other
taxable dispositions of property, other than foreclosure property, held
for sale to customers in the ordinary course of business. Further we
26
will be required to pay a 100% tax in respect of amounts that are
treated by us as rents from real property but are properly allocable or
attributable under the Code to services rendered by a Taxable REIT
Subsidiary (see below).
-- If we fail to satisfy the 75% or 95% gross income tests, as described
below, but have maintained our qualification as a REIT, we will be
required to pay a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which we fail the 75% or
95% gross income test multiplied by (b) a fraction intended to reflect
our profitability.
-- We will be required to pay a 4% excise tax on the amount by which our
annual distributions to our stockholders is less than the sum of
(1) 85% of our ordinary income for the year, (2) 95% of our real estate
investment trust capital gain net income for the year, and (3) any
undistributed taxable income from prior periods.
-- If we acquire an asset from a corporation which is not a REIT in a
transaction in which the basis of the asset in our hands is determined
by reference to the basis of the asset in the hands of the transferor
corporation, and we subsequently sell the asset within ten years, then
under Treasury regulations not yet finalized, we would be required to
pay tax at the highest regular corporate tax rate on this gain to the
extent (a) the fair market value of the asset exceeds (b) our adjusted
tax basis in the asset, in each case, determined as of the date on which
we acquired the asset. The results described in this paragraph assume
that we will elect this treatment in lieu of an immediate tax when the
asset is acquired.
-- We will generally be subject to tax on the portion of any "excess
inclusion" income derived from an investment in residual interests in
real estate mortgage investment conduits to the extent our stock is held
by specified tax exempt organizations not subject to tax on unrelated
business taxable income.
REQUIREMENTS FOR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to its
owners;
(3) that would be taxable as a regular corporation, but for its election
to be taxed as a REIT;
(4) that is not a financial institution or an insurance company under
the Code;
(5) that is owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals, as defined
in the Code to include some entities, during the last half of each year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets, and the amount of its distributions.
The Code provides that conditions (1) to (4) must be met during the entire
year and that condition (5) must be met during at least 335 days of a year of
twelve months, or during a proportionate part of a shorter taxable year.
Conditions (5) and (6) do not apply to the first taxable year for which an
election is
27
made to be taxed as a REIT. For purposes of condition (6), tax-exempt entities
are generally treated as individuals, subject to a "look-through" exception for
pension funds.
Our charter provides for restrictions regarding ownership and transfer of
our stock. These restrictions are intended to assist us in satisfying the share
ownership requirements described in (5) and (6) above. These restrictions,
however, may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements described in (5) and (6) above. If we fail to satisfy
these share ownership requirements, our status as a REIT would terminate. If,
however, we comply with the rules contained in applicable Treasury regulations
that require us to determine the actual ownership of our shares and we do not
know, or would not have known through the exercise of reasonable diligence, that
we failed to meet the requirement described in condition (6) above, we would not
be disqualified as a REIT.
In addition, a corporation may not qualify as a REIT unless its taxable year
is the calendar year. We have and will continue to have a calendar taxable year.
OWNERSHIP OF A PARTNERSHIP INTEREST
The Treasury regulations provide that if we are a partner in a partnership,
we will be deemed to own our proportionate share of the assets of the
partnership, and we will be deemed to be entitled to our proportionate share of
the gross income of the partnership. The character of the assets and gross
income of the partnership generally retains the same character in our hands for
purposes of satisfying the gross income and asset tests described below.
TAXABLE REIT SUBSIDIARIES
Effective January 1, 2001 REITs are permitted to own up to 100% of the
shares in a corporation that elects to be treated as a taxable REIT subsidiary
("TRS"). In order to obtain TRS status, the corporation and the REIT must
file a joint election with the Internal Revenue Service. A TRS pays tax at
regular corporate income rates on any income it earns. Moreover, the Code
contains rules (including a limitation on interest deductions and rules
requiring the imposition of taxes on the REIT at a rate of 100% on certain
reallocated income and expenses) to ensure that contractual arrangements between
a TRS and its beneficial owners are at arm's length. Securities in taxable REIT
subsidiaries will not qualify as "real estate assets" for the purposes of the
75% asset test described below under the heading Federal Income Tax
Considerations--Asset Test.
QUALIFIED REIT SUBSIDIARIES
A "qualified REIT subsidiary" is a corporation, all of the stock of which is
owned by a REIT. Under the Code, a qualified REIT subsidiary is not treated as a
separate corporation from the REIT. Rather, all of the assets, liabilities, and
items of income, deduction, and credit of the qualified REIT subsidiary are
treated as the assets, liabilities, and items of income, deduction, and credit
of the REIT for purposes of the REIT income and asset tests described below. A
qualified REIT subsidiary does not include a corporation that elects to be
treated as a TRS.
INCOME TESTS
We must meet two annual gross income requirements to qualify as a REIT.
First, each year we must derive, directly or indirectly, at least 75% of our
gross income, excluding gross income from prohibited transactions, from
investments relating to real property or mortgages on real property, including
"rents from real property" and mortgage interest, or from specified temporary
investments. Second, each year we
28
must derive at least 95% of our gross income, excluding gross income from
prohibited transactions, from investments meeting the 75% test described above,
or from dividends, interest and gain from the sale or disposition of stock or
securities. For these purposes, the term "interest" generally does not include
any interest of which the amount received depends on the income or profits of
any person. An amount will generally not be excluded from the term "interest,"
however, if such amount is based on a fixed percentage of receipts or sales.
Any amount includable in gross income by us with respect to a regular or
residual interest in a real estate mortgage investment conduit is generally
treated as interest on an obligation secured by a mortgage on real property for
purposes of the 75% gross income test. If, however, less than 95% of the assets
of a real estate mortgage investment conduit consist of real estate assets, we
will be treated as receiving directly our proportionate share of the income of
the real estate mortgage investment conduit, which would generally include
non-qualifying income for purposes of the 75% gross income test. In addition, if
we receive interest income with respect to a mortgage loan that is secured by
both real property and other property and the principal amount of the loan
exceeds the fair market value of the real property on the date we purchased the
mortgage loan, interest income on the loan will be apportioned between the real
property and the other property, which apportionment would cause us to recognize
income that is not qualifying income for purposes of the 75% gross income test.
In general, and subject to the exceptions in the preceding paragraph, the
interest, original issue discount, and market discount income that we derive
from investments in mortgage backed securities, and mortgage loans will be
qualifying interest income for purposes of both the 75% and the 95% gross income
tests. It is possible, however, that interest income from a mortgage loan may be
based in part on the borrower's profits or net income, which would generally
disqualify such interest income for purposes of both the 75% and the 95% gross
income tests.
We may acquire construction loans or mezzanine loans that have shared
appreciation provisions. To the extent interest on a loan is based on the cash
proceeds from the sale or value of property, income attributable to such
provision would be treated as gain from the sale of the secured property, which
generally should qualify for purposes of the 75% and 95% gross income tests.
We may employ, to the extent consistent with the REIT Provisions of the
Code, forms of securitization of our assets under which a "sale" of an interest
in a mortgage loan occurs, and a resulting gain or loss is recorded on our
balance sheet for accounting purposes at the time of sale. In a "sale"
securitization, only the net retained interest in the securitized mortgage loans
would remain on our balance sheet. We may elect to conduct certain of our
securitization activities, including such sales, through one or more taxable
subsidiaries, or through qualified REIT subsidiaries, formed for such purpose.
To the extent consistent with the REIT Provisions of the Code, such entities
could elect to be taxed as real estate mortgage investment conduits or financial
asset securitization investment trusts.
Rents we receive will qualify as "rents from real property" only if the
following conditions are met:
-- the amount of rent may not be based in whole or in part on the income or
profits of any person. "Rents from real property" may, however, include
rent based on a fixed percentage of receipts or sales;
-- rents received from a tenant will not qualify as "rents from real
property" if we, or an actual or constructive owner of 10% or more of
our stock, actually or constructively owns 10% or more of such tenant;
29
-- if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to personal
property will not qualify as "rents from real property";
-- to qualify as "rents from real property," we generally may not render
services to tenants of the property, other than through an independent
contractor from whom we derive no revenue. We may, however, provide
services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. Because of the nature of our
investments, we do not anticipate that we will be rendering services to
tenants. However the Code allows a REIT to provide a DE MINIMIS amount
of non-customary services without tainting the rental income, provided
such services do not generate more than 1% of that property's gross
income. Further, a TRS can perform non-customary services for our
tenants without causing us to be in receipt of bad income from
non-customary services or otherwise tainting our rental income under the
REIT income tests; and
-- rents received by us from a TRS will qualify as rents from real property
so long as at least 90% of the property leased to the TRS is leased to
unrelated tenants and the rents are substantially comparable to the rent
paid by the unrelated tenants for comparable space.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any year, we may still qualify as a REIT if we are entitled to relief under the
Code. Generally, we may be entitled to relief if:
-- our failure to meet the gross income tests was due to reasonable cause
and not due to willful neglect;
-- we attach a schedule of the sources of our income to our Federal income
tax return; and
-- any incorrect information on the schedule was not due to fraud with the
intent to evade tax.
It is not possible to state whether in all circumstances we would be
entitled to rely on these relief provisions. If these relief provisions do not
apply to a particular set of circumstances, we would not qualify as a REIT. As
discussed above in "--Taxation of Anthracite--General", even if these relief
provisions apply, and we retain our status as a REIT, a tax would be imposed
with respect to our income that does not meet the gross income tests. We may not
always be able to maintain compliance with the gross income tests for REIT
qualification despite periodically monitoring our income.
FORECLOSURE PROPERTY
Net income realized by us from foreclosure property would generally be
subject to tax at the maximum Federal corporate tax rate. Foreclosure property
means real property and related personal property that (1) is acquired by us
through foreclosure following a default on a lease of such property or a default
on indebtedness owed to us that is secured by the property and (2) for which we
make an election to treat the property as foreclosure property.
PROHIBITED TRANSACTION INCOME
Any gain realized by us on the sale of any property, other than foreclosure
property, held as inventory or otherwise held primarily for sale to customers in
the ordinary course of business will be prohibited transaction income, and
subject to a 100% penalty tax. This prohibited transaction income may also
adversely affect our ability to satisfy the gross income tests for qualification
as a REIT. Whether property is
30
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business depends on all the facts and circumstances surrounding the
particular transaction. While the Treasury regulations provide standards which,
if met, would not result in prohibited transaction income, we may not be able to
meet these standards in all circumstances.
HEDGING TRANSACTIONS
We may enter into hedging transactions with respect to one or more of our
assets or liabilities. Our hedging transactions could take a variety of forms,
including interest rate swaps or cap agreements, options, futures contracts,
forward rate agreements, or similar financial instruments. To the extent that we
enter into hedging transactions to reduce our interest rate risk on indebtedness
incurred to acquire or carry real estate assets, any income, or gain from the
disposition of hedging transactions should be qualifying income for purposes of
the 95% gross income test, but not the 75% gross income test.
ASSET TEST
At the close of each quarter of each year, we also must satisfy four tests
relating to our assets.
First, at least 75% of the value of our total assets must be real estate
assets, cash, cash items and government securities. For purposes of this test,
real estate assets include real estate mortgages, real property, interests in
other REITs and stock or debt instruments held for one year or less that are
purchased with the proceeds of a stock offering or a long-term public debt
offering.
Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset
class.
Third, of the investments included in the 25% asset class, the value of
any one issuer's securities that we hold may not exceed 5% of the value
of our total assets, and we may not own more than 10% of the total voting
power or more than 10% of the value of the outstanding securities of any
corporation which is not a qualified REIT subsidiary or a TRS. Under a
transition rule, the limitation on owning more than 10% of the value of
the outstanding securities of a corporation does not apply to securities
held on July 12, 1999, provided the issuer of those securities does not
engage in a substantial new line of business or acquire substantial new
assets after that date and provided that we do not acquire additional
securities in such issuer after that date.
Finally, under new rules, effective from 1 January 2001, no more than 20%
of the value of a REIT's total assets may be represented by securities of
one or more taxable REIT subsidiaries.
We expect that any mortgage backed securities, real property, and temporary
investments that we acquire will generally be qualifying assets for purposes of
the 75% asset test, except to the extent that less than 95% of the assets of a
real estate mortgage investment conduit in which we own an interest consists of
"real estate assets." Mortgage loans, including distressed mortgage loans,
construction loans, bridge loans, and mezzanine loans also will generally be
qualifying assets for purposes of the 75% asset test to the extent that the
principal balance of each mortgage loan does not exceed the value of the
associated real property.
We anticipate that we may securitize all or a portion of the mortgage loans
which we acquire, in which event we will likely retain certain of the
subordinated and interest only classes of mortgage backed securities which may
be created as a result of such securitization. The securitization of mortgage
loans may be accomplished through one or more real estate mortgage investment
conduits established by us or, if a non-real estate mortgage investment conduit
securitization is desired, through one or more qualified REIT subsidiaries or
taxable subsidiaries established by us. The securitization of the mortgage loans
through
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either one or more real estate mortgage investment conduits or one or more
qualified REIT subsidiaries or taxable subsidiaries should not affect our
qualification as a REIT or result in the imposition of corporate income tax
under the taxable mortgage pool rules. Income realized by us from a real estate
mortgage investment conduit securitization could, however, be subject to a 100%
tax as a "prohibited transaction." See "--Prohibited Transaction Income."
After meeting the asset tests at the close of any quarter, we will not lose
our status as a REIT if we fail to satisfy the asset tests at the end of a later
quarter solely by reason of changes in asset values. In addition, if we fail to
satisfy the asset tests because we acquire securities or other property during a
quarter, we can cure this failure by disposing of sufficient nonqualifying
assets within 30 days after the close of that quarter.
We will monitor the status of the assets that we acquire for purposes of the
various asset tests and we will manage our portfolio in order to comply with
such 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 the
sum of (1) 90% of our "REIT taxable income" and (2) 90% of our after tax net
income, if any, from foreclosure property, minus (3) the sum of certain items of
noncash income. In general,"REIT taxable income" means taxable ordinary income
without regard to the dividends paid deduction.
We are required to distribute income in the taxable year which it is earned,
or in the following taxable year before we timely file our tax return if such
dividend distributions are declared and paid on or before our first regular
dividend payment. Except as provided in "--Taxation of Taxable U.S.
Stockholders" below, these distributions are taxable to holders of common stock
in the year in which paid, even though these distributions relate to our prior
year for purposes of our 95% distribution requirement. To the extent that we do
not distribute all of our net capital gain or distribute at least 95%, but less
than 100% or our "REIT taxable income," we will be subject to tax at regular
corporate tax rates.
From time to time we may not have sufficient cash or other liquid assets to
meet the above distribution requirements due to timing differences between the
actual receipt of cash and payment of expenses, and the inclusion of income and
deduction of expenses in arriving at our taxable income. If these timing
differences occur, in order to meet the REIT distribution requirements, we may
need to arrange for short-term, or possibly long-term, borrowings, or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet a
distribution requirement for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being subject
to tax on amounts distributed as deficiency dividends. We will be required,
however, to pay interest based upon the amount of any deduction claimed for
deficiency dividends. In addition, we will be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually distributed if we
should fail to distribute each year at least the sum of 85% of our ordinary
income for the year, 95% of our capital gain income for the year, and any
undistributed taxable income from prior periods.
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RECORD KEEPING REQUIREMENTS
We are required to maintain records and request on an annual basis
information from specified stockholders. This requirement is designed to
disclose the actual ownership of our outstanding stock.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Code described above do not apply, we will be subject
to tax, including any applicable alternative minimum tax, and possibly increased
state and local taxes, on our taxable income at regular corporate rates. Such
taxation would reduce the cash available for distribution by us to our
stockholders. Distributions to stockholders in any year in which we fail to
qualify as a REIT will not be deductible by us and we will not be required to
distribute any amounts to our stockholders. If we fail to qualify as a REIT,
distributions to our stockholders will be subject to tax as ordinary income to
the extent of our current and accumulated earnings and profits and, subject to
certain limitations of the Code, corporate stockholders may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, we would also be disqualified from taxation as a REIT for the four
taxable years following the year during which we lost our qualification. It is
not possible to state whether in all circumstances we would be entitled to
statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
When we use the term "U.S. stockholders," we mean a holder of shares of our
stock who is, for United States federal income tax purposes:
-- a citizen or resident of the United States;
-- a corporation, or other entity taxable as a corporation and created
or organized in or under the laws of the United States or of any state
thereof or in the District of Columbia, unless Treasury regulations provide
otherwise;
-- an estate the income of which is subject to United States federal
income taxation regardless of its source; or
-- a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States persons whom
have the authority to control all substantial decisions of the trust.
DISTRIBUTIONS GENERALLY
Distributions out of our current or accumulated earnings and profits, other
than capital gain dividends will be taxable to our U.S. stockholders as ordinary
income. Provided we qualify as a REIT, our dividends will not be eligible for
the dividends received deduction generally available to U.S. stockholders that
are corporations.
To the extent that we make distributions in excess of our current and
accumulated earnings and profits, our distributions will be treated as a
tax-free return of capital to each U.S. stockholder, and will reduce the
adjusted tax basis which each U.S. stockholder has in its shares of stock by the
amount of the distribution, but not below zero. Distributions in excess of a
U.S. stockholder's adjusted tax basis in its shares will be taxable as capital
gain, provided that the shares have been held as capital assets, and will be
33
taxable as long-term capital gain if the shares have been held for more than one
year. Dividends we declare in October, November, or December of any year and pay
to a stockholder of record on a specified date in any of those months will be
treated as both paid by us and received by the stockholder on December 31 of
that year, provided we actually pay the dividend in January of the following
year. Stockholders may not include in their own income tax returns any of our
net operating losses or capital losses.
CAPITAL GAIN DISTRIBUTIONS
Distributions designated as net capital gain dividends will be taxable to
our U.S. stockholders as capital gain income. Such capital gain income will be
taxable to non-corporate U.S. stockholders at a 20% or 25% rate based on the
characteristics of the asset we sold that produced the gain. U.S. stockholders
that are corporations may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
RETENTION OF NET CAPITAL GAINS
We may elect to retain, rather than distribute as a capital gain dividend,
our net capital gains. If we make this election, we would pay tax on such
retained capital gains. In such a case, our stockholders would generally:
-- include their proportionate share of our undistributed net capital
gains in their taxable income;
-- receive a credit for their proportionate share of the tax paid by us;
and
-- increase the adjusted basis of their stock by the difference between
the amount of their capital gain and their share of the tax paid by us;
PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS
Distributions we make, and gain arising from the sale or exchange by a U.S.
stockholder of our shares, will not be treated as passive activity income. As a
result, U.S. stockholders will not be able to apply any "passive losses" against
income or gain relating to our stock. Distributions we make, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment interest limitation.
DISPOSITIONS OF STOCK
If you are a U.S. stockholder and you sell or dispose of your shares of
stock, you will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted tax basis in the shares of stock. This gain or loss will be capital
gain or loss if you have held the stock as a capital asset, and will be
long-term capital gain or loss if you have held the stock for more than one
year. In general, if you are a U.S. stockholder and you recognize loss upon the
sale or other disposition of stock that you have held for six months or less,
the loss you recognize will be treated as a long-term capital loss to the extent
you received distributions from us which were required to be treated as
long-term capital gains.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
We report to our U.S. stockholders and the Internal Revenue Service the
amount of dividends paid during each calendar year, and the amount of any tax
withheld. Under the backup withholding rules, a stockholder may be subject to
backup withholding with respect to dividends paid unless the holder is a
corporation or comes within other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification number or social
security number, certifies as to no loss of exemption from backup withholding,
and otherwise complies with applicable requirements of the backup withholding
rules. A U.S. stockholder that does not provide us with his correct taxpayer
identification number or social security number may also be subject to penalties
imposed by the Internal Revenue Service. Backup withholding is not an additional
tax. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The Internal Revenue Service has ruled that amounts distributed as dividends
by a REIT do not constitute unrelated business taxable income when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder,
has not held its shares as "debt financed property" within the meaning of the
Code and the shares are not otherwise used in a unrelated trade or business,
dividend income on our stock and income from the sale of our stock should not be
unrelated business taxable income to a tax-exempt stockholder. Generally, debt
financed property is property, the acquisition or holding of which was financed
through a borrowing by the tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from Federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in our shares will constitute unrelated business taxable income
unless the organization is able to properly claim a deduction for amounts set
aside or placed in reserve for certain purposes so as to offset the income
generated by its investment in our shares. These prospective investors should
consult their tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" may be treated as unrelated business taxable income as to
any pension trust which:
-- is described in Section 401(a) of the Code;
-- is tax-exempt under Section 501(a) of the Code; and
-- holds more than 10%, by value, of the interests in the REIT.
Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if:
-- it would not have qualified as a REIT but for the fact that
Section 856(h)(3) of the Code provides that stock owned by qualified trust
shall be treated, for purposes of the 5/50 Rule, as owned by the
beneficiaries of the trust, rather than by the trust itself; and
35
-- either at least one qualified trust holds more than 25%, by value, of
the interests in the REIT, or one or more qualified trusts, each of which
owns more than 10%, by value, of the interests in the REIT, holds in the
aggregate more than 50%, by value, of the interests in the REIT.
The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:
-- the unrelated business taxable income earned by the REIT, treating
the REIT as if it were a qualified trust and therefore subject to tax on
unrelated business taxable income, to
-- the total gross income of the REIT.
A DE MINIMIS exception applies where the percentage is less than 5% for any
year. As a result of the limitations on the transfer and ownership of stock
contained in the charter, we do not expect to be classified as a "pension-held
REIT."
THE PRECEDING INFORMATION IS A SUMMARY OF THE FEDERAL INCOME TAX
CONSEQUENCES THAT ARE ANTICIPATED TO BE MATERIAL TO AN INVESTOR IN THE COMMON
STOCK OF ANTHRACITE. THIS SUMMARY IS BASED ON CURRENT LAW, IS FOR GENERAL
INFORMATION ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES RELATED TO AN
INVESTMENT IN ANTHRACITE MAY VARY DEPENDING ON AN INVESTOR'S PARTICULAR
SITUATION AND THIS DISCUSSION DOES NOT PURPORT TO DISCUSS ALL ASPECTS OF
TAXATION THAT MAY BE RELEVANT TO A HOLDER OF OUR SECURITIES IN LIGHT OF HIS OR
HER PERSONAL INVESTMENT OR TAX CIRCUMSTANCES, OR TO HOLDERS OF OUR SECURITIES
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. INVESTORS
SUBJECT TO SPECIAL TREATMENT INCLUDE, WITHOUT LIMITATION, INSURANCE COMPANIES,
FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX- EXEMPT ORGANIZATIONS, INVESTORS
HOLDING SECURITIES AS PART OF A CONVERSION TRANSACTION, OR A HEDGE OR HEDGING
TRANSACTION OR AS A POSITION IN A STRADDLE FOR TAX PURPOSES, FOREIGN
CORPORATIONS OR PARTNERSHIPS, AND PERSONS WHO ARE NOT CITIZENS OR RESIDENTS OF
THE UNITED STATES. IN ADDITION, THE SUMMARY ABOVE DOES NOT CONSIDER THE EFFECT
OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS THAT MAY BE APPLICABLE TO YOU AS
A HOLDER OF OUR SECURITIES.
PLAN OF DISTRIBUTION
Except to the extent the Plan Administrator purchases our common stock in
open market transactions, the common stock acquired under the Plan will be sold
directly by us through the Plan. We may sell our common stock to stockholders
(including brokers or dealers) who, in connection with any resales of such
shares, may be deemed to be underwriters. Such shares, including shares acquired
pursuant to requests for waiver granted with respect to the cash purchase
feature of the Plan, may be resold in market transactions (including coverage of
short positions) on any national securities exchange on which shares of our
common stock trade or in privately negotiated transactions. Our common stock is
currently listed on the New York Stock Exchange. Under certain circumstances, it
is expected that a portion of the shares of our common stock available for
issuance under the Plan will be issued pursuant to such waivers. The difference
between the price such owners pay to us for our common stock acquired under the
Plan, after deduction of the applicable discount from the market price for cash
purchases, and the price at which such
36
shares are resold, may be deemed to constitute underwriting commissions received
by such owners in connection with such transactions.
Subject to the availability of shares of our common stock registered for
issuance under the Plan, there is no total maximum number of shares that can be
issued pursuant to the reinvestment of dividends. From time to time, financial
intermediaries may engage in positioning transactions in order to benefit from
the discount from the market price for dividend reinvestments of our common
stock acquired through the reinvestment of dividends under the Plan.
Except with respect to open market purchases of our common stock relating to
reinvested dividends or cash purchases, we will pay any and all brokerage
commissions and related expenses incurred in connection with purchases of our
common stock under the Plan, up to 5% of the market price for dividend
reinvestments and the market price for cash purchases of the common stock. Upon
withdrawal by a Plan participant from the Plan by the sale of our common stock
held under the Plan, the Plan participant will receive the proceeds of such sale
less a nominal fee per transaction paid to the Plan Administrator (if such
resale is made by the Plan Administrator at the request of a Plan participant),
any related brokerage commissions and any applicable transfer taxes.
Our common stock may not be available under the Plan in all states. This
prospectus does not constitute an offer to sell, or a soliciting of an offer to
buy, any of our common stock or other securities in any state or any other
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
INDEMNIFICATION
As permitted by the Maryland General Corporation Law ("MGCL"), our Amended
and Restated Articles of Incorporation obligate us to indemnify in advance of
the final disposition of a proceeding to the maximum extent permitted from time
to time by Maryland law (a) our present and former directors and officers,
whether serving Anthracite or at its request any other entity, to the fullest
extent required by the MGCL and to pay or reimburse reasonable expenses for such
persons and (b) our other employees and agents to such extent as shall be
authorized by the Board of Directors or our Bylaws and as permitted by the MGCL,
officers, directors and controlling persons. The MGCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities, unless it is
established that (a) the act or omission of the director or officer was material
to the matter giving rise to such proceeding and (i) was committed in bad faith,
or (ii) was the result of active and deliberate dishonesty, or (b) the director
or officer actually received an improper personal benefit in money, property or
services, or (c) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. Our
Bylaws implement the provisions relating to indemnification contained in our
Amended and Restated Articles of Incorporation. The MCGL permits the charter of
a Maryland corporation to include a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money
damages, except to the extent that (i) the person actually received an improper
benefit or profit in money, property or services, or (ii) a judgment or other
final adjudication is entered in a proceeding based on a finding that the
person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
37
Our Amended and Restated Articles of Incorporation contain a provision
providing for elimination of the liability of our directors or officers or our
stockholders for money damages to the maximum extent permitted by Maryland law
from time to time. We will maintain for the benefit of our officers and
directors, officers' and directors' insurance.
Insofar as indemnification of directors, officers, other employees and
agents of Anthracite for liabilities arising under the Securities Act of 1933
may be permitted, pursuant to the foregoing provisions, or otherwise, Anthracite
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Anthracite of expenses
incurred or paid by a director, officer or controlling person of Anthracite in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Anthracite will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by Anthracite is
against the public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Miles & Stockbridge, a Professional Corporation, Baltimore,
Maryland. Certain matters relating to federal income tax considerations will be
passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
The financial statements incorporated in this prospectus by reference from
our Annual Report on Form 10-K for the year ended December 31, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER INDIVIDUAL TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER BY US TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE ANTHRACITE
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT OR
COMPLETE AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
Where You Can Find More Information... 2
Incorporation of Documents by
Reference........................... 2
Anthracite Capital, Inc. and the
Manager............................. 2
Risk Factors.......................... 3
Dividend and Distribution Policy...... 10
Description of the Plan............... 10
Federal Income Tax Considerations..... 24
Plan of Distribution.................. 36
Indemnification....................... 37
Legal Matters......................... 38
Experts............................... 38
ANTHRACITE
CAPITAL, INC.
DIVIDEND REINVESTMENT
AND STOCK PURCHASE PLAN
10,000,000 SHARES
OF
COMMON STOCK
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P R O S P E C T U S
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July 25, 2001
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