Following our management externalization transaction (“Externalization”), which was approved at our 2013 annual meeting of stockholders, we have been externally managed by Annaly Management Company LLC (our “Manager”).

The Externalization received positive voting recommendations from both ISS and Glass Lewis and strong support from our stockholders (approximately 82.8% of votes cast).

Pursuant to our management agreement, our Manager is responsible for managing our affairs and providing us with our executive officers, all of whom are employed by our Manager.

Our Manager has sole discretion to determine the compensation it pays to its employees, including our executive officers. Our independent directors have oversight of the arrangements between the Company and our Manger pursuant to our management agreement, but do not have oversight of the arrangements between the Manager and its employees.

Our Compensation Committee does not receive, review or approve our Manager’s compensation determinations.

Our two most recent Say-on-Pay Proposals submitted to stockholders since the Externalization (in 2014 and 2015), received positive voting recommendations from both ISS and Glass Lewis and strong support from our stockholders (approximately 90.8% and 94.2% of votes cast, respectively).

Annaly has not made any changes to our executive compensation practices adverse to our stockholders since the Externalization and has not paid any compensation or benefits to our executive officers during such time.

In November 2015, ISS adopted a new policy that provides that it will generally recommend against the Say-on-Pay Proposal of an externally-managed issuer like Annaly unless we make special disclosures regarding matters determined by our Manager rather than our Compensation Committee.

We provided expanded disclosure in our 2016 Proxy Statement to help our stockholders understand the governance processes around our external management arrangement, as well as to enable you to measure the management fee we pay to the Manager relative to the performance of the Company.

Our Board and Compensation Committee continually evaluate and enhance our management structure to align the interests of our management team with those of our stockholders and to reflect industry-leading best practices.

The Compensation Committee reviews the performance of our Manager, along with the structure and amount of the management fee, to ensure the fee incentivizes our Manager to achieve long-term performance that protects our stockholders’ equity. The Compensation Committee also reviews the management fee against our pre-Externalization compensation expenses and benchmarks our total operating expenses (which includes the management fee) against our peers to promote alignment.

The terms and conditions of our management agreement compare favorably to the management agreements of our externally-managed peers on a number of bases, including our low management fee of 1.05% of stockholders’ equity.

We expanded our stock ownership guidelines to over 40% of our Manager’s employees (including our executive officers). Pursuant to these guidelines, our Manager’s employees will not be granted stock, but rather, will be asked to purchase predetermined amounts of shares in the open market ($10,000,000 for our CEO). Establishing an ownership culture throughout the firm, for the long term, is extremely important to us and is consistent with the fact that our executive officers have purchased over two million common shares since 2011 with an aggregate purchase price of $23.5 million.

We adopted an anti-pledging policy that prohibits our Manager’s employees (including our executive officers) from holding Company securities in a margin account as eligible collateral, or otherwise pledging Company securities as collateral for a loan. We also have an anti-hedging policy in place.

We created the role of Lead Independent Director to serve as an additional link between our management, the Board and our stockholders.

As of May 13, 2016, Annaly had delivered extraordinary total return of 21.94% (including reinvestment of dividends) since the Externalization.

In 2015, Annaly returned $1.32 billion to stockholders with $114.3 million shares repurchased and $1.2 billion common and preferred stock dividends declared. In the first quarter of 2016, Annaly returned an additional $398.2 million comprised of $102.7 million of share repurchases and $295.4 million common and preferred dividends.

From 2014 – 2015, we generated a 16.5% economic return (change in book value plus dividends paid) and a total return of 33.1%, while operating at 30% less leverage than our Agency mortgage REIT peers.

Over the last few years, we have diversified our investment strategy by investing in credit assets with complementary cash flows to achieve superior risk-adjusted returns over the long term.