QUESTIONS AND ANSWERS ABOUT THE OFFER AND THE MERGER

        Below are some of the questions that you as a Hatteras stockholder may have regarding the offer and the merger and answers to those questions. You are urged to carefully read the remainder of this document and the related letter of election and transmittal and the other documents to which we have referred because the information contained in this section and in the section entitled "Summary" is not complete. Additional important information is contained in the remainder of this document and the related letter of election and transmittal. See "Where To Obtain More Information." As used in this document, unless otherwise indicated or the context requires, "Annaly," "we" or "us" refers to Annaly Capital Management, Inc. and its consolidated subsidiaries; the "Offeror" refers to Ridgeback Merger Sub Corporation, a wholly owned subsidiary of Annaly; and "Hatteras" refers to Hatteras Financial Corp. and its consolidated subsidiaries. The "acceptance time" for purposes of this document and the merger agreement is the time that Annaly will accept for payment, subject to the terms and conditions of the merger agreement, all shares of Hatteras common stock, par value $0.001 per share (the "Hatteras common stock") that are validly tendered and not validly withdrawn in the offer.

Who is offering to buy my shares of Hatteras common stock and why I am receiving this document?

        Annaly Capital Management, Inc. and the Offeror are making this offer to exchange cash and shares of Annaly common stock, par value $0.01 per share (the "Annaly common stock") for shares of Hatteras common stock pursuant to the Agreement and Plan of Merger, which is referred to as the "merger agreement", entered into by Annaly, the Offeror and Hatteras on April 10, 2016. You are receiving this document because you own shares of Hatteras common stock.

        Annaly is a leading mortgage real estate investment trust ("REIT") listed on the New York Stock Exchange ("NYSE") and externally managed by Annaly Management Company LLC. Since its founding in 1997, Annaly has strived to generate net income for distribution to its stockholders and preserve capital through the prudent selection and management of its investments, and since its inception has paid $14 billion in dividends to stockholders. Annaly uses its capital coupled with borrowed funds to invest in real estate related investments earning the spread between the yield on its assets and the cost of its borrowings and hedges.

What are the classes and amounts of Hatteras securities that Annaly is seeking to acquire in the offer?

        Annaly is seeking to acquire all of the issued and outstanding shares of Hatteras common stock in the offer.

What will I receive for my shares of Hatteras common stock in the offer?

        Annaly and the Offeror are offering (the "offer") to exchange for each outstanding share of Hatteras common stock validly tendered and not validly withdrawn in the offer:

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$5.55 in cash; and



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0.9894 shares of Annaly common stock, par value $0.01 per share, together with cash in lieu of any fractional shares of Annaly common stock.

We refer to the above as the "mixed consideration."

        In lieu of receiving the mixed consideration, holders of shares of Hatteras common stock may elect to receive, for each share of Hatteras common stock that they hold, (1) $15.85 in cash (we refer to this election as the "all-cash election" and this amount as the "all-cash consideration") or (2) 1.5226 shares of Annaly common stock, together with cash in lieu of any fractional shares of Annaly common stock (we refer to this election as the "all-stock election" and this amount as the "all-stock consideration").

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The mixed consideration, the all-cash consideration and the all-stock consideration (as applicable) will be paid without interest and less any applicable withholding taxes.

        Hatteras common stockholders who validly tender and do not validly withdraw their shares of Hatteras common stock in the offer but who do not make a valid election will receive the mixed consideration for their shares of Hatteras common stock. Hatteras common stockholders who make the all-cash election or the all-stock election will be subject to proration so that approximately 65.0% of the aggregate consideration in the offer will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the offer will be paid in cash. See "The Offer—Elections and Proration" for a description of the proration procedure.

         Hatteras common stockholders should consider the potential effects of proration and should obtain current market quotations for shares of Hatteras common stock and shares of Annaly common stock before deciding whether to tender pursuant to the offer and before electing the form of consideration they wish to receive. The market value of the stock portion of the common transaction consideration will change as the market value of Annaly common stock fluctuates during the offer period and thereafter. Please see "Risk Factors—Risk Factors Relating to the Offer and the Merger."

What will happen to my shares of Hatteras preferred stock?

        If you own shares of Hatteras' 7.625% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the "Hatteras Series A preferred stock"), you do not need to do anything in connection with the offer, as the offer is not applicable to the Hatteras Series A preferred stock. If the offer is completed, in connection with the completion of the merger, each outstanding share of Hatteras Series A preferred stock will be automatically converted into the right to receive one share of Annaly's 7.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value per share (the "Annaly Series E preferred stock").

Will I have to pay any fee or commission to exchange my shares of Hatteras common stock?

        If you are the record owner of your shares of Hatteras common stock and you tender these shares in the offer, you will not have to pay any brokerage fees, commissions or similar expenses. If you own your shares of Hatteras common stock through a broker, dealer, commercial bank, trust company or other nominee and your broker, dealer, commercial bank, trust company or other nominee tenders your shares of Hatteras common stock on your behalf, your broker or such other nominee may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.

Why is Annaly making this offer and what is the purpose of the merger?

        The purpose of the offer is for Annaly to acquire control of, and ultimately own the entire equity interest in, Hatteras. The offer is the first step in Annaly's plan to acquire all of the outstanding shares of Hatteras common stock. Annaly intends to consummate the merger promptly following the completion of the offer. The purpose of the merger is for Annaly to acquire all of the shares of Hatteras common stock that it did not acquire in the offer, as well as each outstanding share of the Hatteras Series A preferred stock. After the merger, the Hatteras business will be held in a wholly owned subsidiary of Annaly, and the former Hatteras stockholders will no longer have any direct ownership interest in this entity.

What does the Hatteras board of directors recommend?

        The Hatteras board of directors, acting upon the recommendation of a special committee of the Hatteras board of directors comprised of three independent directors (the "Hatteras special committee"), has unanimously resolved to recommend that the Hatteras stockholders accept the offer

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and tender their shares of Hatteras common stock to Annaly in the offer. The Hatteras board of directors, upon the unanimous recommendation of the Hatteras special committee, also unanimously determined that the terms of the merger agreement and the transactions, including the offer, the merger and the issuance of shares of Annaly common stock in connection therewith, are fair to, and in the best interests of, Hatteras and its stockholders, and declared the offer, the merger and the other transactions contemplated by the merger agreement advisable.

        See "The Offer—Hatteras' Reasons for the Offer and the Merger; Recommendation of the Hatteras Board of Directors" for more information. A description of the reasons for this recommendation is also set forth in Hatteras' Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") that is being mailed to you together with this document.

What are the most significant conditions of the offer?

        The offer is conditioned upon, among other things, the following:

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Minimum Tender Condition —Hatteras common stockholders having validly tendered and not validly withdrawn in accordance with the terms of the offer and prior to the expiration of the offer a number of shares of Hatteras common stock that, together with any shares of Hatteras common stock then owned by Annaly and the Offeror, represents at least one share more than two-thirds of the then-outstanding shares of Hatteras common stock at any expiration of the offer (the "minimum tender condition");



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Effectiveness of Form S-4 —The registration statement on Form S-4, of which this document is a part, having become effective under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and must not be the subject of any stop order or proceeding seeking a stop order, at any expiration of the offer;



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No Hatteras Material Adverse Effect —There not having occurred any change, effect, development, circumstance, condition, state of facts, event or occurrence after the date of the merger agreement that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Hatteras (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect");



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No Annaly Material Adverse Effect —There not having occurred any change, effect, development, circumstance, condition, state of facts, event or occurrence after the date of the merger agreement that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Annaly (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect");



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Accuracy of Hatteras' Representations and Warranties —The representations and warranties of Hatteras contained in the merger agreement being true and correct as of the expiration of the offer, subject to specified materiality standards;



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Hatteras' Compliance with Covenants —Hatteras must have, in all material respects, performed or complied with its obligations, agreements and covenants required to be performed or complied with by it under the merger agreement at or prior to the expiration of the offer;



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Accuracy of Annaly's and the Offeror's Representations and Warranties —The representations and warranties of Annaly and the Offeror contained in the merger agreement being true and correct as of the expiration of the offer, subject to specified materiality standards;



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Annaly's and the Offeror's Compliance with Covenants —each of Annaly and the Offeror must have, in all material respects, performed or complied with their agreements and covenants required to be performed or complied with by it under the merger agreement at or prior to the expiration of the offer;

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Listing of Annaly Common Stock and Annaly Preferred Stock —The shares of Annaly common stock to be issued in the offer and the merger and the shares of Annaly Series E preferred stock to be issued in the merger having been approved for listing on the NYSE, subject to official notice of issuance;



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No Legal Prohibition —No law, order or injunction restraining or enjoining or otherwise prohibiting the consummation of the offer or the merger must have been enacted, issued, promulgated or granted by a governmental entity of competent jurisdiction;



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Management Agreement Termination —The management agreement between Hatteras and Atlantic Capital Advisors LLC (the "Hatteras external manager"), dated as of February 23, 2012 (the "management agreement"), must have been terminated in accordance with the terms of the amendment to the management agreement entered into as of April 10, 2016;



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Regulatory Approvals —The required approvals of certain governmental authorities and the Federal National Mortgage Association ("Fannie Mae") and the Government National Mortgage Association ("Ginnie Mae") must have been obtained at or prior to the expiration of the offer and the Federal Home Loan Mortgage Corporation ("Freddie Mac") has not notified Annaly and Hatteras of any objection to the change of control that would occur as a result of the completion of the offer;



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Transaction Tax Opinions —The receipt of a written opinion by each of Annaly and Hatteras from its legal counsel, dated as of the date of the expiration of the offer, to the effect that the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and



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REIT Tax Opinions —The receipt of a written opinion by each of Annaly and Hatteras from the other party's tax counsel, dated as of the date of the expiration of the offer, to the effect that at all times since the year of inception of the applicable company and through the date of the expiration of the offer, such company has been organized and operated in conformity with the requirements for qualification as a REIT under the Code and, and with respect to Annaly, that the proposed method of operation of Annaly will enable Annaly to continue to meet the requirements for qualification as a REIT under the Code.

        The offer is subject to certain other conditions set forth below in the section entitled "The Offer—Conditions of the Offer." The conditions to the offer are for the sole benefit of Annaly and the Offeror and may be asserted by Annaly or the Offeror regardless of the circumstances giving rise to any such condition (other than as a result of any action or inaction by Annaly or the Offeror that is completely within the control of Annaly or the Offeror), and may be waived by Annaly or the Offeror, by express and specific action to that effect, in whole or in part at any time and from time to time, in each case. However, certain specified conditions (including all the conditions noted above other than the conditions related to a material adverse effect on Hatteras, accuracy of Hatteras' representations, Hatteras' compliance with covenants, receipt by Annaly of the transaction and REIT tax opinions noted above, the termination of the management agreement and regulatory approvals) may only be waived by Annaly or the Offeror with the express written consent of Hatteras. Pursuant to the merger agreement, Hatteras has the right to require that Annaly and the Offeror waive the conditions set forth in the fourth, seventh, eighth, thirteenth and fourteenth bullets above (no material adverse effect on Annaly, accuracy of Annaly's and the Offeror's representations and warranties, Annaly's and the Offeror's compliance with covenants, Hatteras' receipt of the transaction tax opinion and Hatteras' receipt of the REIT tax opinion). There is no financing condition to the offer.

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How long will it take to complete the offer and the merger?

        The offer and the merger are expected to be completed before the end of the third quarter of 2016, subject to the satisfaction or waiver of the conditions described in the sections entitled "The Offer—Conditions of the Offer" and "Merger Agreement—Conditions to the Merger."

How long do I have to decide whether to tender my shares of Hatteras common stock in the offer?

        The offer is scheduled to expire at 12:00 midnight, Eastern Time, at the end of the day on June 16, 2016, unless extended or terminated. Any extension, delay, termination, waiver or amendment of the offer will be followed as promptly as practicable by public announcement thereof to be made no later than 9:00 a.m., Eastern Time, on the next business day after the previously scheduled expiration date. During any such extension, all of the shares of Hatteras common stock previously tendered and not validly withdrawn will remain subject to the offer, subject to the rights of a tendering stockholder to withdraw such stockholder's shares. "Expiration date" means 12:00 midnight, Eastern Time, at the end of the day on June 16, 2016, unless and until the Offeror has extended the period during which the offer is open, subject to the terms and conditions of the merger agreement, in which event the term "expiration date" means the latest time and date at which the offer, as so extended by the Offeror, will expire.

        Subject to the provisions of the merger agreement and the applicable rules and regulations of the Securities and Exchange Commission ("SEC"), and unless Hatteras consents otherwise or the merger agreement is otherwise terminated, the Offeror must (1) extend the offer for one or more successive periods of up to 10 business days each in order to further seek to satisfy the conditions to the offer in the event that any of the offer conditions (other than the minimum tender condition) have not been satisfied or validly waived as of any then scheduled expiration of the offer, (2) extend the offer for up to two successive periods of up to 10 business days if each of the offer conditions (other than the minimum tender condition) has been satisfied or validly waived and the minimum tender condition has not been satisfied as of the scheduled expiration of the offer, and Hatteras requests that the Offeror so extend the offer, and (3) extend the offer for the minimum period required by any rule, regulation, interpretation or position of the SEC or its staff or NYSE that is applicable to the offer or the merger or to the extent necessary to resolve any comments of the SEC or its staff applicable to the offer, the merger, the Schedule TO or the related offer documents. However, the Offeror is not required to extend the offer beyond January 10, 2017 (which is the "outside date").

        Any decision to extend the offer will be made public by an announcement regarding such extension as described under the section entitled "The Offer—Extension, Termination and Amendment."

How do I tender my shares of Hatteras common stock?

        To tender your shares of Hatteras common stock represented by physical certificates in the offer, you must deliver the certificates representing such shares, together with a completed letter of election and transmittal and any other documents required by the letter of election and transmittal, to Computershare Trust Company, N.A. ("Computershare"), the depositary and exchange agent for the offer, not later than the expiration date. The letter of election and transmittal is enclosed with this document.

        To tender your shares of Hatteras common stock in electronic book entry form, you must deliver an agent's message in connection with a book-entry transfer, and any other required documents, to the exchange agent at its address set forth elsewhere in this document and follow the other procedures for book-entry tender set forth herein, not later than the expiration date.

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        If your shares of Hatteras common stock are held in "street name" ( i.e. , through a broker, dealer, commercial bank, trust company or other nominee), these shares can be tendered by your nominee by book-entry transfer through The Depository Trust Company.

        We are not providing for guaranteed delivery procedures and therefore you must allow sufficient time for the necessary tender procedures to be completed during normal business hours of The Depository Trust Company prior to the expiration date. Tenders received by the exchange agent after the expiration date will be disregarded and of no effect. In all cases, you will receive your consideration for your tendered shares of Hatteras common stock only after timely receipt by the exchange agent of certificates for such shares (or of a confirmation of a book-entry transfer of such shares) and a properly completed and duly executed letter of election and transmittal and any other required documents.

        For a complete discussion on the procedures for tendering your shares of Hatteras common stock, see "The Offer—Procedure for Tendering."

Until what time can I withdraw tendered shares of Hatteras common stock?

        You may withdraw your previously tendered shares of Hatteras common stock at any time until the offer has expired and, if the Offeror has not accepted your shares of Hatteras common stock for payment by July 5, 2016, you may withdraw them at any time on or after that date until the Offeror accepts shares for payment. Once the Offeror accepts your tendered shares of Hatteras common stock for payment upon expiration of the offer, however, you will no longer be able to withdraw them. For a complete discussion of the procedures for withdrawing your shares of Hatteras common stock, see "The Offer—Withdrawal Rights."

How do I withdraw previously tendered shares of Hatteras common stock?

        To withdraw previously tendered shares of Hatteras common stock, you must deliver a written notice of withdrawal with the required information to the exchange agent at any time that you have the right to withdraw shares. If you tendered shares of Hatteras common stock by giving instructions to a broker, dealer, commercial bank, trust company or other nominee, you must instruct such broker, dealer, commercial bank, trust company or other nominee to arrange for the withdrawal of your shares of Hatteras common stock and such broker, dealer, commercial bank, trust company or other nominee must effectively withdraw such shares at any time that you have the right to withdraw shares. For a discussion on the procedures for withdrawing your shares of Hatteras common stock, including the applicable deadlines for effecting withdrawals, see "The Offer—Withdrawal Rights."

When and how can I expect to receive the offer consideration in exchange for my tendered shares of Hatteras common stock?

        The Offeror will exchange all validly tendered and not validly withdrawn shares of Hatteras common stock promptly after the expiration date of the offer, subject to the terms thereof and the satisfaction or waiver of the conditions to the offer, as set forth in "The Offer—Conditions of the Offer." The Offeror will deliver the consideration for your validly tendered and not validly withdrawn shares through the exchange agent, that will act as your agent for the purpose of receiving the common transaction consideration from the Offeror and transmitting such consideration to you. In all cases, you will receive the consideration for your tendered shares of Hatteras common stock only after timely receipt by the exchange agent of certificates representing such shares of Hatteras common stock (or a confirmation of a book-entry transfer of such shares as described in the section entitled "The Offer—Procedure for Tendering") and a properly completed and duly executed letter of election and transmittal and any other required documents for such shares.

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Why does the cover page to this document state that this offer is preliminary and subject to change, and that the registration statement filed with the SEC is not yet effective? Does this mean that the offer has not commenced?

        No. Completion of this document and effectiveness of the registration statement are not necessary to commence this offer. The offer was commenced on May 5, 2016, the date of the initial filing of the registration statement on Form S-4 of which this document is a part. The Offeror cannot, however, accept for exchange any shares of Hatteras common stock tendered in the offer or exchange any shares until the registration statement is declared effective by the SEC and the other conditions to the offer have been satisfied or waived.

What happens if I do not tender my shares of Hatteras common stock?

        If, after consummation of the offer, Annaly and the Offeror own one share more than two-thirds of the outstanding shares of Hatteras common stock, Annaly and the Offeror intend to promptly complete the merger. Upon consummation of the merger, each issued and outstanding share of Hatteras common stock that has not been tendered and accepted for exchange in the offer will be converted in the merger into the right to receive, at the election of the holder, the all-cash consideration, the all-stock consideration or the mixed consideration, but the all-cash consideration and all-stock consideration will be subject to proration so that approximately 65.0% of the aggregate consideration in the merger will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the merger will be paid in cash. A letter of election and transmittal will be sent to you following the merger to make these elections. The election deadline to make these elections will be 5:00 p.m. Eastern Time, on the 20 ^th  calendar day following the date on which such forms of election and transmittal are mailed. If you do not make a valid election, you will be treated as if you had made an election to receive the mixed consideration.

If the offer is completed, will Hatteras continue as a public company?

        No. Annaly is required, on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, to consummate the merger promptly following the purchase of shares of Hatteras common stock in the offer. If the merger takes place, Hatteras will no longer be publicly traded. If, for some reason, the merger does not take place, and Annaly (through the Offeror) purchases all of the shares of Hatteras common stock validly tendered and not validly withdrawn, there may be so few remaining stockholders and publicly held shares that Hatteras common stock will no longer be eligible to be traded through the NYSE or other securities exchanges, there may not be an active public trading market for Hatteras common stock, and Hatteras may no longer be required to make filings with the SEC or otherwise comply with the SEC rules relating to publicly held companies.

Will the offer be followed by a merger if all of the shares of Hatteras common stock are not tendered in the offer?

        Yes, unless the conditions to the merger are not satisfied or waived. If the Offeror accepts for payment all of the shares of Hatteras common stock validly tendered and not validly withdrawn pursuant to the offer, and the other conditions to the merger are satisfied or waived, the merger will take place promptly after the consummation of the offer. If the merger takes place, Annaly will own 100% of the equity of Hatteras, and all of the remaining holders of Hatteras common stock, other than Annaly and the Offeror, will have the right to receive the mixed consideration, the all-cash consideration or the all-stock consideration, in each case without interest and less any applicable withholding taxes, with the form of such consideration to be subject to further election and proration as described in this document (such consideration, the "common transaction consideration").

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        Because the merger will be governed by Section 3-106.1 of the Maryland General Corporation Law (the "MGCL"), no stockholder vote will be required to consummate the merger in the event that the offer is consummated. Annaly is required, on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, to consummate the merger promptly following the consummation of the offer. As such, Annaly does not expect there to be a significant period of time between the consummation of the offer and the consummation of the merger.

Does Annaly have the financial resources to complete the offer and the merger?

        Yes. The common transaction consideration will consist of Annaly common stock and cash. The offer and the merger are not conditioned upon any financing arrangements or contingencies.

What are the U.S. federal income tax consequences of receiving shares of Annaly common stock and/or cash in exchange for my shares of Hatteras common stock in the offer and/or the merger?

        The offer and the merger, taken together, are intended to qualify as a "reorganization" within the meaning of Section 368(a) of the Code. If the offer and the merger, taken together, qualify as a "reorganization" within the meaning of Section 368(a) of the Code, the U.S. federal income tax consequences to Hatteras stockholders who are U.S. persons and receive shares of Annaly common stock and/or cash in exchange for their shares pursuant to the offer and/or the merger generally will be as follows:

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if a Hatteras stockholder receives solely shares of Annaly common stock in exchange for such stockholder's shares, such stockholder generally will not recognize any gain or loss, except with respect to cash received in lieu of any fractional shares of Annaly common stock;



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if a Hatteras stockholder receives solely cash in exchange for such stockholder's shares, such stockholder generally will recognize gain or loss equal to the difference between the amount of cash received and the stockholder's tax basis in its Hatteras common stock; and



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if a Hatteras stockholder receives a combination of Annaly common stock and cash in exchange for such stockholder's shares, such stockholder generally will recognize gain (but not loss) in an amount equal to the lesser of (1) the sum of the cash and the fair market value of the Annaly common stock received, minus the stockholder's tax basis in its Hatteras common stock surrendered, and (2) the amount of cash received.

Non-U.S. holders (as described under "Material U.S. Federal Income Tax Consequences") of Hatteras common stock that receive the common transaction consideration pursuant to the offer and/or the merger may be subject to U.S. withholding tax with respect to cash received.

         Each Hatteras stockholder should read the discussion under "Material U.S. Federal Income Tax Consequences" and should consult its own tax advisor for a full understanding of the tax consequences of the offer and the merger to such stockholder.

Will I have the right to have my shares of Hatteras common stock appraised?

        No. Appraisal rights, rights of objecting stockholders or dissenters' rights are not available in connection with the offer or the merger. See "The Offer—Purpose of the Offer and the Merger; Dissenters' Rights."

Who should I call if I have questions about the offer?

        You may call Innisfree M&A Incorporated, the information agent, toll free at (888) 750-5834.

Where can I find more information about Annaly and Hatteras?

        You can find more information about Annaly and Hatteras from various sources described in the section entitled "Where To Obtain More Information."

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