This conforming paper format is being submitted pursuant to Rule 901(d) of
Regulation S-T
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) 0F
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 21, 1995
ASSET INVESTORS CORPORATION
(Exact name of registrant as specified in its Charter)
Maryland 1-9360 84-1038736
(State or other jurisdiction (Commission file number) (I.R.S. employer
of incorporation) identification no.)
3600 South Yosemite Street, Suite 900, Denver, Colorado 80237
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 793-2703
Not Applicable
(Former name or former address, if changes since last report)
ITEM 5. OTHER EVENTS.
On February 21, 1995, the Registrant mailed a letter to stockholders
which included a clarification of the tax treatment of distributions to
stockholders. A copy of the letter to stockholders is attached as an
exhibit to, and filed as a part of this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
99 Letter to Stockholders dated February 20, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
ASSET INVESTORS CORPORATION
Dated: February 21, 1995 By:____/s/Spencer I. Browne_____
Spencer I. Browne, President,
Chief Executive Officer and a
Director
EXHIBIT INDEX
EXHIBIT
99 Letter to Stockholders dated February 20, 1995
February 20, 1995
Dear Shareowner:
Since our last report to you, we have, as planned, continued
to add to our portfolio of non-agency MBS bonds by using,
among other things, the approximately $17,000,000 in net
proceeds from our recently completed Rights Offering. The
acquisition of non-agency MBS bonds is part of the Company's
plan to shift its assets from highly volatile, interest rate
sensitive CMO ownership interests to more credit sensitive
assets that should benefit from an improving economy. At
December 31, 1994, these more credit sensitive assets (our
27% interest in the shares of Commercial Assets, Inc. and
our portfolio of non-agency MBS bonds) represented
approximately 67% of the net book value of our assets.
We currently believe that the cash flow from our portfolio
assets should allow us to make cash distributions in 1995 of
approximately $.28 to $.36 per share. More details about
our portfolio assets will be provided to you in our upcoming
Annual Report to Shareowners.
Recently, we received several questions regarding the use
of the Company's substantial net operating loss carryover
(NOL). We want to clarify, using the examples below, the
limited use of our NOL, which totaled approximately $100
million at December 31, 1994. The examples also explain how
the Internal Revenue Service under the Internal Revenue Code
(the Code) should treat the Company's future distributions
to you.
As you may remember, to maintain its status as a REIT, the
Code requires the Company, among other things, annually to
distribute to shareowners at least 95% of its current
income (generally the amount of income earned by the Company
in the current year). The Company's NOL primarily may be
used to reduce the Company's current income (other than
Excess Inclusion income which is generated solely by the
Company's CMO ownership interests) and, as a result, reduce
the amount that the Company is required under the Code to
distribute to shareowners in order to maintain its REIT
status. As illustrated by the examples, our NOL may not be
used to change the characterization of a distribution made
out of the Company's current income from a dividend, taxable
to shareowners as ordinary income, to a non-taxable return
of capital or a capital gain.
With respect to the treatment under the Code of the
Company's future distributions to you, there are two general
concepts: (1) distributions out of the Company's current
income are treated under the Code as dividends, taxable to
shareowners as ordinary income; and (2) because the Company
has no accumulated income (generally the aggregate amount of
the Company's income minus the aggregate amount of the
Company's dividends, both since the Company's inception),
distributions to shareowners in excess of the Company's
current income (other than distributions of Excess Inclusion
income) are treated under the Code as non-taxable returns of
capital up to the shareowner's basis in the shares and
capital gain to the extent distributions exceed the
shareowner's basis in the shares.
The following examples illustrate these concepts:
Example One
Assume that in 1995 the Company generates $7.7 million of
current income (none of which is Excess Inclusion income).
Without our NOL, the Code would require the Company to
distribute at least $7.3 million (95% of $7.7 million of
current income) in order to maintain its status as a REIT.
Our NOL, however, could be used to reduce or even to
eliminate ($7.7 million of NOL used to reduce to zero $7.7
million of current income) the amount of distributions the
Company is required to make under the Code to maintain its
REIT status. The portion of our NOL used to reduce the
amount of distributions the Company is required to make to
maintain its status as a REIT will reduce the amount of our
NOL available for future years by an equal amount.
Example Two
Assume the same facts as in Example One. Also assume that
the Company makes a distribution of $7.7 million ($.32 per
share). The entire amount of the distribution would be
treated under the Code as a dividend, taxable to shareowners
as ordinary income, because it is paid out of the Company's
current income. No use is made of the Company's NOL.
Example Three
Assume the same facts as in Example One. Also assume that
the Company makes a distribution of $8.0 million
(approximately $.33 per share). The first $7.7 million of
the distribution would be treated under the Code as a
dividend, taxable to shareowners as ordinary income, because
it is paid out of the Company's current income. The $.3
million balance of the distribution generally would be
treated under the Code as a non-taxable return of capital or
a capital gain. Again, no use is made of the Company's NOL.
As explained in Example Two, distributions out of the
Company's current income are treated under the Code as
dividends, taxable to shareowners as ordinary income.
Because the Company has no accumulated income, a
distribution in excess ($.3 million in this example) of the
Company's current income generally is treated under the Code
as a non-taxable return of capital or a capital gain.
Example Four
In order to maintain its status as a REIT, the Code, among
other things, requires the Company to distribute to
shareowners at least 95% of its Excess Inclusion income
(which is determined differently under the Code than current
income) even if the Company's current income is less than
its Excess Inclusion income or if the Company operates at a
loss. The Company's operating expenses and other deductions
used in determining current income may not be used under the
Code in determining the Company's Excess Inclusion income.
A distribution by the Company of Excess Inclusion income is
treated under the Code as a dividend, taxable to shareowners
as ordinary income.
Assume in 1995 that the Company generates $3.0 million in
current income and that the Company's CMO ownership
interests generate $4.0 million of Excess Inclusion income.
To maintain its REIT status, the Company must distribute to
shareowners at least 95% of its $4.0 million of Excess
Inclusion income. This distribution will be treated under
the Code as a dividend, taxable to shareowners as ordinary
income. The $1.0 million difference between (1) the
Company's current income
($3.0 million in this example) and (2) the Excess Inclusion
income ($4.0 million in this example) the Company
distributes to shareowners, will increase the Company's NOL
by $1.0 million.
If the Company's current income is greater than its Excess
Inclusion income, the general rule that the Company must
distribute at least 95% of its current income to maintain
its status as a REIT applies. Assume that the Company in
1995 generates $7.7 million of current income and its CMO
ownership interests generate $4.0 million of Excess
Inclusion income. Without our NOL, the Code would require
the Company to distribute at least $7.3 million (95% of $7.7
million of current income) in order to maintain its status
as a REIT. Any distribution in excess of the amount of the
Company's Excess Inclusion income ($4.0 million in this
example) would be treated under the Code as a dividend,
taxable to shareowners as ordinary income, to the extent of
its current income ($7.7 million in this example). A
distribution in excess of the Company's current income ($7.7
million in this example) would be treated under the Code as
a non-taxable return of capital or a capital gain. As
explained in Example One, our NOL could be used to reduce
(but not below the Company's Excess Inclusion income) the
amount of distributions to shareowners the Company is
required to make under the Code to maintain its REIT status.
Example Five
The Company purchases non-agency MBS bonds at substantial
discounts from their face or par value. The purchase price
of the Company's portfolio of non-agency MBS bonds currently
averages approximately 39% of the portfolio's par value. The
Code requires that the Company include in its current income
every year a portion (generally referred to as original
issue discount or OID) of the discount (approximately 61%
currently) even though the Company generally is scheduled to
receive only minimal repayments of principal on its non-
agency MBS bonds until the home mortgage loans, which are
the collateral for the non-agency MBS bonds, are repaid.
Assume in 1995 the Company generates $8.0 million of current
income which includes $3.5 million of non-cash current
income from the amortization of a portion of the aggregate
amount of OID on the Company's non-agency MBS bonds. Also
assume that the Company wants to make a distribution to
shareowners of only the $4.5 million (approximately $.19 per
share) of the Company's current income that it received in
cash. Our NOL could be used to reduce to $4.5 million ($3.5
million of NOL used to reduce current income from $8.0
million to $4.5 million) the amount of distributions the
Company is required to make under the Code to maintain its
REIT status. Because the $4.5 million distribution is made
by the Company from its current income (which totaled $8.0
million in this example), the $4.5 million distribution
would be treated under the Code as a dividend, taxable to
shareowners as ordinary income. Our NOL generally would be
reduced by $3.5 million.
The REIT tax rules are extremely complicated because of,
among other things, the combined impact of highly technical
rules which apply specifically to REITs and the complex
rules of the Code that apply generally to corporations and
the taxation of distributions to their shareowners. The
volatility of our remaining portfolio of CMO ownership
interests to changes in interest rates makes the projection
of our results uncertain. As a result, the Company is unable
to predict, among other
things: (1) the amount, if any, of the Company's
distributions to shareowners in 1995 and future years that
will be dividends, taxable to shareowners as ordinary
income, nontaxable returns of capital or capital gains; or
(2) the amount of the Company's NOL that may be used prior
to the time the unused portion of the NOL expires.
We suggest that you consult your tax advisor if you have
questions about the taxation of the distributions you
receive from Asset Investors Corporation. The amounts in
the examples above are hypothetical and not a prediction of
actual results.
Thank you for your continued support and encouragement.
Very truly yours,
ASSET INVESTORS CORPORATION
/s/Spencer I. Browne
Spencer I. Browne
President and
Chief Executive Officer
