MESSAGE FROM OUR CEO DEAR FELLOW SHAREHOLDERS, 2023 was a year of definitive progress in Annaly’s strategic rededication to investing across all aspects of housing finance. Guided by our disciplined portfolio and risk management, we delivered a 6.0% economic return to our shareholders despite substantial market volatility, while also achieving key milestones that expanded our leadership across residential mortgage finance. As I’ve discussed in past letters, Annaly embarked on a strategic transition to shift our capital allocation from our flagship Agency MBS business after I assumed the role of CEO in 2020 towards investing across housing finance. In turn, we have built a platform that allocates capital across the rate and convexity component of the loan in Agency MBS, the credit component in Residential Credit or the interest payment component in MSR. Following the accretive dispositions of our Commercial Real Estate business in 2021 and Middle Market Lending business in 2022, we successfully redeployed capital into our Residential Credit and MSR portfolios, which are now each fully scaled and have become clear leaders within their respective sectors. Their combined presence on our balance sheet differentiates Annaly with a unique platform and capital allocation, which has enabled us to outperform our peer group with respect to economic return over the last two years(1). OPERATING ENVIRONMENT The last few years have proved to be an unusually difficult environment for fixed income investing, particularly Agency MBS. The technical picture has been persistently challenged as the Federal Reserve’s (the “Fed”) campaign to combat inflation has led to a historically rapid increase in the Federal Funds Rate and a notable reduction in the Fed’s balance sheet. Combined with pronounced volatility resulting from events including the regional banking crisis, debt ceiling negotiations, and economic uncertainty, market fundamentals have remained bleak and have led to significant disruption across fixed income sectors. Agency MBS faced additional headwinds given the two largest owners of the asset class, the Fed and banks, reduced their net holdings for much of last year. This led Agency MBS spreads to widen meaningfully above historical averages and, at times such as October 2023, to levels not seen outside of a crisis environment. PORTFOLIO PERFORMANCE Despite this investment landscape, Annaly’s proactive portfolio management and diversified capital allocation enabled us to deliver a strong economic return to shareholders, which outperformed all of our Agency-focused mREIT Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information. While Agency MBS remains our core strategy, we believe our three complementary housing finance businesses support superior riskadjusted returns, a strong earnings profile, and stability across different interest rate and macro environments. 8 ANNALY CAPITAL MANAGEMENT, INC. residential mortgage loan – whether through the
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