6
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended: December 31, 1993
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 33-5579
INVG GOVERNMENT SECURITIES CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3340656
(State of incorporation) (I.R.S. Employer Identification No.)
Meadow Wood Crown Plaza
1575 Delucchi Lane, Suite 115-20
Reno, Nevada 89502
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 828-5405
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Resistrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained here, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No
----- -----
1,000 shares which represents all of the Common Stock of the Registrant is
owned by INVG Mortgage Securities Corp.
Documents Incorporated by Reference
None
<PAGE>
Item 1. Business.
Introduction
INVG Government Securities Corp. (the "Company") is a corporation
organized under the laws of the State of Delaware on May 5, 1986. All of
the Company's outstanding common stock is owned by INVG Mortgage Securities
Corp. ("INVG Mortgage"), a publicly held corporation engaged in the
business of issuing and selling mortgage-backed and other collateralized
securities. The Company's principal executive offices are located at
Meadow Wood Crown Plaza, 1575 Delucchi Lane, Suite 115-20, Reno, Nevada,
89502. Its telephone number is (702) 828-5405.
The Company has historically generated revenues primarily from
Collateralized Mortgage Obligation ("CMO") investments whereby the company
was engaged in the business of acquiring modified mortgage-backed pass
through certificates ("GNMA Certificates") and then issuing and selling
bonds (Bonds) backed by the GNMA Certificates. These investments in CMO
issuances give the Company the right to the excess cashflows and earnings
on the GNMA Certificates over the expenses required on the the Bonds ("CMO
Issuance Investments"). The Company has also invested in other similar
mortgage related investments wherein the Company has the right to receive
the cashflows of a CMO bond offering after debt service payments are made,
such as CMO Mortgage Derivative Investments and REMIC Mortgage Derivative
Investments, ("Mortgage Derivative Investments").
On December 30, 1986, the Company commenced operations by issuing
$200,369,000 principal amount of its Collateralized Mortgage Obligations,
Series A (the "Series A Bonds" or the "Issued Bonds"). The issuance of the
Series A Bonds was financed, in part, by the issuance of 115,000 shares of
Series A Participating Preferred Stock (the "Series A Preferred Stock") by
INVG Mortgage to certain institutional investors including one or more
pension plans for which Robert E. Greeley, a director of the Company, was
investment manager, and including the Boston Safe Deposit and Trust
Company, a subsidiary of Shearson Lehman Brothers Inc. ("Shearson Lehman"),
for a purchase price of $100 per share. INVG Mortgage made a capital
contribution to the Company of the full amount of the proceeds received by
INVG Mortgage from the sale of the Series A Preferred Stock. The Company
used such funds to purchase GNMA Certificates which serve as collateral for
the Series A Bonds. No Bonds have been issued by the Company since 1986.
The Series A Bonds were redeemed on February 1, 1994.
The Company, INVG Mortgage, and its affiliate, Investors GNMA Mortgage-
Backed Securities Trust, Inc. ("Investors GNMA" and together with the
Company and INVG Mortgage, the "Companies"), are qualified as real estate
investment trusts under the Internal Revenue Code of 1986 as amended (the
"Code"). The Company intends to operate in a manner so as to continue to
qualify for the tax benefits accorded by Sections 856 to 860 of the Code
and thereby not be subject to federal income tax at the corporate level.
There can be no assurance, however, that the Company will be able to do so.
Among the conditions that the Company must satisfy to obtain such benefits
is the requirement that the Company distribute to its shareholders an
amount equal to substantially all of its taxable income. See "Federal
Income Tax Consequences - Federal Income Taxation of a REIT."
The Company used up its remaining net operating loss carryforward in
1991. The Company had taxable income of $539,047 in 1992 and made a $1,000
dividend distribution on its preferred stock and $550,000 in dividend
distributions on its common stock. In 1993 the Company had a taxable loss
of $610,934 and made a $1,000 dividend distribution on its preferred stock
and $100,000 dividend distribution on its common stock. The Company
intends to make distributions to its shareholder during the years in which
it has taxable income. In years in which the Company has no taxable income,
any distributions will be subject to the discretion of the Board of
Directors and will depend upon the operating capital requirements of the
Company and other factors deemed pertinent by the Board of Directors,
including the need to conserve cash in order to be in a position to make
distributions in an amount substantially equal to its taxable income in
other years.
The taxable income of the Company is primarily derived from income from
Mortgage Certificates or other collateral securing the Bonds issued
thereby, including non-cash income resulting from the amortization of
market discount on such Mortgage Certificates, less operating expenses,
including expenses equal to interest paid on the Bonds and non-cash
expenses resulting from the amortization of market premium on such Mortgage
Certificates, Bond issuance expenses and original issue discount on the
Bonds.
The Company's funds available for distribution to its shareholder are
derived principally from the excess of interest income received on the
Mortgage Certificates over the interest payments due on the Bonds (such
excess constituting the "Interest Margin") plus investment earnings on cash
balances and Mortgage Derivative Investments less operating expenses
(together with the "Interest Margin," the "Net Interest Margin").
If taxable income for any year exceeds its Net Interest Margin for such
year, the Company is required to distribute to its shareholders an amount
equal to such taxable income in order to preserve its status as a real
estate investment trust and, therefore, may be required to distribute a
portion of its working capital to its shareholders.
Advisory Agreement
- ------------------
The principal operating expenses of the Company have been the Company's
allocable share of advisory fees for legal, accounting, management and
administrative services with respect to the operation of the Company, INVG
Mortgage, and Investors GNMA Mortgage-Backed Securities Trust, Inc.,
another subsidiary of INVG Mortgage, (together, "the Companies"). From
February 1990 through December 1991, the Companies had an advisory
agreement with Fulcrum Financial Partners, Inc. ("Fulcrum"). As such
advisor, Fulcrum was responsible for conducting the day-to-day operations
of each of the Companies in connection with policy decisions made by the
Board of Directors; and performing such services as were required for
disbursing, collecting and investing cash proceeds of each of the
Companies, preparing and delivering reports and filings required with
respect to each of the Companies and other activities relating to the
assets of each of the Companies. Fulcrum received a monthly fee of $15,000
for each month of the year 1991 for its services to the Companies.
Administration Agreement
- ------------------------
In December 1991, the Companies entered into a year to year
Administration Agreement with TIS Asset Management, Inc. (the
"Administrator") to perform corporate administrative services for the
Companies. Under this agreement, the Administrator administers the day-to-
day operations of the Companies and performs or supervises the performance
of such other administrative functions as may be agreed upon by the
Administrator and the Board of Directors of each of the Companies,
including the establishment and posting of books of original record with
their attendant quarterly financial statements and maintenance of
appropriate computer services to perform such administrative services. The
Administrator prepares reports and forms as required to satisfy the
continuous reporting and other requirements of any and all governmental
bodies and agencies. The Administrator serves as the Companies consultant
with respect to the formation of investment criteria and policy guidelines
for recommendation to the Boards of Directors. Pursuant to the
Administration Agreement, the Administrator received a monthly fee in 1993
of $16,000 (which cost is allocated among the Companies) and pays the
employment expenses of its personnel, computer expenses, rent and other
office expenses and overhead.
Pursuant to the Administration Agreement, the Administrator does not
assume responsibility other than to render in good faith the services
called for thereunder and is not responsible for any action of the Board of
Directors of any of the Companies in following or declining to follow any
advice or recommendation of the Administrator. The Administrator, its
directors, officers, shareholders and employees are not liable to any
Company, any Company's Shareholders or others, except by reason of acts
constituting bad faith, willful misfeasance, gross negligence or reckless
disregard of its duties. The Companies have agreed to indemnify the
Administrator and its Affiliates, shareholders, directors, officers, and
employees with respect to all expenses, losses, damages, liabilities,
demands, charges and claims of any nature whatsoever in respect of or
arising from any acts or omissions performed or omitted by the
Administrator in good faith and in accordance with the standard set forth
in the Administration Agreement.
The foregoing description of the Administration Agreement does not
purport to be complete but is merely a summary of the material provisions
thereof and is qualified in its entirety by reference to the Administration
Agreement which is incorporated by reference in Exhibit 10.3 hereto.
Consulting Agreement
- --------------------
At the Annual Meeting of Shareholders of the Company's parent, INVG
Mortgage Securities Corp., held on October 26, 1993, a consulting agreement
with Page Mill Asset Management was ratified. Under this agreement, which
is effective January 1, 1993, the Companies will pay Page Mill a monthly
fee of $10,000 plus an incentive management fee. The incentive management
fee, determined with respect to the Companies' performance each fiscal year
is equal to 25% of the dollar amount, if any, by which the Companies'
consolidated taxable income for such fiscal year, before payment of any
incentive fee to Page Mill, net operating loss deductions arising from
prior periods' losses and special Internal Revenue Code deductions
pertaining to real estate investment trusts, plus certain other adjustments
in accordance with generally accepted accounting principles, exceeds the
amount necessary to provide an annualized return on equity equal to 1% over
the average ten-year U.S. Treasury rate for such fiscal year. Under this
agreement, the Company has recorded expense in the year ended December 31,
1993 of $30,000 as its share of the monthly fee. No expense has been
recorded for the incentive management fee as the Company had a taxable loss
for the entire year. Page Mill Asset Management is 100% owned by Robert E.
Greeley, Chairman of the Board and President of the Company.
Expenses of the Company
- -----------------------
Other operating expenses include annual fixed fees payable to the
trustee (the "Trustee") under the Indenture under which the Bonds are
issued. Other services provided by the Trustee (including acting as
custodian for the collateral, maintaining the Collection Account, and
acting as registrar and paying agent for the Bonds) results in per annum
charges which are not expected to exceed 0.02% per annum of principal
amount of Bonds outstanding. The Company's annual legal and accounting
fees are expected to approximate $60,000, consulting fees for officers' and
administrative services are expected to approximate $78,000 and annual fees
paid to outside directors are expected to approximate $15,000. Other
administrative costs of the Company are not expected to be significant.
Future Prospects
- ----------------
The Company's Net Interest Margin continues to decline through the
process of repayments and prepayments on the mortgages underlying the
Company's assets. Additionally, the Company's asset pool is depleted by
normal business expenses and the payment of dividends. The Company has
been reinvesting its excess cash flows in Mortgage Derivative Investments
to include CMO Residuals and REMIC Residual bonds. To the extent the
Company continues to have cash in excess of that required for expenses and
dividends, the Company intends to continue to reinvest that excess cash in
Mortgage Derivative Investments in order to generate income for
distribution to the common stockholder.
The Bond Offerings
- ------------------
The Company currently has an effective shelf registration statement
covering approximately $800 million principal amount of Bonds under which
the Series A Bonds were issued. Such Bonds may be offered by the Company
from time to time.
Bonds issued by the Company are issued pursuant to an Indenture (the
"Indenture") dated as of December 1, 1986 between the Company and Texas
Commerce Bank National Association (the "Trustee"), as amended, and as
supplemented by supplemental indentures (each a "Series Supplement") with
respect to each series of Bonds. The Indenture does not limit the amount
of Bonds which can be issued thereunder and provides that Bonds of any
series may be issued thereunder up to the aggregate principal amount that
may be authorized from time to time by the Company.
The collateral pledged to secure each series of Bonds issued by the
Company may consist of (i) Mortgage Certificates together with the
distributions of principal and interest thereon, (ii) a Collection Account
(as defined in the Indenture) (the "INVG Government Collection Account")
and (iii) other reserve funds and accounts which may be required in order
to obtain the desired investment rating on the Bonds (collectively, the
"Collateral"). On the closing date for each series of Bonds, the value of
the Collateral pledged to secure such Bonds (calculated in accordance with
the methodology specified in the Indenture) will not be less than the
aggregate principal amount of such Bonds. Scheduled distributions of
principal of and interest on the Mortgage Certificates collateralizing each
series of Bonds are calculated to be sufficient to pay accrued interest on
such Bonds and to amortize the entire principal amount of each class of
such Bonds by its respective stated maturity. The Collateral for the Bonds
of a particular series will secure only that series.
Each series of Bonds issued by the Company is issuable in classes (the
"Classes"). Each Class will have its own Bond Interest Rate which may be a
floating interest rate that is redetermined periodically according to a
specified index, and its own stated maturity which is the date on which the
Bonds of such Class will be fully paid assuming no prepayments of principal
are received on the Mortgage Certificates securing such series. Each
series of Bonds will mature serially by Class, and principal payments on
the various Classes of Bonds within each series will be made in the order
specified in the Series Supplement. The actual maturity of any Class of
Bonds could differ substantially from its stated maturity based upon the
actual prepayment experience of the Mortgage Certificates and because
certain of the underlying mortgage loans may have terms-to-maturity that
are shorter than the stated maturity of the related Mortgage Certificate.
No assurance can be given that the actual maturity and effective yield with
respect to any Class of Bonds will be comparable to that experienced with
respect to any other Class of Bonds within such series or within other
series of Bonds issued by the Company or any of its affiliates.
All distributions of principal of, and interest on, the Mortgage
Certificates pledged to secure a series of Bonds will be remitted to the
Trustee who will deposit such funds in the Collection Account for such
series. Each series of Bonds will have a separate Collection Account. All
amounts on deposit in any Collection Account representing distributions of
principal of the Mortgage Certificates will be applied on each payment date
("Payment Date") for the related series of Bonds to pay principal on the
then amortizing Class of such series. Amounts on deposit in the Collection
Account representing distributions of interest on the Mortgage Certificates
will be applied on each Payment Date, to the extent necessary to pay
interest on the aggregate principal balance of the outstanding Bonds of
such series accrued as of the date prior to such Payment Date specified in
the Series Supplement. All amounts remaining in the Collection Account for
a series of Bonds which are not so applied to the payment of principal of
and interest on the Bonds of the related series and the Trustee's operating
expenses will be remitted to the Company.
The Indenture permits series of Bonds or Classes of Bonds within a
series to be redeemed at the option of the Company upon the dates or under
the circumstances specified in the related Series Supplement. The
redemption price paid for such Bonds will be equal to their outstanding
principal amount, together with accrued interest thereon to the date
specified in the Series Supplement.
THE ISSUED BONDS
----------------
The Series A Bonds were redeemed on February 1, 1994. The table below sets
forth certain information with respect to the Issued Bonds to the extent
outstanding at December 31, 1993:
<TABLE>
<CAPTION>
Initial Outstanding
GNMA Bond Principal Principal
Bond Certificate Interest Amount Amount (1)
Class Rate Rate (Thousands) (Thousands)
----- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Series A
- --------
A-3 9.00 & 11.5% 9.000 $61,000 $60,525
------- -------
- ------------------------------------------------------------------
<FN>
(1) After giving effect to the January 1, 1994 payment.
</TABLE>
INVESTMENTS OF THE COMPANY
--------------------------
Investment Policies
- -------------------
The Company's investment policies and other policies are determined by
its Board of directors in accordance with the articles and bylaws of the
Company. The objective of the company is to maximize earnings and cashflow
for distribution to the shareholder through mortgage related investments.
The Company, in its early years, invested in CMO Related Investments
through issuance of its own Bonds. Over the last year, the Company has
been reinvesting its cashflows from these CMO Related Investments in
Mortgage Derivative Investments which are similar in earnings and cashflow
nature to its original CMO Related Investments.
At all times, the Company intends to make investments in such a manner
as to be consistent with the requirements of the Code to qualify as a REIT
unless, because of circumstances or changes in the Code (or in the
regulations promulgated thereunder), the Company determines that it is no
longer in the best interest of the Company to qualify as a REIT. The
Company's policies with respect to such activities may be reviewed and
modified from time to time by the Company.
Government National Mortgage Association
- ----------------------------------------
GNMA is a wholly owned corporate instrumentality of the United States
within the United States Department of Housing and Urban Development (the
"HUD"). Section 306 (g) of Title III of the National Housing Act of 1934,
as amended (the "Housing Act"), authorized GNMA to guaranty the timely
payment of the principal of, and interest on, certificates which are based
on and backed by a pool of mortgage loans insured by the FHA under the
Housing Act, or Title V of the Housing Act of 1949, or guaranteed by the
United States Veterans Administration (the "VA") under the Servicemen's
Readjustment Act of 1944, as amended or Chapter 37 of Title 38, United
States Code or by other eligible mortgage loans.
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which
may be required to be paid under any guaranty under this subsection." In
order to meet its obligations under such guarantees, GNMA is authorized to
borrow from the United States Treasury with no limitations as to amount.
GNMA Certificates
- -----------------
Each GNMA Certificate is a "fully modified pass-through" mortgage-backed
certificate issued under either the GNMA I or the GNMA II program
(hereinafter described) and serviced by a mortgage banking company or other
financial concern approved by GNMA as a seller-servicer of FHA Loans or VA
loans. Although a GNMA certificate does not constitute a liability of, or
evidence any right of recovery against, its issuer, the full and timely
payment of principal of, and interest on, each GNMA Certificate is
guaranteed by GNMA and such guaranty is backed by the full faith and credit
of the United States. Each GNMA Certificate evidences a fractional
undivided interest in a pool of FHA Loans and VA Loans and provide for the
payment to the registered holder of such GNMA Certificate of fixed monthly
payments of principal and interest equal to the aggregate amount of the
scheduled monthly principal and interest payments on each FHA or VA Loan,
less a servicing and guarantee fee based on the outstanding principal
balance of the related GNMA Certificate. In addition, each payment
includes any prepayments of principal of the FHA or VA Loans underlying the
GNMA Certificate and liquidation proceeds in the event of a foreclosure or
other disposition of any such FHA or VA Loans. Monthly distributions on
each GNMA Certificate (a "GNMA I Certificate") issued under the original
GNMA guaranty program (the "GNMA I program") are paid to the Trustee as
registered holder on the 15th day of the month, while monthly distributions
on each GNMA Certificate (a "GNMA II Certificate") issued under the
guaranty program implemented by GNMA on July 1, 1983 (the "GNMA II
program") are paid by the central paying and transfer agent and certificate
registrar for the GNMA II program (the "GNMA II Agent") to the Trustee as
registered holder on the 20th day of the month. Each GNMA Certificate
collateralizing the Bonds will have an original maturity of not more than
30 years and while each GNMA I Certificate collateralizing the bonds will
be backed by mortgage loans which bear a uniform interest rate and were
originated by a single issuer, a GNMA II Certificate collateralizing the
Bonds may be backed by mortgage loans with different interest rates (within
a 1% range) and by a multi-issuer pool of mortgage loans which is expected
to have greater geographic diversity and greater prepayment predictability.
GNMA approves the issuance of each GNMA Certificate in accordance with a
guaranty agreement (the "Guaranty Agreement") between GNMA and each issuer-
servicer of the GNMA Certificates. Pursuant to its Guaranty Agreement such
issuer-servicer is required to advance its own funds in order to make
timely payments of all amounts due on the GNMA Certificate even if the
payments received by such issuer on the FHA Loans and VA Loans backing the
GNMA Certificate are less than the amounts due thereon. The Guaranty
Agreement provides that in the event of default by the issuer-servicer,
including (i) a failure by the issuer-servicer to make a required payment
in accordance with the terms and conditions of such Guaranty Agreement,
(ii) an advance by GNMA pursuant to a request to GNMA by the issuer-
servicer to make a payment of principal of, or interest on, the GNMA
Certificates, or (iii) insolvency of the issuer-servicer, GNMA shall have
the right, by letter to the issuer-servicer, to effect the complete
extinguishment of the issuer-servicer's interest in the pool of FHA Loans
and VA Loans backing the GNMA Certificates, and the FHA Loans and VA Loans
shall become the absolute property of GNMA, subject only to the unsatisfied
rights of the holders of the GNMA Certificates. In such event, the
Guaranty Agreement provides that, on and after the time GNMA directs such a
letter of extinguishment to the issuer-servicer, GNMA shall be the
successor in all respects to the issuer-servicer in its capacity under the
Guaranty Agreement, and shall be subject to all responsibilities, duties
and liabilities theretofore placed on the issuer-servicer by the terms and
provisions of the Guaranty Agreement. At any time thereafter, however,
GNMA may enter into an agreement with any other eligible issuer of GNMA
Certificates under which such issuer undertakes and agrees to assume all or
any part of such responsibilities, duties and liabilities placed on the
original issuer-servicer, provided that no such agreement shall detract
from the responsibilities, duties and liabilities of GNMA as guarantor of
the GNMA Certificates or otherwise adversely affect the rights of the
holders thereof to principal and interest payments on the GNMA
Certificates.
The issuer of a GNMA Certificate expects that interest and principal
payments on the FHA Loans and VA Loans backing each GNMA Certificate will
be the source of funds for payments due on such GNMA Certificate. If the
issuer is unable to make payments on the GNMA Certificates as they become
due, it must promptly notify GNMA and request GNMA to make such payments.
In the event no payment is made by the issuer and the issuer fails to
notify GNMA and request GNMA to make such payment, the holder of the GNMA
Certificate has recourse only against GNMA to obtain such payments. The
Trustee, as the registered holder of a GNMA Certificate, may proceed
directly against GNMA under the terms of the Guaranty Agreement relating to
such GNMA Certificate for any amounts which are not paid when due.
GNMA Certificates Collateralizing the Bonds
- -------------------------------------------
All of the GNMA Certificates collateralizing the Bonds are registered in
the name of the Trustee. The Company will not add any GNMA Certificates
to, or substitute other GNMA Certificates for, the original GNMA
Certificates included in the collateral for each series of Bonds.
Other Collateral
- ----------------
Although the Company may issue Bonds secured by Mortgage Certificates
other than GNMA Certificates, no such Bonds have been issued.
FEDERAL INCOME TAX CONSEQUENCES
-------------------------------
The Company intends to operate in a manner that will enable it to
continue to qualify as a real estate investment trust (a "REIT") under the
Code. The discussion below is not intended as a detailed discussion of all
applicable Code provisions, the rules and regulations promulgated
thereunder, or the administrative and judicial interpretations thereof.
In general, if an entity desiring to qualify as a REIT (a "REIT
Candidate") satisfies certain tests with respect to the nature of its
income, assets, management, and share ownership, and the amount of its
distributions, it will qualify as a REIT for federal income tax purposes.
As a result, the REIT Candidate generally will not be subject to tax at the
corporate level to the extent that it distributes its income to its
shareholders. This treatment eliminates most of the "double taxation"
(taxation at the corporate level and subsequently at the shareholder level
when earnings are distributed) that typically results from the use of
corporate investment vehicles. Such qualification, however, depends upon
the ability of the Company to meet detailed factual and legal standards in
future years.
Federal Income Taxation of a REIT
- ---------------------------------
In any year in which a REIT Candidate qualifies as a REIT, and for which
an election to be a real estate investment trust is in effect, it generally
will not be subject to federal income tax on that portion of its REIT
Taxable Income (as defined below) or capital gain that is distributed to
its shareholders. Any such income that is not distributed, however, will
be subject to tax at the regular corporate rates. A REIT, moreover, may be
subject to special taxes on certain types of income, regardless of
distributions to shareholders, and to the corporate minimum tax on certain
items of tax preference. The Company, however, does not expect to have
income of such types.
As a REIT, the Company is required to use the calendar year both for tax
purposes and financial reporting purposes. The taxable income of a REIT
("REIT Taxable Income") is generally computed as if it were an ordinary
corporation, subject to certain adjustments. Due to the differences,
however, between tax accounting rules and generally accepted accounting
principles, the REIT Taxable Income of the Company may vary from net income
for financial reporting purposes.
GROSS INCOME AND ASSET TESTS. In order to qualify as a REIT, a REIT
Candidate must satisfy, for each taxable year, various tests with respect
to the nature of its gross income and its assets. The three principal
income tests are the following:
1. THE 75 PERCENT TEST. At least 75 percent of the gross income
(excluding gross income from prohibited transactions) of a REIT Candidate
for the taxable year must be derived from certain qualifying real estate
related sources, including interest on obligations secured by mortgages on
real property, gain from the sale or other disposition of interests in real
property and real estate mortgages, dividends from other real estate
investment trusts and commitment fees related to mortgage loans.
2. THE 95 PERCENT TEST. In addition to meeting the 75 percent test, at
least an additional 20 percent of the gross income of a REIT Candidate for
the taxable year must be derived from the items of income that qualify
under the 75 percent test, or from certain types of passive investments.
Income attributable to dividends from companies other than REITS, interest
on obligations not secured by real property, and gains from the sale or
disposition of stock or other securities, other than stock or other
securities held for sale to customers in the ordinary course of business,
will constitute qualified income for purposes of this 95 percent test, but
will be non-qualifying income for purposes of the 75 percent test.
3. THE 30 PERCENT TEST. A REIT Candidate must also derive less than 30
percent of its gross income from the sale or other disposition of (i) real
property or mortgage loans held for less than four years, other than
certain foreclosure property or property involuntarily converted through
destruction, condemnation or similar events, (ii) stock or securities held
for less than one year, and (iii) property in any prohibited transaction
(i.e., sale or other disposition of inventory or property held primarily
for sale in the ordinary course of business that is not foreclosure
property).
In addition, at the end of each quarter of the taxable year of a REIT
Candidate, at least 75 percent of the value of such REIT Candidate's assets
must be real estate assets (including interests in real property, loans
secured by mortgages on real property and shares of other REITS), cash and
cash items (including receivables), and certain United States government
securities. The balance of a REIT Candidate's assets may be invested
without restriction, except that holdings of securities may not exceed 25%
of the value of the REIT Candidate's total assets. Moreover, the
securities of any one non-governmental issuer must not exceed 5 percent of
the value of such REIT Candidate's assets or 10 percent of the outstanding
voting securities of that issuer. The securities of another REIT will not
be treated as a security of a non-governmental issuer for purposes of the 5
percent and 10 percent asset test.
Since the gross income of the Company will be derived principally from
interest and gains with respect to GNMA Certificates, and since their
assets will consist principally of GNMA Certificates and certain United
States government securities, the Company should satisfy the gross income
and asset tests during each taxable year or relevant portion thereof. If
the Company should inadvertently fail to meet the 75 percent or 95 percent
income tests, loss of real estate investment trust status could be avoided
by paying a tax equal to 100 percent of any excess non-qualifying taxable
income. There is no comparable safeguard that could protect against the
failure of the Company to meet the 30 percent test.
THE DISTRIBUTION TEST. The distribution test requires that a REIT
distribute to its shareholders in each taxable year an amount equal to at
least 95 percent of its REIT Taxable Income (computed before the dividends
paid deduction and excluding any net capital gain), subject to various
adjustments for income from certain foreclosure property, net losses from
inventory type sales and certain penalty taxes. Generally, such
distribution must be made in the taxable year, or in the following year if
declared before the REIT timely files its tax return for such year and if
paid on or before the first regular dividend payment after such
declaration. The undistributed amount remains subject to tax at the tax
rate then otherwise applicable. If a REIT Candidate fails to meet the 95
percent distribution requirement as a result of an adjustment to its tax
returns by the Internal Revenue Service (the "Service) a REIT Candidate may
retroactively cure the failure by paying a deficiency dividend (plus a
penalty and interest).
Due to the nature of the income of the Company from its assets and
deductions in respect of its obligations, under certain circumstances the
Company may generate REIT Taxable Income in excess of cash flow. For
example, the maturity and interest rates of the investments of the Company
are not likely to match the exact terms of the maturity and interest rates
of the debt securities secured by such assets. Similarly, the Company may
recognize taxable market discount income realized upon the sale, retirement
or other disposition of GNMA Certificates purchased at a discount from the
stated redemption price at maturity; whereas the proceeds from such
disposition may be used to make nondeductible principal payments on debt
securities secured by such assets. Also, if the Company's method of
computing original issue discount (as discussed below) delayed its
deductions, this could also result in REIT Taxable Income in excess of cash
flow. The Company intends to monitor closely the interrelationship between
REIT Taxable Income and cash flow. It is possible, although unlikely, that
the Company may decide to terminate its REIT status as a result of any such
cash shortfall.
THE OWNERSHIP TEST. The share ownership test requires that the REIT
Candidate's outstanding shares be held by a minimum of 100 persons for at
least, approximately, 92 percent of the days in each taxable year and that
no more than 50 percent in value of the shares be owned, actually or
constructively, by five or fewer individuals at all times during the second
half of each taxable year. For this purpose a pension fund and certain
other types of tax-exempt entities are included within the meaning of the
term "individual." To evidence compliance with these requirements, a REIT
Candidate is required to maintain records that disclose the beneficial
ownership of its outstanding shares. In fulfilling its obligation to
maintain records, a REIT Candidate must demand written statements each year
from the record holders of designated percentages of its shares, which
would, inter alia, disclose the actual owners of such shares.
----- ----
Deduction of Bond Original Issue Discount
- -----------------------------------------
The Company's Bonds may have "original issue discount" for federal
income tax purposes. The aggregate amount of original issue discount on a
Bond, if any, will be the excess of its "stated redemption price at
maturity" over its original issue price. The original issue price for a
Bond of a particular Sequence is the initial offering price at which the
Bonds in that Sequence are sold to the public. The Company will deduct
this original issue discount over the anticipated life of the Bond in
computing its REIT Taxable Income.
The Company will abide by recently issued Treasury regulations and other
available guidance for purposes of computing original issue discount in
connection with determining taxable income.
Original issue discount for federal income tax purposes is computed with
respect to bonds, such as the Bonds, which are subject to acceleration due
to prepayments on other debt obligations securing such Bonds, by taking
into account the anticipated rate of prepayments assumed in pricing the
Bonds (the "Prepayment Assumption"). The amount of original issue discount
to be deducted by the Company for an accrual period (generally the period
between interest payments or compounding dates) is the excess of the sum of
(a) the present value (discounted at the original yield to maturity of the
Bond determined with reference to the Prepayment Assumption) of all
payments remaining to be made on the Bond as of the close of such period
and (b) the principal payments (or any payments made with respect to a bond
that does not have qualified periodic interest payments) made during the
accrual period, over the "adjusted issue price" of the Bond at the
beginning of the accrual period. The adjusted issue price of a Bond is the
sum of such Bond issue price plus prior accruals of original issue discount
less total prior payments of principal (or any payments made with respect
to a bond that does not have qualified periodic interest payments). For
purposes of the present value calculation above, the payments remaining to
be made as of the end of the accrual period are determined (i) with regard
to all events that have occurred before the close of such accrual period
and (ii) assuming that the remaining payments will be made in accordance
with the original Prepayment Assumption.
Failure to Qualify as a REIT
- ----------------------------
If a REIT Candidate fails to qualify for taxation as a REIT in any
taxable year, it will be subject to tax (including any applicable minimum
tax) on its taxable income at regular corporate rates without any deduction
for distributions to shareholders. Unless entitled to relief under
specific Code provisions, a REIT Candidate will also be disqualified from
treatment as a REIT for the following four taxable years. Failure to
qualify for even one year could result in a REIT Candidate incurring
substantial indebtedness in order to pay any resulting taxes, thus reducing
the amount of cash available for distribution to shareholders.
ITEM 2: Properties
----------
On January 1, 1993 the Company entered into a month to month lease
for offices at Meadow Wood Crown Plaza, 1575 Delucchi Lane, Suite
115-20, Reno, Nevada 89502.
On November 12, 1993 the Company entered into a two year lease for
offices at 433 California Street, San Francisco, California
94104.
ITEM 3: Legal Proceedings
-----------------
None.
ITEM 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On August 6, 1993 Robert E. Greeley and Shaun E. Greeley were
elected to serve as directors of the Company until the next annual
meeting or until their successors are elected.
<PAGE>
PART II
ITEM 5: Market for the Registrant's Common Stock and
--------------------------------------------
Related Stockholder Matters
---------------------------
All of the 1,000 outstanding common shares of the Company are owned
by INVG Mortgage. Therefore, there is no market for the common stock of
the Company.
Dividends declared on the common stock of the Company amounted to
$100,000, $550,000 and $1,165,000 in the years ended December 31, 1993,
1992 and 1991, respectively.
ITEM 6: Selected Financial Data
-----------------------
The following selected financial data is qualified in its entirety
by, and should be read in conjunction with, the financial statements and
notes thereto appearing in sections of this Annual Report. The data as of
December 31, 1993, 1992 and 1991 and for the years ended December 31, 1993,
1992 and 1991 have been derived from the Company's financial statements
which are included elsewhere in this Annual Report on Form 10-K.
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest Income $7,170,936 $9,335,189 $11,031,641 $12,471,656 $13,830,749
Interest Expense 7,677,455 8,515,837 10,131,470 11,915,724 14,070,919
Net Income (Loss) (704,698) 694,035 687,853 279,178 (370,242)
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------
Balance Sheet Data 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $68,101,649 $96,544,347 $117,846,796 $131,966,815 $145,933,078
Total Liabilities 62,499,926 90,136,926 111,582,410 132,175,285 146,420,726
Series A Bonds
Principal Amount $60,525,251 $92,283,108 $113,547,122 $127,348,535 $139,943,680
Less, Unamortized Discount (1,724,298) (2,146,182) (2,235,810) (2,283,971) (2,322,657)
----------- ----------- ----------- ----------- -----------
$58,800,953 $90,136,926 $111,311,312 $125,064,564 $137,621,023
=========== =========== =========== =========== ===========
Total Stockholders' Equity $5,601,723 $6,407,421 $6,264,386 ($208,470) ($487,648)
========== ========== ========== ========== ==========
</TABLE>
ITEM 7: Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The net loss for the year ended December 31, 1993 amounted to $704,698 as
compared to net income of $694,035 for the year ended December 31, 1992 and
net income of $687,853 for the year ended December 31, 1991. The variance
from year to year is almost entirely attributable to the change in net
interest income (loss). The elements of net interest income (loss) are:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
------------------------------------------
<S> <C> <C> <C>
Income from GNMA Certificates $7,321,836 $9,809,700 $11,494,145
Interest on Bonds 6,945,074 8,254,089 9,940,080
------------------------------------------
Net Interest Margin 376,762 1,555,611 1,554,065
Amortization of Discount/Premium (389,789) (558,684) (564,334)
Amortization of Bond Discount and
Bond Issuance Costs (661,996) (261,748) (191,390)
Income from Mortgage Derivative Investments 104,039 0 0
Other Interest Income 54,796 69,429 101,830
Interest on Short-term Debt (70,385) 0 0
Interest from Affiliates 80,054 14,744 0
------------------------------------------
Net Interest Income (Loss) $ (506,519) $ 819,352 $ 900,171
==========================================
</TABLE>
Net interest margin declined significantly in 1993 because of the
retirement of the Class A-1 floating rate bonds leaving only the fixed rate
bonds which bear a higher interest rate. Because of the retirement of
these bonds, 1993 amortization of bond discount and bond issuance costs is
significantly higher in 1993 than in prior years.
Deferred Issuance Costs, premiums and discounts relating to mortgage
certificates and GNMA Bonds are amortized to income using the interest
method over the stated maturity of the mortgage certificates or bonds.
Expenses of the Company were $201,429, $125,317 and $212,318 in the
years ended December 31, 1993, 1992 and 1991, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities of the Company totaled $562,286
for the year ended December 31, 1993; $1,697,813 for the year ended
December 31, 1992; and $1,504,653 for the year ended December 31, 1991.
The Company's cash and cash equivalents decreased $66,287 in 1993 and
$569,808 in 1992, but increased by $394,436 in 1991. In 1993, the Company
made investments in mortgage derivative investments, net of principal
reductions, of $3,141,216 and made other investments totaling $2,051,244.
These investments were largely financed by a $2,408,598 increase in the
amount payable to affiliated companies and by $2,400,000 in short-term
borrowings.
The Company had total assets of $68.1 million and $96.5 million at
December 31, 1993 and 1992, respectively. Of these amounts, $61.2 million
and $93.3 million, respectively, were invested in GNMA Certificates which
collateralize the bonds.
The Company was initially capitalized on May 12, 1986 by the issuance
and sale of 1,000 shares of its common stock to its parent, INVG Mortgage
Securities Corp., for $1,000. On May 23, 1986, the Company sold 200 shares
of Series Z Preferred Stock for $10,000.
On April 30, 1991, the Board of Directors of INVG Mortgage Securities
Corp. voted to contribute the outstanding balance of the non-interest
bearing receivable from the Company to the Company as additional paid-in
capital.
The Company had no capital expenditures during the three years ended
December 31, 1993.
<PAGE>
ITEM 8: Financial Statements and Supplementary Data
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
Page
----
Report of Independent Auditors, Deloitte & Touche 15
Balance Sheets at December 31, 1993 and December 31, 1992 16
Statements of Income (Loss) for the years ended
December 31, 1993, 1992 and 1991 17
Statements of Changes in Stockholders' Equity for the years
ended December 31, 1993, 1992 and 1991 18
Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991 19
Notes to Financial Statements 20-25
Supplemental Schedules IV and IX 26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder of INVG Government Securities
Corp.
We have audited the accompanying balance sheets of INVG Government
Securities Corp. as of December 31, 1993 and 1992, and the related
statements of income (loss), changes in stockholders' equity, and cash
flows for the three years in the period ended December 31, 1993. Our
audits also included the financial statement schedules listed in the Index
at Item 8. These financial statements and the financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1993 and
1992 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note 2, the Company changed its method of accounting for
its investments to adopt the provisions of Statement of Financial
Accounting Standards No. 115.
New York, New York
April 13, 1994
<PAGE>
<TABLE>
INVG GOVERNMENT SECURITIES CORP.
BALANCE SHEETS
<CAPTION>
(Unaudited)
December 31,
December 31, December 31, 1993
1993 1992 (Pro Forma)
------------ ------------ ------------
(See Note 5)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents $69,870 $136,157 $5,605,967
Investment in Government National Mortgage
Association Certificates, at amortized cost 61,239,633 93,345,738 0
Investment in Mortgage Derivative Investments 3,245,255 0 3,245,255
Accrued Interest Receivable 526,097 836,769 0
Investment in INVG Mortgage Securities Corp. 55,568 0 55,568
Deferred Issuance Costs 445,800 685,911 0
Organization Costs 46,602 0 46,602
Other Investments 2,051,244 0 2,051,244
Due from INVG Mortgage Securities Corp. 421,580 331,306 421,580
Due from Investors GNMA Mortgage-Backed
Securities Trust 0 1,208,466 0
----------- ----------- -----------
Total Assets $68,101,649 $96,544,347 $11,426,216
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Collateralized Mortgage Obligations, net $58,800,953 $90,136,926 $
0
Short-term Debt 2,400,000 0 2,400,000
Due to Investors GNMA Mortgage-Backed
Securities Corp. 1,290,406 0 1,290,406
Accrued Expenses and Other Liabilities 8,567 0 8,567
----------- ----------- -----------
Total Liabilities 62,499,926 90,136,926 3,698,973
----------- ----------- -----------
Stockholders' Equity
Series Z Preferred Stock, at Liquidation Value,
1,000 Shares Authorized; 200 Shares
Issued and Outstanding 10,000 10,000 10,000
Common Stock, $.001 Par Value;
100,000 Shares Authorized;
1,000 Shares Issued and Outstanding 1 1 1
Additional Paid-in Capital 6,953,002 6,953,002 6,953,002
Deficit (1,361,280) (555,582) 764,240
----------- ----------- -----------
Total Stockholders' Equity 5,601,723 6,407,421 7,727,243
----------- ----------- -----------
Total Liabilities and Stockholders' Equity $68,101,649 $96,544,347 $11,426,216
=========== =========== ===========
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
INVG GOVERNMENT SECURITIES CORP.
STATEMENTS OF INCOME (LOSS)
<CAPTION>
Years Ended December 31,
1993 1992 1991
-------------------------------------------
<S> <C> <C> <C>
Interest Income
Mortgage Certificates, net $7,066,897 $9,335,189 $11,031,641
Mortgage Derivative Investments 104,039 0 0
---------- ---------- -----------
Total Interest Income 7,170,936 9,335,189 11,031,641
Interest Expense 7,677,455 8,515,837 10,131,470
---------- ---------- -----------
Net Interest Income (Expense) (506,519) 819,352 900,171
Dividend Income 3,250 0 0
---------- ---------- -----------
Total Income (503,269) 819,352 900,171
---------- ---------- -----------
Expenses
Professional Fees 60,451 33,924 96,646
Trustee Fees 24,022 14,978 28,105
Management Fee and
Officers' Compensation 78,000 57,671 62,026
Directors' Fees 14,500 10,500 5,500
State and Local Taxes 799 2,808 0
General and Administrative 23,657 5,436 20,041
---------- ---------- -----------
Total Expenses 201,429 125,317 212,318
---------- ---------- -----------
Net Income (Loss) ($704,698) $694,035 $687,853
========== ========== ===========
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
INVG GOVERNMENT SECURITIES CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Series Z Additional Retained
Preferred Common Paid-In Earnings
Stock Stock Capital (Deficit) Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1991 $10,000 $1 $ 999 $ (219,470) $ (208,470)
Capital Contribution -- -- 6,952,003 -- 6,952,003
Net Income -- -- -- 687,853 687,853
Dividends on Preferred Stock -- -- -- (2,000) (2,000)
Dividends on Common Stock -- -- -- (1,165,000) (1,165,000)
-------------------------------------------------------------------------
Balance, December 31, 1991 10,000 1 6,953,002 (698,617) 6,264,386
Net Income -- -- -- 694,035 694,035
Dividends on Preferred Stock -- -- -- (1,000) (1,000)
Dividends on Common Stock -- -- -- (550,000) (550,000)
-------------------------------------------------------------------------
Balance, December 31, 1992 10,000 1 6,953,002 (555,582) 6,407,421
Net Loss -- -- -- (704,698) (704,698)
Dividends on Preferred Stock (1,000) (1,000)
Dividends on Common Stock -- -- -- (100,000) (100,000)
-------------------------------------------------------------------------
Balance, December 31, 1993 $10,000 $1 $6,953,002 ($1,361,280) $5,601,723
=========================================================================
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
INVG GOVERNMENT SECURITIES CORP.
STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
1993 1992 1991
-------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($704,698) $694,035 $687,853
-------------------------------------------
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:
Amortization of Deferred Bond Issuance Costs 240,111 172,120 143,229
Amortization of Bond Discount 421,884 89,628 48,161
Amortization of Premium and Discount on
Government National Mortgage Certificates, Net 389,789 558,684 564,334
Earnings of Mortgage Derivative Intestments (104,039) 0 0
Decrease in Accrued Interest Receivable 310,672 221,712 73,309
Increase (Decrease) in Accrued Expenses 8,567 (38,366) (12,233)
-------------------------------------------
Total Adjustments 1,266,984 1,003,778 816,800
-------------------------------------------
Net Cash Provided by Operating Activities 562,286 1,697,813 1,504,653
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Principal Amount of Government
National Mortgage Association Certificates 31,716,316 21,228,289 13,825,191
Investment in Mortgage Derivative Investments (4,315,395) 0 0
Cash Receipts from Mortgage Derivative Investments 1,174,179 0 0
Purchase of Other Investments (2,051,244) 0 0
Organization Costs (46,602) 0 0
Investment in INVG Mortgage Securities Corp. (55,568) 0 0
-------------------------------------------
Net Cash From Investing Activities 26,421,686 21,228,289 13,825,191
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Principal Amount of
Collateralized Mortgage Obligations (31,757,857) (21,264,014) (13,801,413)
Increase in Due from INVG
Mortgage Securities Corp. (90,274) (239,698) (199,727)
Decrease (Increase) in Due from Investors
GNMA Mortgage-Backed Securities Trust, Inc. 2,498,872 (1,441,198) 232,732
Increase in Short-term Debt 2,400,000 0 0
Dividends Paid (101,000) (551,000) (1,167,000)
-------------------------------------------
Net Cash Used in Financing Activities (27,050,259) (23,495,910) (14,935,408)
-------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (66,287) (569,808) 394,436
Cash and Cash Equivalents at Beginning of Year 136,157 705,965 311,529
-------------------------------------------
Cash and Cash Equivalents at End of Year $69,870 $136,157 $705,965
===========================================
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
INVG GOVERNMENT SECURITIES CORP.
NOTES TO FINANCIAL STATEMENTS
Note 1. - Organization
INVG Government Securities Corp. (the "Company") was incorporated on May
5, 1986 in the State of Delaware as a subsidiary of INVG Mortgage
Securities Corp. ("INVG Mortgage"). The Company was formed to engage in
the acquisition of certain mortgage securities and the issuance of
Collateralized Mortgage Obligations collateralized by such mortgage
securities.
The Company has historically generated revenues primarily from
Collateralized Mortgage Obligation ("CMO") investments whereby the company
was engaged in the business of acquiring modified mortgage-backed pass
through certificates ("GNMA Certificates") and then issuing and selling
bonds (Bonds) backed by the GNMA Certificates. These investments in CMO
issuances give the Company the right to the excess cashflows and earnings
on the GNMA Certificates over the expenses required on the the Bonds ("CMO
Issuance Investments"). The Company has also invested in other similar
mortgage related investments wherein the Company has the right to receive
the cashflows of a CMO bond offering after debt service payments are made,
such as CMO Mortgage Derivative Investments and REMIC Mortgage Derivative
Investments, ("Mortgage Derivative Investments").
The Company's investment policies and other policies are determined by
its Board of directors in accordance with the articles and bylaws of the
Company. The objective of the company is to maximize earnings and cashflow
for distribution to the shareholder through mortgage related investments.
The Company, in its early years, invested in CMO Related Investments
through issuance of its own Bonds. Over the last year, the Company has
been reinvesting its cashflows from these CMO Related Investments in
Mortgage Derivative Investments which are similar in earnings and cashflow
nature to its original CMO Related Investments.
At all times, the Company intends to make investments in such a manner
as to be consistent with the requirements of the Code to qualify as a REIT
unless, because of circumstances or changes in the Code (or in the
regulations promulgated thereunder), the Company determines that it is no
longer in the best interest of the Company to qualify as a REIT. The
Company's policies with respect to such activities may be reviewed and
modified from time to time by the Company.
On December 30, 1986, the Company sold $200,369,000 principal amount of
the Collateral Mortgage Obligations, Series A (the "Bonds"). The net
proceeds of the offering were used to partially finance the purchase of
Government National Mortgage Association Certificates ("GNMA Certificates")
to collateralize the Bonds. INVG Mortgage funded the balance of the
purchase of GNMA Certificates through a non-interest bearing loan to the
Company.
Note 2. - Summary of Significant Accounting Policies
Accounting Change - On December 31, 1993 the Company adopted Statement
of Financial Accounting Standards No. 115 ("SFAS 115") - Accounting for
Certain Investments in Debt and Equity Securities. In accordance with this
new Standard, the Company classified its investments as either available-
for-sale or held-to-maturity. The Company has elected to classify its
investments in CMO Residuals and REMIC Residuals as available-for-sale
while it has elected to classify its investments in GNMA Certificates as
held-to-maturity investments. SFAS 115 requires that held-to-maturity
investments be accounted for at amortized cost. However, if the fair
value, as defined, of the investment declines below the amortized cost
basis and the decline is considered to be "other than temporary", the cost
basis of the individual asset must be written down to its fair value as the
new cost basis.
Held-to Maturity. The investment in GNMA Certificates is classified as
a held-to-maturity investment. In connection with the fourth quarter
adoption of SFAS 115 and consistent with the consensus reached by the
Emerging Issues Task Force on Issue No. 93-18, the Company measures other
than temporary impairment by comparing the net cash flows from the GNMA
Certificates (net of GNMA Bonds principal and interest payments and related
trustee expenses) discounted at a risk free rate to the net carrying value
of the GNMA Certificates (i.e. net of GNMA Bond liabilities). If such
discounted cash flows are less than the net carrying value, the Company
records a reserve to reduce the net carrying value to fair value. For
purposes of determining fair value, the Company discounts the net cash
flows as discussed above using an estimated risk adjusted rate of return.
The effect of adopting this change in accounting was not material.
Available-for-Sale. The Company is not in the business of trading its
mortgage-related assets, however, from time to time the Company may sell an
asset as part of the Company's efforts to adjust its portfolio composition
to reflect changes in economic conditions. Therefore the Company has
classified its investments in CMO Residual Interests and REMIC Residual
interests as available-for-sale. They are carried at fair value in the
financial statements. Unrealized holding gains and losses for available-
for-sale investments are excluded from earnings and reported as a net
amount in shareholder's equity until realized. Available-for-sale
investments are also subject to write down whenever the fair value is less
than the future projected cash flows discounted at a risk-free rate. None
of the Company's available-for-sale investments were subject to write down
as of December 31, 1993.
Mortgage Certificates and Collateralized Mortgage Obligation Bonds
("CMOs") - Mortgage certificates and CMO bonds are carried at their
outstanding principal balance plus or minus any premium or discount,
respectively. Management has the intention and the ability to hold the
Mortgage Certificates and CMO Bonds to term.
Amortization of Deferred Issuance Costs, Premiums and Discounts -
Deferred issuance costs, premiums and discounts relating to mortgage
certificates and CMOs are amortized to income using the interest method
over the stated maturity of the mortgage certificates or CMOs. Prepayments
are not anticipated. When prepayments occur, a proportionate amount of the
related costs, premiums and discounts are recognized in income so that the
effective interest rate on the remaining balance continues unchanged.
Mortgage Derivative Investments - Mortgage Derivative Investments are
accounted for under the Prospective method. Under this method, assets are
carried at cost and income is amortized over their estimated lives based on
a method which provides a constant yield. At the end of each quarter, the
yield over the remaining life of the asset is recalculated based on
expected future cash flows using current interest rates and mortgage
prepayment speeds. This new yield is then used to calculate the subsequent
quarter's income.
Under certain extended high interest rate periods, or in the event of
extremely high prepayment rates on the collateral, the return on the
Company's investment in a mortgage derivative investment could be zero or
negative. In the event that the projected return on an investment in a
mortgage derivative investment falls below a risk free rate, the Company
would be required to write down the investment to its fair value.
Income Taxes - The Company has elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended. As a REIT, the Company must distribute annually at least 95% of
its taxable income to its shareholders. No provision has been made for
income taxes in the accompanying financial statements as the Company will
not be subject to income taxes. Over the life of a mortgage derivative
investment, total taxable income will equal total financial statement
income. However, the timing of income recognition may differ between the
two from year to year.
Statement of Cash Flows - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Reclassifications - Certain reclassifications have been made to the
December 31, 1991 financial statements to conform such financial statements
to the December 31, 1992 financial statements. Such reclassifications do
not effect net income as reported.
Note 3. - Investment in GNMA Certificates
Information as of December 31, 1993 and 1992 with respect to the GNMA
Certificates, all of which collateralize the Bonds, is as follows:
<TABLE>
<CAPTION>
Certificates 1993 1992
- -----------------------------------------------------------------
<S> <C> <C>
Interest Rates 9%, 11.5% 9%, 11.5%
Stated Maturity 2017 2017
Principal Amount $60,442,679 $92,158,594
Fair Value $65,709,245 $99,814,369
Cost Plus Net Unamortized
Discount/Premium $61,239,633 $93,345,738
</TABLE>
On January 24, 1994 the GNMA Certificates securing the Bonds were sold as
part of an optional redemption of the Series A Bonds. See Note 5.
Note 4. - Bonds
Information as of December 31, 1993 and 1992 with respect to the Bonds
which are collateralized by the GNMA Certificates is as follows:
<TABLE>
<CAPTION>
Bonds 1993 1992
- -----------------------------------------------------------------
<S> <C> <C>
Interest Rates 9.0% 3.5625% - 9.0%
Stated Maturity 2017 2017
Principal Amount * $60,525,251 $92,283,108
Unamortized Discount 1,724,298 2,146,182
----------- -----------
Net $58,800,953 $90,136,926
=========== ===========
Estimated Fair Value $60,525,251 $95,697,394
<FN>
* after giving effect to the January 1 payment
</TABLE>
The Bonds are redeemable at the option of the Company in whole, but not in
part, on any payment date on or after the earlier of July 1, 1996 or the
payment date on which the Class A-2 Bonds are paid in full. Interest paid
during the years ending December 31, 1993, 1992 and 1991 amounted to
$6,945,074, $8,254,089 and $9,958,080; respectively.
Note 5. - Subsequent Redemption of Series A Bonds
On January 5, 1994 the Board of Directors of the Company authorized an
optional redemption of the Series A Bonds on February 1, 1994 pursuant to
the call provisions of the Series A Bonds. On January 24, 1994, the GNMA
Certificates securing the Series A Bonds were sold. The Company realized a
gain of $4,500,000 from the sale of the GNMA Certificates. On February 1,
1994, the Series A Bonds were redeemed at par. After accounting for
expenses, including amortization of discounts and premiums, the Company
incurred an extraordinary loss of $2,236,000 from the redemption of the
Series A Bonds. The net cash the Company received from this series of
transactions was $5,010,000.
The pro forma effect of this redemption has been presented with the
accompanying historical balance sheets as if the redemption had taken place
on December 31, 1993.
Note 6. - Purchase of Mortgage Derivative and Other Investments
During the year ended December 31, 1993, the Company purchased Mortgage
Derivative Investments as shown in the schedule below:
<TABLE>
<CAPTION>
CARRYING
VALUE
PURCHASE % PURCHASE DECEMBER
RESIDUAL SERIES DATE OWNERSHIP COLLATERAL PRICE 31, 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Trust 8-R July 19, 1993 68.850% FHLMC 9.50% $3,600,000 $2,518,591
CMOT Series 5-R Dec. 10, 1993 49.000% FNMA 9.50% 560,682 568,600
CMOT Series 6-R Dec. 10, 1993 49.000% FHLMC 9.50% 154,713 158,064
---------- ----------
Total $4,315,395 $3,245,255
========== ==========
</TABLE>
In accordance with FASB-107, the Company shall disclose the fair value
of financial instruments for which it is practicable to estimate that
value. The Company has disclosed in Notes 3 and 4 the fair value of the
GNMA Certificates and Bonds based on market prices for comparable
instruments as of December 31, 1993. However, the Company is unable to
sell the GNMA Certificates and therefore realize any gain until the Bonds
which are collateralized by the certificates either mature or are called in
accordance with the underlying bond indenture.
The Company computes the estimated fair value of its mortgage derivative
investments, including CMO Residuals and REMIC Residuals, by projecting
anticipated future cash flows and discounting those cash flows at discount
rates established in market transactions for securities having similar
characteristics and backed by collateral of similar rate and term. The
Company has used available market information as of December 31, 1993 and
has concluded that the fair value of the mortgage derivative investments at
December 31, 1993 was approximately equal to the carrying value of
$3,245,000 as of December 31, 1993. The Company estimated the prospective
yield on these investments for the first quarter of 1994 to be
approximately 27.0%.
During the year ended December 31, 1993, the Company purchased other
investments as shown in the schedule below:
<TABLE>
<CAPTION>
BOOK VALUE
PURCHASE PURCHASE DECEMBER 31,
DESCRIPTION DATE PRICE 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
50,000 GNMA 7% Certificates July 19, 1993 51,445 51,244
Interest in Pine Street Associates, L.P. Dec. 30, 1993 2,000,000 2,000,000
---------- ----------
$2,051,445 $2,051,244
========== ==========
</TABLE>
Pine Street Associates is a limited partnership whose investment objective
is to achieve long-term capital appreciation with a diversification of
risk. The Company was admitted as a partner in Pine Street Associates,
L.P. effective January 1, 1994.
Note 7. - Short-Term Debt
At December 31, 1993 the Company owed $2,400,000 under a repurchase
agreement. This borrowing had an initial term of one month and is renewed
on a month-to-month basis. The interest rate of this borrowing at December
31, 1993 was 3.625%. The debt is collateralized by the Company's
investment in Merrill Lynch Trust 8-R.
Note 8. - Series Z Preferred Stock
In May 1986, the Company sold 200 shares of its Series Z Preferred Stock
for $10,000. The Series Z Preferred stockholders are entitled to receive
dividends, when, as and if declared by the Board of Directors payable
annually on the first business day in May of each year commencing May l,
1987. The annual amount per share of the dividend is $5.00. Dividends are
cumulative and will accrue as of the date on which such dividends are
payable without regard to whether such dividends have been earned or
declared. No dividends will be paid or set apart for the common stock so
long as dividends on the Series Z Preferred Stock are payable and unpaid.
Preferred stock dividends of $1,000, or $5.00 per share, were declared and
paid in both 1993 and 1992.
The Series Z Preferred Stock may be redeemed, in whole or in part, at the
option of the Company by resolution of the Board of Directors, at any time
and from time to time at a redemption price of $50.00 per share plus
accrued and unpaid dividends.
Note 9. - Dividends on Common Stock
During 1992, the Company paid dividends on its common stock totaling
$550,000. Of this amount $539,047 is ordinary taxable income and the
remaining $10,953 is a nontaxable return of capital.
During 1993, the Company paid dividends on its common stock totaling
$100,000. All of this amount is a nontaxable return of capital.
Note 10. - Lease Commitments
On November 12, 1993 the Company entered into a two year lease for
offices at 433 California Street, San Francisco, California 94104.
Required monthly lease payments are $1,377. The rental obligation for 1994
totals $16,526 and for 1995 totals $15,149.
Note 11. - Subsequent Events
Subsequent to December 31, 1993, the Company purchased the following:
<TABLE>
<CAPTION>
PURCHASE
DATE DESCRIPTION PRICE
- --------------------------------------------------------------------
<S> <C> <C>
Jan 3, 1994 Bennett/Lawrence Partners, L.P. $500,000
Jan. 27, 1994 Argentina Growth Fund Limited 250,000
<FN>
These purchases were made with additional borrowing from Investors GNMA.
</TABLE>
Note 12. - Management
The Company is managed by the Board of Directors. From February 1990
through December 1991, the day-to-day activities of the Company were
managed by Fulcrum, subject to the supervision of the Board of Directors.
Under the terms of their agreement, Fulcrum received a monthly management
fee of $15,000 which cost is shared by INVG Mortgage and Investors GNMA
Mortgage-Backed Securities Trust, Inc., an affiliate of the Company.
Effective in January 1992, the day-to-day administrative affairs of the
Company are managed, subject to the supervision of the Board of Directors,
under an Administration Agreement with TIS Asset Management, Inc. This
agreement provided for a monthly fee of $16,000 for administrative services
which fee is divided among the affiliated Companies.
During 1992, the Company paid to the President, who is also a Director of
the Company, an Officer's consulting fee in lieu of a Directors fee.
At the Annual Meeting of Shareholders of the Company's parent, INVG
Mortgage Securities Corp., held on October 26, 1993, a consulting agreement
with Page Mill Asset Management was ratified. Under this agreement, which
is effective January 1, 1993, the Company and its affiliates will pay Page
Mill a monthly fee of $10,000 plus an incentive management fee. The
incentive management fee, determined with respect to the Companies'
performance each fiscal year is equal to 25% of the dollar amount, if any,
by which the parent company's consolidated taxable income for such fiscal
year, before payment of any incentive fee to Page Mill, net operating loss
deductions arising from prior periods' losses and special Internal Revenue
Code deductions pertaining to real estate investment trusts, plus certain
other adjustments in accordance with generally accepted accounting
principles, exceeds the amount necessary to provide an annualized return on
equity equal to 1% over the average ten-year U.S. Treasury rate for such
fiscal year. Under this agreement, the Company has recorded expense in the
year ended December 31, 1993 of $30,000. None of the incentive management
fee has been allocated to the Company as it had a taxable loss for 1993.
Page Mill Asset Management is 100% owned by Robert E. Greeley, Chairman of
the Board and President of the Company.
Note 13. - Tax Status
During the year ended December 31, 1991 the Company utilized the
remaining $128,000 of its net operating loss carryforward. As of December
31, 1992 the Company has no net operating loss carryforwards. In 1993 the
Company incurred a taxable loss of $610,934 which generates a net operating
loss carryforward expiring in 2008.
The Company's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to real estate investment trusts and to
distribute sufficient taxable income to qualify as a REIT. Accordingly, no
provision for federal income taxes is required in the Company's financial
statements to the extent that sufficient distributions of taxable income
have been made to the shareholders for reporting in their respective tax
returns. In accordance with Statement of Financial Accounting Standards
109 disclosure requirements, the following differences existed at December
31, 1993 between the tax bases and the reported financial statement amounts
of the Company's assets and liabilities (unaudited):
<TABLE>
<CAPTION>
REPORTED TAX
AMOUNTS AMOUNTS DIFFERENCE
- -----------------------------------------------------------------
<S> <C> <C> <C>
Assets $68,101,649 $67,266,309 $835,340
Liabilities 62,499,926 61,643,695 856,231
</TABLE>
Note 14. - Related Party Transactions
On April 30, 1991, the Board of Directors of INVG Mortgage voted to
contribute the outstanding balance of the non-interest bearing payable in
the amount of $6,952,003 to the Company.
At December 31, 1992 the Company had an interest bearing receivable from
its affiliate Investors GNMA Mortgage-Backed Securities Trust, Inc. in the
amount of $1,208,466 and an interest bearing receivable from its parent,
INVG Mortgage Securities Corp., in the amount of $331,306. Both
receivables accrue interest at a 6% rate. Of the Company's interest
income, $14,744 is from related parties.
At December 31, 1993 the Company owed Investors GNMA Mortgage-Backed
Securities Trust, Inc. $1,290,406 and had a receivable of $421,580 from
INVG Mortgage Securities Corp. Both amounts accrue interest income or
expense at a 6% rate. Of the Company's interest income, $80,054 is from
related parties.
As described in Note 11, the Company, together with INVG Mortgage and
Investors GNMA, has entered into a Consulting Agreement with Page Mill
Asset Management, 100% of which is owned by Robert E. Greeley.
<PAGE>
<TABLE>
INVG GOVERNMENT SECURITIES, INC.
SCHEDULE IV
INDEBTEDNESS OF AND TO RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Amounts Due From (To)
INVG Mortgage Investors GNMA
-----------------------------------------
<S> <C> <C>
Balance, December 31, 1990 ($7,060,122) $ 0
Additions 7,151,730 0
---------- ----------
Balance, December 31, 1991 91,608 0
Additions 239,698 1,208,466
---------- ----------
Balance, December 31, 1992 331,306 1,208,466
Additions 90,274 0
Deductions 0 (2,498,872)
---------- ------------
Balance, December 31, 1993 $ 421,580 ($1,290,406)
========== ==========
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
INVG GOVERNMENT SECURITIES, INC.
SCHEDULE IX
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Category of Balance Average Outstanding Outstanding Interest Rate
Aggregate Short-term at End of Interest During the During the During the
Borrowings Period Rate Period Period Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Repurchase Agreements $2,400,000 3.58% $4,400,000 $1,846,667 3.65%
Years Ended December 31, 1992 and 1991
None $-0- N/A N/A N/A N/A
</TABLE>
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
<PAGE>
PART III
Item 10. - Directors and Executive Officers of the Registrant
The directors and executive officers named below are the directors and
executive officers of the Company as of March 30, 1994:
Positions
Directors and Held With
Executive Officers Corporation Age
- ------------------ ----------- ---
Robert E. Greeley Chairman of the Board 61
President, Director
and Treasurer.
Shaun E.Greeley Vice President and Director 35
Russell Berg Vice President and Secretary 73
The term for the directors will expire at the next meeting of
shareholders of the Company. Currently there is no date set for such a
meeting.
Since the beginning of the Company's 1990 fiscal year, the Board of
Directors has been seeking ways to reduce the Company's operating costs as
the assets of the Company continue to attenuate through the normal process
of repayments on the mortgages underlying those assets.
In connection with attuning the Company to its less active nature and
smaller size, the Company accepted the resignations of all of its officers
and all but one of its directors effective December 31, 1989. The
immediate reason for the resignation was the unavailability of directors'
and officers' liability insurance at a reasonable cost. The sole remaining
director, Robert E. Greeley, appointed new directors to the Board. As part
of the program of cost reduction, the Board then amended the Company's by-
laws to reduce the number of directors and officers to two each. The newly
constituted board elected officers. Mr. Robert E. Greeley, a director
since 1986, was elected to the positions of Chairman of the Board and
President of the Company, INVG Mortgage and Investors GNMA.
Mr. Greeley is a general partner of Cypress Cove Fund L.P., an
investment partnership. He was Manager, Corporate Investment for Hewlett-
Packard Company, a diversified company, from 1979 to May 1991. He is also
the investment advisor to the William and Flora Hewlett Foundation. Mr.
Greeley is a director of Morgan Grenfell Small Cap Fund and of Bunker Hill
Income Securities. He is also a principal in Page Mill Asset Management
and Greeley Partners. Mr. Greeley also serves as a director of INVG
Mortgage and Investors GNMA.
Ms. Shaun E. Greeley, daughter of Robert E. Greeley, is currently a
director of the Company. From April 1993 to February 1994 she was a
financial consultant to Merrill Lynch & Co. From 1988 to 1991, she was a
Vice President of Chase Securities, Inc., a subsidiary of Chase Manhattan
Bank. From 1984 through 1988 she held various transactional and marketing
positions at Citicorp Inc.
Mr. Berg has been a Managing Director of Viewpoints International, a
management consulting organization since May 1986. Prior to that time he
was Director of Marketing Communications for the Hewlett-Packard Company,
from which Mr. Berg retired in May 1986. Mr. Berg is a Trustee of the
Sensory Aids Foundation of Palo Alto. Mr. Berg is also a director of INVG
Mortgage Securities Corp. and Investors GNMA.
During 1993, the Board of Directors met seven times and each director
attended all of the meetings of the Board. The Board of Directors does not
have a standing audit, nominating or compensation committee.
Item 11. - Executive Compensation
No directors, officers or employees of the Administrator (as defined
herein) or its affiliated companies are directors or executive officers of
the Company.
For 1993, each director of the Company, other than those who are
executive officers or employees of the Company, was entitled to receive a
fee of $500 for each Board of Directors or committee meeting attended by
that director (together with all actual out-of-pocket expenses incurred in
connection with attendance at such meetings), plus additional compensation
at an annual rate of $8,000. Robert E. Greeley, as president, received no
compensation. During 1993 all directors and officers as a group consisting
of 3 persons received from the Company aggregate remuneration in the amount
of $14,500. Robert E. Greeley received aggregate compensation attributable
to the Company of $15,000 in each of the years 1992 and 1991.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
The executive officers and directors of the Company do not own any
shares of common stock of the Company. All of the outstanding shares of
common stock of the Company are owned by INVG Mortgage. The Company has
approximately 150 beneficial holders of an aggregate of 200 shares of
Series Z Preferred Stock.
On March 17, 1993, the Company acquired 6,500 shares of the common stock
of INVG Mortgage, thereby reducing the number of outstanding shares of the
common stock of INVG Mortgage to 675,775. In November and December 1993,
the Company acquired an additional 1,200 and 1,000 shares, respectively,
reducing the number of outstanding shares of common stock of INVG Mortgage
to 673,575.
Item 13. - Certain Relationships and Related Transactions
On April 30, 1991, the Board of Directors of INVG Mortgage voted to
contribute the outstanding balance of the non-interest bearing payable in
the amount of $6,952,003 to the Company.
At December 31, 1992 the Company had an interest bearing receivable from
its affiliate Investors GNMA Mortgage-Backed Securities Trust, Inc. in the
amount of $1,208,466 and an interest bearing receivable from its parent,
INVG Mortgage Securities Corp., in the amount of $331,306. Both
receivables accrue interest at a 6% rate. Of the Company's interest
income, $14,744 is from related parties.
At December 31, 1993 the Company owed Investors GNMA Mortgage-Backed
Securities Trust, Inc. $1,290,406 and had a receivable of $421,580 from
INVG Mortgage Securities Corp. Both amounts accrue interest income or
expense at a 6% rate. Of the Company's interest income, $80,054 is from
related parties.
As described in Note 11, the Company, together with INVG Mortgage and
Investors GNMA, has entered into a Consulting Agreement with Page Mill
Asset Management, 100% of which is owned by Robert E. Greeley.
PART IV
Item 14. - Exhibits, Financial Statements, Schedules and Reports on Form 8-
K
(a) Documents filed as part of this report:
(1) Financial statements of the Company - as listed in the "Index
to Financial Statements" included in Part II, Item 8 of this Form
10-K.
(2) Financial statement schedules
Schedule IV - Indebtedness of and to Related Parties
Schedule IX - Short-term Borrowings
All financial statement schedules not included
have been omitted because they are inapplicable or the
information is provided in the Financial Statements,
including the notes thereto, included in Part II, Item
8, of this Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of the year ended December 31, 1993.
(c) Exhibits
The following exhibits (unless incorporated by reference to
another report) are included in a separate volume filed with this
report and are identified by the numbers indicated.
Exhibit
No. Description
- --------- -----------
3.1 Articles of Incorporation of the Company (Incorporated by
reference from Exhibit 3.1 to the Company's Form 10-K for the
fiscal year ended December 31, 1987)
3.2 By-Laws of the Company (Incorporated by reference from Exhibit
3.2 to the Company's Form S-11, No. 33-5579)
4.1 Indenture dated as of December 1, 1986 between the Company and
Texas Commerce Bank National Association (Incorporated by
reference from Exhibit 4.1 to the Company's Form 10-K for the
fiscal year ended December 31, 1986)
4.2 Series A Supplement to Indenture dated as of December 30, 1986
between the Company and Texas Commerce Bank National
Association (Incorporated by reference from Exhibit 4.2 to the
Company's Form 10-K for the fiscal year ended December 31,
1986)
10.1 Management Agreement dated as of May 12, 1986 among the
Company, INVG Mortgage and Investors GNMA (Incorporated by
reference from Exhibit 10.1 to the Company's Form 10-K for the
fiscal year ended December 31, 1987)
10.2 Advisors Agreement dated as of February 14, 1990 among the
Company, INVG Mortgage and Investors GNMA (Incorporated by
reference from Exhibit 10.2 to the Company's Form 10-K for the
fiscal year ended December 31, 1989)
10.3 Administration Agreement dated as of December 1, 1991 among the
Company, INVG Mortgage and Investors GNMA and TIS Asset
Management, Inc. (Incorporated by reference from Exhibit 10.3
to the Company's Form 10-K for the fiscal year ended December
31, 1991.)
13.1 The Company's Annual Report to Shareholders for 1993 (Furnished
for the information of the Commission and not deemed to be
filed except for those portions which are expressly
incorporated by reference into this Form 10-K)
No other exhibits are filed because they are either not applicable or not
required.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
INVG GOVERNMENT SECURITIES CORP.
By: /s/ Robert E. Greeley
----------------------------
Robert E. Greeley
Chairman of the Board
Date: April 14, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Date Title
- --------- ---- -----
/s/ Robert E. Greeley April 14, 1994 Chairman of The Board,
- ----------------------- President and Treasurer.
Robert E. Greeley (Principal Executive and
Financial Officer)
/s/ Shaun Greeley April 14, 1994 Director
- -----------------------
Shaun Greeley
/s/ Russell Berg April 14, 1994 Secretary
- -----------------------
Russell Berg
