Item 1. Business.
Introduction
General
TIS Mortgage Investment Company, a Maryland corporation (the "Company" or the "Registrant" which, unless otherwise indicated refers to the Company and its subsidiary, TIS Mortgage Acceptance Corporation, a Delaware corporation ("TISMAC")), was incorporated on May 11, 1988. The Company seeks to generate income for distribution to its stockholders primarily through acquisition of Structured Securities (as hereinafter defined) and direct fee ownership of real estate. The Company may also acquire Mortgage Loans (as hereinafter defined). "Structured Securities" include (i) residual interests ("Residual Interests"), principal only bonds ("PO Bonds") and interest only bonds ("IO Bonds") in collateralized mortgage obligations ("CMOs"), which entitle the Company to certain cash flows from collateral pledged to secure such securities; (ii) "Mortgage Certificates," which include securities collateralized by or representing equity interests in mortgage loans secured by first liens on single family residences, multiple family residences or commercial real estate ("Mortgage Loans"): (iii) CMOs; and (iv) "Commercial Securitizations," which include debt obligations which are issued in multiple classes and are funded as to the payment of interest and principal by a specific group of Mortgage Loans on multiple family or commercial real estate, accounts and other collateral. As used herein, the term "Mortgage Assets" includes Structured Securities and Mortgage Loans, and the term "Mortgage Instruments" includes Mortgage Certificates and Mortgage Loans.
The Company may experience losses on Residual Interests during periods of high prepayment rates on mortgages, which occurred in 1992 and 1993. Although Commercial Securitizations reduce the Company's exposure to risk of loss from high prepayment rates on Residual Interests, they are susceptible to the risk of loss on foreclosures. Monthly cash flows on the Company's assets are comprised of both interest income and a partial return of principal.
The Company's investment policy is controlled by its Board of Directors (the "Board of Directors"). The By-Laws of the Company require that a majority of the members of the Board of Directors must be persons who (i) are not "Affiliates" of TIS Financial Services, Inc., a Delaware corporation, (the "Manager"), as that term is defined in the By-Laws, or Affiliates of persons who are Affiliates of the Manager and (ii) are not employed by, or receiving any compensation (except for serving as a director) from, the Company ("Unaffiliated Directors").
The Company has entered into an agreement (the "Management Agreement") with the Manager to manage the Company's day-to-day operations, subject to the supervision of the Board of Directors. The Manager will continue to attempt to obtain for the Company mortgage loans and other real estate- related investments meeting the investment criteria and policies set by the Board of Directors, advise the Company with respect to various aspects of its business and administer the Company's day-to-day operations, including cash flow management. For additional information concerning the management of the Company, see "Management of Operations - The Management Agreement" below.
The Company intends, for all taxable years since inception, to qualify for the tax treatment accorded to real estate investment trusts ("REITs") under the Internal Revenue Code of 1986, as amended, (the "Code") and to make quarterly distributions to its stockholders which, in the aggregate, annually will equal at least 95% of its real estate investment trust taxable income (as defined in Section 857(b)(2) of the Code) (hereafter "REIT Taxable Income"). As a result, the Company expects that, with limited exceptions, its REIT Taxable Income distributed to its stockholders will not be subject to Federal income tax at the corporate level. See "Federal Income Tax Considerations" below.
See Item 7 below, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on the general development of the Company's business. See "Risk Factors" below for a discussion of certain risks to which holders of the Company's Common Stock may be subject.
The Company normally borrows funds to purchase and carry assets expecting that the cost of such borrowings will be less than the net cash flow on the assets purchased with such funds.
The Company, on the one hand, and the Manager and its affiliates, on the other hand, may enter into a number of relationships other than those governed by the Management Agreement, some of which may give rise to conflicts of interest between the Manager and its affiliates and the Company.
Because taxable income may exceed cash flow from certain mortgage- related assets in the early years after such an asset is created, the Company may realize taxable income in excess of its net cash flow in a taxable year. Since the Company must distribute substantially all of its net taxable income annually in order to maintain its status as a REIT, the Company might, in such circumstances, have to borrow funds to enable it to make such distributions. In evaluating Mortgage Assets for purchase, the Company considers the effect of any excess of taxable income over projected cash receipts of net cash flows. For the fiscal year ended December 31, 1994, the Company's taxable income did not exceed the cash flows from Mortgage Assets.
Primary Business Activity
The Company has, in prior years, primarily invested in the Residual Interests of single-family CMOs, which are a series of fixed rate or variable rate bonds with a wide range of maturities. CMOs are typically issued in series, which generally consist of serially maturing classes ratably secured by a single pool of Mortgage Instruments. Generally, principal payments received on the Mortgage Instruments securing a series of CMOs, including prepayments on such Mortgage Instruments, are applied to principal payments on one or more classes of the CMOs of such series on each principal payment date for such CMOs. Scheduled payments of principal and interest on the Mortgage Instruments and other collateral securing a series of CMOs are intended to be sufficient to make timely payments of interest on such CMOs and to retire each class of such CMO by its stated maturity. The Company may also purchase Residual Interests in real estate mortgage investment conduits ("REMICs").
The Company has determined to make a substantial portion of its future investments in multifamily residential properties. On December 29, 1994 the Company entered into a definitive agreement to acquire four multifamily housing properties in California's Central Valley. These properties consist of 539 units together with 9.75 acres of unimproved land slated for development of an additional 126 units. The properties will be purchased in a series of closings occurring between mid-January and mid-September 1995. The aggregate purchase price for the properties will be $29,275,000, including existing debt to be assumed by the Company.
The Company has also determined that certain future investments would also be made in Commercial Securitizations. Commercial Securitizations are multi-class issuances of debt securities which are funded as to the payment of interest and principal by a specific group of mortgage loans on multifamily residences or other commercial property. Generally, a Commercial Securitization will consist of some senior debt securities rated investment grade, "AAA", "AA" and "A" and other lower-rated "BBB" and "BB" bonds, and unrated bonds. Generally the credit quality of any bond relates to the subordination level of the bond or its priority to receive principal and interest from the mortgage collateral. A First Loss security is the most subordinated class of a multi-class issuance of debt securities and is the first to bear the risk of default on the underlying collateral. To the extent that the Commercial Securitization is a REMIC, there will be a residual interest investment involved. Since many of the Commercial Securitizations are backed by mortgage loans which have prepayment penalty or lock-out provisions, the risk of loss from prepayments may be significantly less than securitizations backed by single-family loans. On the other hand, since there are generally fewer loans involved in the securitization and since the loans usually do not have any guarantee of payment of principal, the risk of loss on foreclosure is much greater. Therefore, the credit quality of the underlying loans is a primary consideration in the risk and reward evaluation of the asset.
The Company also invests in PO Bonds and some of the IO Bonds of single-family CMOs. Single-family CMOs are collateralized by residential mortgages, most often in the form of mortgage-backed securities or certificates, and the bond interest and principal payments, as well as administrative costs, are covered by the interest and principal payments of the underlying mortgages. The mortgage collateral underlying the single- family CMOs in the Company's portfolio of Residual Interests, PO Bonds and some of the IO Bonds are mortgage-backed certificates issued by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Some of the IO Bonds are backed by single-family loans which are not included in mortgage-backed certificates issued by these agencies.
In most CMOs, there are excess cash flows after bond payments and administrative expenses. The excess cash flows, called residuals, arise primarily from the difference between the interest received from the mortgage obligations and the interest paid on the bonds. These CMO residuals have been the primary focus of the Company. However, beginning in the last quarter of 1991, the Company began to invest in other parts of the CMO such as PO Bonds, IO Bonds and inverse IO Bonds.
Monthly cash flows on the Company's Mortgage Assets have two components: income from the investment and a partial return of investment principal. The investment income forms the basis for payment of expenses and dividends paid to shareholders, and the return of principal portion is reinvested in other mortgage-related assets. In most cases cash flows and income tend to be higher in early periods of ownership and lower in the later periods. It will be necessary for the Company to utilize the principal which is repaid to reduce debt or to acquire new assets. The rate of return on such new assets may be lower than the rate of return on the repaid assets.
Residual Interests. Because of almost infinite differences in composition and structure, each individual CMO, and thus Residual Interest, is unique. Nonetheless, there are generally two very broad categories of CMO residuals. "Bullish" residuals are associated with CMOs partially composed of variable rate bonds. The yields on bullish residuals tend to increase when short-term interest rates decline, and decrease when short- term rates rise. Although the mortgage collateral on bullish residuals provides a fixed interest rate, the interest payable on the variable bonds declines as short-term rates decline, thus increasing the amount of cash flow to the residual. Correspondingly, higher short-term interest rates will make variable rate bonds more expensive and thus the spread will narrow.
Residual Interests with only fixed rate CMO bonds, on the other hand, fall into a category called "Bearish" residuals. The yields on bearish residuals tend to increase when long-term interest rates rise, and decrease when long-term rates decline. The interest spread on bearish residuals is not impacted by changes in interest rates. However, in an environment of rising interest rates, the pace of mortgage prepayments slows and the positive spread remains in effect for a longer period of time. Falling interest rates provide consumers with incentives to refinance, prepaying the original mortgage and, overall, this tends to reduce the amount of time the positive spread is outstanding.
CMO cash flows, and therefore residual income and value, are significantly affected by changes in short-term interest rates and mortgage prepayment rates. The Company diversifies its portfolio by investing in both Residual Interests of CMOs having fixed rate and variable rate bond classes. This balance helps to provide total portfolio yield protection whether interest rates rise or fall. The Company has selected bullish residuals which use indices with different sensitivities to interest rate changes.
PO Bonds. A PO Bond is a bond which passes through only the principal portion of a mortgage-backed security. All such bonds are created by stripping the coupon interest from the underlying mortgages to create the PO Bond and an associated IO Bond. PO Bonds can represent the principal from an entire pool of mortgages, or they can be tranches within a CMO. PO Bonds are sold at a deep discount to face value. They pay no periodic coupon interest. Principal is returned in the form of scheduled amortization and prepayments. Ultimately, the entire face amount of a PO Bond is repaid to the investor.
Because there is no coupon, the financial performance of a PO Bond is extremely sensitive to mortgage prepayment rates. Higher prepayments lead to a more rapid return of principal and a higher yield. Because faster prepayments are usually associated with lower market interest rates, the price of a PO Bond is further enhanced by the lower discount rate. Conversely, lower prepayments lead to a slower return of principal and a lower yield. However, since PO Bonds are sold at a discount to their face value, and the total face value is ultimately received, the total yield on a PO Bond cannot drop below zero if it is held to maturity.
IO Bonds. IO Bonds pass through a specified interest portion of a mortgage-backed security. The interest due on an IO Bond is calculated by multiplying this interest rate times the outstanding balance of the underlying mortgage pools. As the balances of the underlying mortgages decline to zero, payments on the IO Bond also decline to zero. Usually the interest rate applied to the underlying mortgages is fixed. If the interest rate is variable, it is called a Floating Rate IO Bond. If the variable rate of interest is inversely related to an index, it is called an Inverse IO Bond. A regular IO Bond is similar to a Bearish Residual Interest, in general its yield will increase as interest rates increase and decrease an interest rates decline. An Inverse IO Bond is similar to a Bullish Residual Interest. In general, its yield will decrease as interest rates increase and increase as interest rates decline. If prepayments increase significantly over the level at which the IO Bond was purchased, it is possible to receive less cash flow over the life of the asset than was initially invested.
Risk Factors
Ownership of the Company's Common Stock is subject to certain risks. The Company's earnings from its acquisitions of multifamily residential properties will depend upon maintaining rental income that exceeds the Company's interest and other costs. Rental income, in turn, will depend upon the rental market, rates of occupancy and defaults by tenants. Long- term profits will depend upon an appreciation in the value of the properties. Profits from Commercial Securitizations will depend upon proven credit evaluation of underlying loans as well as factors which affect real estate in general including, but not limited to, interest rates at the time the underlying properties are refinanced. The ability of the Company to generate income from the cash flows relating to Structured Securities, or to minimize losses, will depend, in large part, upon the ability of the Company to acquire suitable Structured Securities, respond to fluctuations in market interest rates, and utilize appropriate strategies.
The amount of income that may be generated from Structured Securities is dependent upon the rate of principal prepayments on the underlying mortgages. Lower rates of prepayments means a longer life for Residual Interests and IO Bonds and thus higher income. Similarly, faster rates of prepayments mean a shorter life and lower income. The rate of prepayments on mortgages is influenced by a variety of economic, geographic, social and other factors, but probably the most important factor is the level of prevailing mortgage rates. In general, prepayments of mortgage loans are faster during periods of substantially declining interest rates and slower during periods of substantially increasing interest rates.
The income from Residual Interests in CMOs which include one or more bond classes which bear interest based on specified margins in relation to either the London Interbank Offered Rate for Eurodollars on U.S. dollar deposits ("LIBOR") or on the Eleventh District Cost of Funds Index ("COFI"), and income on Inverse IO Bonds which bear an interest rate which is inversely related to LIBOR, may fluctuate widely depending upon changes in the LIBOR or COFI rates, which affect the amount of interest payable on such LIBOR or COFI bonds and on Inverse IO Bonds. In general, income on these Residual Interests and Inverse IO Bonds will decrease when LIBOR or COFI rates increase, and will increase when LIBOR or COFI rates decrease. Income on these Residual Interests and Inverse IO Bonds will also be affected by the relationship between changes in these rates and prepayments on mortgages. Under certain extended high interest rate periods or in the event of extremely high prepayment rates on mortgages, the return on a Residual Interest, on an IO Bond or on an Inverse IO Bond could be zero or negative and may require the Company to effect significant reductions in the carrying value of these assets. Such reductions are recorded as operating losses in the year in which the reduction is taken.
The Company only purchases Residual Interests, IO Bonds and PO Bonds of CMOs if the Structured Securities relating to such CMOs are rated in one of the two highest categories by a nationally recognized rating agency. Certain Residual Interests, IO and PO Bonds themselves are rated. The risks of ownership of such assets, however, will be substantially the same as those associated with ownership of unrated Residual Interests, IO and PO Bonds because the rating would not address the possibility that the Company might have a lower than anticipated yield or, in the case of Residual Interests and IO Bonds, fail to recover its initial investment.
A substantial portion of the Company's assets directly or indirectly consists of Mortgage Instruments pledged to secure debt securities and, accordingly, would not be available to stockholders in the event of liquidation of the Company. In purchasing Mortgage Assets and in issuing debt securities, the Company competes with investment banking firms, savings and loan associations, banks, mortgage bankers, insurance companies, federal agencies and other entities, many of which have greater financial resources than the Company.
To the extent the Company acquires Commercial Securitizations or other interests in real estate, the Company will be subject to varying degrees of risk incident to the ownership of real estate. There are many factors which can impact upon the performance of real estate including economic events or governmental regulations which are out of the control of the Company, all of which can impact upon real estate assets whose values are supporting the Mortgage Loans.
The Company may acquire non-rated investments in Commercial Securitizations, including first loss positions and other subordinated positions, which are entitled to receive repayment of principal only after all required principal payments have been made to more senior instruments in the Securitization. A first loss security is the most subordinated class of a multi-class issuance of debt securities and is the first to bear the risk of default on the underlying collateral. These investments are generally less marketable than other classes and are illiquid assets.
The Company is subject to potential conflicts of interest arising from its relationship with its Manager. Transactions which present potential conflicts of interest will be approved by the Board of Directors, including a majority of the Unaffiliated Directors, or will be carried out in accordance with guidelines which the Board has adopted. In the latter case, the specific transactions generally will not be subject to the approval of the Board of Directors.
In order to maintain its status as a REIT, the Company is required to comply with certain restrictions imposed by the Code with respect to the nature of its assets and income, which could prevent it from making investments or from making dispositions of investments otherwise considered desirable. The REIT provisions of the Code require the Company to distribute substantially all of its net taxable income on an annual basis. If the Company should not qualify as a REIT in any tax year, it would be taxed as a regular domestic corporation, and distributions to the Company's stockholders would not be deductible by the Company in computing its taxable income. Any resulting tax liability could be substantial and would reduce the amount of cash available for distributions to stockholders. Further, the failure of the Company to be treated as a REIT for any one year would disqualify the Company from being treated as a REIT for four subsequent years.
Because of these and other factors, future distributions to stockholders cannot be predicted. The Company has the right, but not the obligation, to refrain from making distributions to stockholders until the tax loss carryforward is fully utilized. It is likely that the market price of the shares of the Company's Common Stock would be affected by any decline in the spread between the Company's net yield on its assets and prevailing interest rates.
Acquisition and Disposition of Mortgage Assets
The Company purchases Mortgage Assets from investment banking firms and other mortgage suppliers, some of which may be affiliates of the Manager. The Company does not intend to purchase assets that would disqualify it as a REIT or subject it to regulation as an investment company under the Investment Company Act of 1940.
The Company is not in the business of trading its Mortgage Assets. However, from time to time the Company may sell an asset as part of the Company's ongoing effort to adjust its portfolio composition to reflect changes in economic conditions. In the fourth quarter of 1989, the Company sold a Residual Interest it had acquired in 1988. In 1992, the Company sold for a total of $6,008,000 both of the PO Bonds it had acquired in 1991. There have been no other dispositions of Mortgage Assets since the Company's inception. See Item 7 below, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 below, "Financial Statements and Supplementary Data" for further details.
During 1992 the Company reinvested approximately $30,760,000. Of this amount, $22,557,000 was invested in IO Bonds and the remaining $8,203,000 was invested in an Inverse IO Bond. In 1993 the Company reinvested $4,069,000 in inverse IO bonds and $340,000 in equity residuals. In 1994 the Company purchased two Commercial Securitizations for $1,232,000. See Item 7 below, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 below, "Financial Statements and Supplementary Data" for details on assets acquired. The funds for reinvestment came from cash balances, borrowings, proceeds from the sale of PO Bonds and principal returned to the Company from its investments.
Based on current projections of return of investment from its portfolio, the Company expects to generate cash flows of $450,000 to $700,000 after expenses in each month of 1995. These cash flows will be used to acquire assets or reduce borrowings. Although the Company continually reviews Mortgage Assets available for purchase, the Company will acquire additional Mortgage Assets only when they are believed to complement the current portfolio.
On May 31, 1990, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus for a uniform method of accounting for Residual Interests in CMOs (Issue 89-4). The consensus, among other things, required Residual Interests to be classified either as "equity" (and be accounted for under the Equity Method) or as "nonequity" (and be accounted for under a level yield method referred to as the Prospective Method). The methods described in Issue 89-4 are essentially the same as those used by the Company until December 31, 1993. As of December 31, 1993 the Company adopted the accounting method for impairment of mortgage-backed derivative investments prescribed by FASB Statement No. 115 and presented its 1993 and 1994 financial statements in accordance therewith. See Item 7 below, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 below, "Financial Statements and Supplementary Data" for information as to the effect of adoption of this change in accounting method. Fair Value of Residual Interests and IO Bonds
In General - Substantially all income to the Company is currently derived from the cash flows on the Company's Residual Interests, IO Bonds and PO Bonds. The fair value of these assets is the net present value of the projected future cash flows. The amount of cash flows that may be generated from these assets is uncertain and may be subject to wide variations depending primarily upon the rate and timing of prepayments on the underlying mortgage collateral and, for Residual Interests with variable rate Bond Classes and IO Bonds with variable interest rates, changes in LIBOR and COFI. The following information sets forth assumptions used to calculate the projected cash flows on the Company's Nonequity Residual Interests and IO Bonds, and the resulting net present value of these assets, at December 31, 1994 based on various assumptions and discount factors.
Assumptions - For purposes of the presentations on the following tables, the Nonequity Residual Interests have been separated into two groups: Residual Interests in CMOs with fixed rate Bond Classes and Residual Interests in CMOs with one or more COFI Bond Classes. The IO Bonds have been separated into two groups: IO Bonds with a fixed interest rate and Inverse IO Bonds. For purposes of projecting future cash flows, the Company has used the following one-month LIBOR and 11th District COFI rates:
Principal payments on mortgage loans may be in the form of scheduled amortization or prepayments (for this purpose, "prepayments" include principal prepayments and liquidations due to default or other dispositions). The prepayment assumptions used herein are based on an assumed rate of prepayment each month of the unpaid principal balance on a pool of mortgage loans. A 100% prepayment assumption assumes prepayment rates of 0.2% per annum of the then outstanding principal balance of such mortgage loans in the first month of the life of such mortgage and an additional 0.2% per annum in each month thereafter (for example, 0.4% per annum in the second month) until the 30th month. Beginning with the 30th month and in each month thereafter during the life of such mortgage loans, 100% prepayment assumption assumes a constant prepayment rate of 6% per annum.
The prepayment assumptions used in Case III to estimate the fair value of the Company's Nonequity Residual Interests and IO Bonds are the Bloomberg Financial Markets ("Bloomberg") Dealer Prepayment Estimates Average as estimated by several dealers in mortgage-related assets and compiled by Bloomberg as of January 3, 1995. Bloomberg has obtained this information from sources it believes to be reliable but has not verified such information and assumes no responsibility for the accuracy of such information. The prepayment assumptions used in Case I reflect a decline in short-term interest rates accompanied by a decline in mortgage loan interest rates. The prepayment assumptions used in Case II (which also are used in Case III) reflect a decline in short-term rates not accompanied by a decline in mortgage loan interest rates. The prepayment assumptions used in Case IV (which also are used in Case V) reflect an increase in mortgage loan interest rates not accompanied by an increase in short-term interest rates. The prepayment assumptions used in Case V reflect an increase in short-term interest rates accompanied by an increase in mortgage loan interest rates. The table below shows the prepayment assumptions used to project cash flows in order to calculate the present value of the Company's Nonequity Residual Interests and IO Bonds:
Present Value of Projected Cash Flows - The tables which follow set forth the present value at December 31, 1994 of the projected cash flows discounted at the indicated discounted rates subject to the assumptions described above. For example, if cash flows are projected using the assumptions in Case III and Nonequity Residuals Interests in CMOs with fixed rate Bond Classes are discounted at 14% and the Nonequity Residual Interests in CMOs with variable rate Bond Classes are discounted at 18%, the present value of the projected cash flows of the Company's Nonequity Residual Interests would equal approximately $8,675,000. This is the Company's estimate of the fair value of these assets. In addition, if cash flows on the Company's regular IO Bonds are discounted at 14% and the cash flows on its Inverse IO Bonds are discounted at 30%, the present value of the projected cash flows on the IO Bonds would equal $9,558,000. This represents a decrease of $236,000 from the $9,794,000 book value of these assets. The difference of $236,000 is the difference between the present value of cash flows and the actual market values as of December 31, 1994 of FNMA SMBS Trust 7 Class 2 IO and FNMA SMBS Trust 4 Class 2 IO. The book value is the Company's estimate of the fair value of these IO Bonds. There will be differences between the projected cash flows used to calculate the present value of these assets and the actual cash flows received by the Company, and such differences may be material.
Acquisition of Mortgage Instruments
The Company has the power to purchase Mortgage Instruments from mortgage suppliers. Mortgage Instruments may be acquired subject to the liability represented by Structured Securities. In addition, Mortgage Instruments may be acquired with the intention of arranging for the subsequent issuance of Structured Securities secured thereby. Through December 31, 1994, the Company had not purchased Mortgage Instruments.
Mortgage Certificates may consist of GNMA Certificates, FHLMC Certificates, FNMA Certificates and other Mortgage Certificates. Mortgage Loans may be originated by various lenders throughout the United States. Originators may include savings and loan associations, banks, mortgage bankers and other mortgage lenders. There are no limits upon the geographic concentration of Mortgage Loans which the Company can acquire.
The Company has the power to enter into commitments to purchase Mortgage Loans but has not done so. Such commitments would obligate the Company to purchase Mortgage Loans and the holder to sell such Mortgage Loans at a future date for a specific period of time at an established price, in a specific aggregate principal amount and bearing a specified interest rate. However, all loans would be fully funded prior to their acquisition by the Company. Following the issuance of commitments, the Company would be exposed to risks of interest rate fluctuations.
Issuance of Structured Securities
In June of 1989, the wholly-owned subsidiary of the Company issued a series of CMOs. See "Formation of Subsidiary" below. The Company has not issued, and it has no present plans to issue, any other Structured Securities. The following paragraphs describe certain types of Structured Securities that the Company might issue if permitted and warranted by future circumstances.
CMOs. To the extent consistent with its objective of generating income from the net cash flows on its Mortgage Assets, the Company may issue, itself or through one or more Affiliated Issuers, various series of CMOs secured by collateral which may include Mortgage Instruments, debt service funds and reserve funds, insurance policies, servicing agreements and a master servicing agreement
Other Mortgage-Backed Securities. Mortgage pass-through certificates representing undivided interests in pools of Mortgage Loans formed by the Company could be utilized as a vehicle for raising funds. The issuance of mortgage pass-through certificates would be undertaken, however, only if the Board of Directors received an opinion of counsel or other satisfactory evidence that the issuance and sale of such securities would not cause the Company to fail to qualify for treatment as a REIT under the Code and that the income, if any, realized by the Company in connection with the issuance, sale, and holding of such securities would not constitute income from a prohibited transaction under the Code.
Commercial Securitizations. The general structure of these securities would be in what is normally called a senior/subordinated structure consisting of some senior debt securities rated investment grade, "AAA," "AA" and "A" and other lower-rated "BBB" and "BB" bonds, and unrated bonds. Generally the credit quality of any of these bonds relates to the subordination level of the bond or its priority to receive principal and interest from the mortgage collateral. Any such securitizations would be issued as REMIC Securities which would also involve a Residual Interest. The Company might or might not retain an investment in any of the bonds or the Residual Interest, however the Company would likely retain a first loss security from the issuance. The first loss bond is the most subordinated class of the multi-class issuance and is the first to bear the risk of default on the underlying collateral. Since there are generally fewer loans involved in the securitization and since the loans usually do not have any guarantee of payment of principal, the risk of loss on foreclosure is much greater. The Company believes that careful credit underwriting would help manage credit risk, although there can be no assurances in this regard.
The Company may also acquire fee interest in or acquire or originate Mortgage Loans on commercial real estate which, among other things, may be used as collateral for future securitizations.
Master Servicing. In the event that an affiliated issuer issued a series of Structured Securities secured by Mortgage Instruments owned or financed by the Company (other than Mortgage Certificates issued or guaranteed by a governmental entity), the Company or such Affiliated Issuer generally would be required to enter into a master servicing agreement (the "Master Servicing Agreement") with respect to such series of Structured Securities with an entity acceptable to the rating agency that is rating such series of Structured Securities (the "Master Servicer"). The Master Servicer would receive for a series of Structured Securities a monthly administrative services fee which would be in an amount negotiated between the Company and the Master Servicer.
Costs. Various expenses would be incurred in connection with issuances of Structured Securities, including legal and accounting fees, printing expenses, underwriters' compensation or other sales commissions, and expenses of registration or qualification under state and federal securities laws. If the Company did not issue the Structured Securities through a subsidiary or trust established by it, it is anticipated that the Company would not pay such costs directly, but would pay to the Affiliated Issuer an amount which would include such costs as well as any applicable fees.
The possible strategy described above of issuing Structured Securities would be based upon the Company's current assessment of the demand for these securities, the cost of issuing the securities, the relative strength of issuers and other market participants active in such securities, rating agency requirements and other factors affecting the structure, cost, rating and benefits of such securities relative to each other and to other investment alternatives. The market for Structured Securities, and CMOs in particular, has developed rapidly within the past few years and continues to generate new structures, issuers, buyers and products. Developments in the market that affect the factors mentioned or that change the Company's assessment of the market for such securities may cause the Company to revise the financing strategy described herein. Any such revision in strategy would require the approval of the Board of Directors of the Company, including a majority of the Unaffiliated Directors.
Capital Resources
When feasible the Company may seek to increase the amount of funds available for its activities through various types of debt financing. The Company would seek to obtain lines of credit from independent financial institutions. The Company would also seek to raise funds through agreements pursuant to which the Company would sell Mortgage Assets for cash and simultaneously agree to repurchase them at a specified date for the same amount of cash plus an interest component ("Reverse Repurchase Agreements"), and through the issuance of commercial paper and other debt securities, other forms of borrowings and the issuance of additional equity securities. Short-term indebtedness would be expected to bear interest at variable rates.
As of December 31, 1993 the Company had total borrowings of $11,745,000. Of this amount, $696,000 was under a repurchase agreement with Kidder, Peabody & Co. and $11,049,000 under a repurchase agreement with Bear, Stearns & Co., Inc. As of December 31, 1994 the Company's borrowings were solely under a repurchase agreement with Bear, Stearns & Co. and were reduced to $8,325,000. The debt is collateralized by some of the Company's Residual Interests and IO Bonds. The weighted average interest rate on such borrowings at December 31, 1994 was 6.9776%.
In connection with the agreement to acquire four multifamily housing projects in California's Central Valley, the Company intends to incur mortgage obligations secured by such properties. Any other indebtedness incurred by the Company may be secured by the assets of the Company, including its Mortgage Assets.
The Company's By-Laws provide that it may not incur indebtedness if, after giving effect to the incurrence thereof, the Company's aggregate indebtedness (other than liability represented by Structured Securities and any loans between the Company and its trusts or corporate subsidiaries), secured and unsecured, would exceed 100% of the Company's average invested assets in the preceding calendar quarter, as calculated in accordance with generally accepted accounting principles, unless approved by a majority of the Unaffiliated Directors.
The Company has 100,000,000 authorized shares of Common Stock. The Company may increase its capital resources by making additional offerings of Common Stock. Such offerings may result in a reduction of the net tangible book value per outstanding share and a reduction in the market price of the Company's Common Stock. The Company is unable to estimate the amount, timing or nature of such future sales of its Common Stock as such sales will depend on general market conditions and other factors.
On December 5, 1991 the Board of Directors approved a Dividend Reinvestment and Share Purchase Plan which became effective on January 2, 1992. The Plan provides, at the Company's option, for shares purchased under the Plan to either be issued by the Company, or be purchased on the open market. The Plan prospectus provides for up to 1,000,000 new shares to be issued. To the extent new shares are issued, the Company's capital would be increased. During 1992, 5,780 shares were issued under the Plan resulting in an increase to capital of $39,000. No new shares were issued under the Plan in 1993 or 1994 as all required shares were purchased in the open market.
Operating Restrictions
The Company intends to conduct its business so as not to become regulated as an investment company under the Investment Company Act of 1940 (the "1940 Act"). Accordingly, the Company does not expect to be subject to the provisions of the 1940 Act, including those that prohibit certain transactions among affiliated parties. The 1940 Act exempts entities that are primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. Under current interpretations of the staff of the Securities and Exchange Commission, in order to qualify for this exemption, the Company must maintain at least 55% of its assets directly in Mortgage Loans, certain Mortgage Certificates and certain other qualifying interests in real estate. The Company's ownership of Residual Interests may therefore be limited by the 1940 Act. In addition, certain Mortgage Certificates may be treated as securities separate from the underlying Mortgage Loans and, thus, may not qualify as "mortgages and other liens on and interests in real estate" for purposes of the 55% requirement, unless such Mortgage Certificates represent all the certificates issued with respect to an underlying pool of mortgages. The Company's investment policies prohibit it from making any investments that would cause the Company to be an investment company within the meaning of the 1940 Act.
Although the Company has no present intention to seek modification of its operating policies described herein, a majority of the Unaffiliated Directors may in the future conclude that it would be advantageous for the Company to do so and may modify such operating policies accordingly, without the consent of the stockholders.
Other Operating Strategies
The Company has the power to originate Mortgage Loans, retain or purchase servicing or excess servicing rights or engage in other similar activities, but only to the extent consistent with its qualification as a REIT. The Company does not currently engage, nor does it expect to engage, in any such activities.
The Company also has the power to acquire equity interests in improved real property. At December 31, 1994, the Company did not own real property; however, it has acquired in 1995 and intends to acquire additional multifamily properties in the Western states with the approval of a majority of the Unaffiliated Directors. Acquisition of real property will be incremental to the ownership of mortgage securities. Real property acquisitions will be opportunistic and will occur from time to time only when the potential for appreciation in value together with current cash flow yield provides a total return equal to the Company's investment in mortgage securities.
To the extent consistent with the Company's qualification as a REIT, the Company has the power to hedge Mortgage Assets it might hold to seek to protect the value of such assets from interest rate fluctuations. Generally, hedging is a technique used either to increase the liquidity or decrease the risk of an asset by guaranteeing, wholly or partially, the price at which the asset may be disposed of prior to its maturity. Certain of the tests that the Company must satisfy to qualify as a REIT, however, may significantly limit the Company's ability to hedge. See "Federal Income Tax Considerations" below. In times of volatile interest rates, the Company may be prevented from hedging its Mortgage Assets. The Company currently has no hedging agreements in place or plans to hedge.
Formation of Subsidiary
On October 21, 1988 TISMAC was incorporated for the purpose of issuing CMOs directly. TISMAC is a wholly-owned subsidiary of the Company. On June 29, 1989, TISMAC issued $199,400,000 original aggregate principal amount of its Collateralized Mortgage Obligations, Series 1989-1, Classes A- F. All of the Bond Classes in the CMO have 10% bond coupons and mature serially from March 2016 through July 1, 2019. The bonds are secured by $200,000,000 of GNMA I collateral with a stated pass through rate of 10%. The assets of TISMAC are not available to pay creditors of the Company. The Company has undertaken to indemnify certain parties who have contracted with TISMAC against certain losses which they might sustain in carrying out their obligations.
Competition
In purchasing Mortgage Assets and in issuing Structured Securities, the Company competes with investment banking firms, savings and loan associations, banks, mortgage bankers, insurance companies, other lenders, GNMA, FHLMC and FNMA and other entities purchasing Residual Interests, Mortgage Instruments and issuing Structured Securities, virtually all of which have significantly greater financial resources than the Company. Additionally, Structured Securities which the Company might seek to issue face competition from other investment opportunities available to prospective purchasers.
Employees
The Company currently has no full time salaried employees who are employed directly by the Company. However, the Company reimburses the Manager for employment expenses of personnel performing certain functions as specified in the Management Agreement. The Manager currently employs seven employees who perform these specified functions on behalf of the Company. See "Management of Operations - Expenses".
Management of Operations
The Management Agreement
The Company has entered into a Management Agreement with the Manager which is renewable annually. In June 1994 the Board of Directors renewed the Management Agreement through June 30, 1995. In March 1995 the Board of Directors authorized a committee composed of four Unaffiliated Directors to consider proposed revisions to the Management Agreement in light of the Company's acquisition of multifamily residential properties and recent waivers by the Unaffiliated Directors of the requirement in the Management Agreement that the Manager reimburse the Company for Excess Expenses (as defined below; see "Expenses"). The Management Agreement may be terminated by the Company without cause at any time upon 60 days written notice by a majority vote of its Unaffiliated Directors or by a vote of the holders of a majority of the outstanding shares of Common Stock and by the Manager upon 60 days written notice.
Under the Management Agreement the Manager, in accordance with criteria established by the Company's Board of Directors, including a majority of the Unaffiliated Directors, arranges for the acquisition of mortgage-related assets for the Company, arranges for the acquisition, management and financing of real estate, arranges for the issuance and administration of Structured Securities, monitors the performance of the foregoing and provides certain administrative and overall managerial services necessary for the operation of the Company. For performing these services, the Manager receives (i) a base management fee, payable quarterly, in an amount equal to 3/8 of 1% per annum of the Company's Average Invested Assets and (ii) incentive compensation, payable quarterly, in an amount equal to 25% of the amount by which the Company's annualized Return on Equity for the quarter exceeds the Ten Year U.S. Treasury Rate for the quarter plus one percentage point.
In order to compensate the Manager for certain administrative functions that the Manager performs with respect to each Residual Interest which is projected to have cash flows in excess of $40,000 in the following year purchased by the Company for which neither the Manager nor an Affiliate acts as bond administrator, the Company pays the Manager a fee equal to $10,000 for each year or fraction thereof that the Company holds such Residual Interest. The Company also pays the Manager certain bond issuance and administration fees when it acts in the capacity of bond administrator in connection with the issuance and administration of Structured Securities issued by or on behalf of the Company. Such fees are comparable to those that the Company would pay unrelated entities.
Expenses
The Company reimburses the Manager for certain expenses incurred by the Manager on the Company's behalf, including rent, telephone, utilities, office furniture, equipment and machinery, computers, and computer services, as well as expenses relating to accounting, bookkeeping and related administrative functions (including the employment expenses of any persons performing these functions), and fees and expenses of agents and employees employed directly by the Company or by the Manager at the Company's expense.
Unless waived by the Unaffiliated Directors, the Management Agreement provides that the Manager shall reimburse the Company, up to the extent of the base management fee, to the extent that certain of such expenses exceed the greater of 2% of the average invested assets of the Company or 25% of the Company's Net Income for the year ("Excess Expenses"). The Company experienced Excess Expenses in 1993 and 1994, and the Unaffiliated Directors waived the reimbursements that would otherwise have been required by the Management Agreement.
Except as set forth above, the Manager is required to pay employment expenses of its personnel, rent, telephone, utilities, other office expenses, certain travel and miscellaneous administrative expenses of the Manager and, if the Manager or an affiliate of the Manager serves as bond administrator for a series of Structured Securities issued by or on behalf of the Company, all expenses incurred by the Manager in performing administrative services in connection with the issuance and administration of such series of Structured Securities.
If the Company participates in programs operated by the Manager for the pricing and acquisition of Mortgage Loans, the Company will pay the Manager a fixed expense allowance in an amount which shall be determined by a majority of the Unaffiliated Directors, and which shall be subject to adjustment every six months upon approval by a majority of such Unaffiliated Directors. The amount of such allowance would not be subject to the expense limitation described above. Federal Income Tax Considerations
General
If the Company satisfies certain tests with respect to the nature of its income, assets, management, share ownership and the amount of its distributions, and elects to be so treated, it will qualify as a real estate investment trust ("REIT") for federal income tax purposes. The Company satisfied such tests and elected to be treated as a REIT on its tax return for the year ended December 31, 1988. The Company has satisfied such tests in all subsequent years and intends to satisfy this test in future years. As a REIT, the Company generally will not be subject to tax at the corporate level on its net income to the extent that it distributes cash in the amount of such net income to its stockholders. See "Taxation of the Company." Generally, those distributions will constitute dividends to the stockholders and will be taxable as ordinary income to the extent of the Company's earnings and profits. It is expected that distributions made by the Company will be made out of earnings and profits.
The failure of the Company to be treated as a REIT for any taxable year would materially and adversely affect the stockholders since the Company would be taxed as a corporation. Accordingly, the taxable income of the Company (computed without any deduction for distributions to stockholders) would be taxed to the Company at corporate rates (currently up to 35%), and the Company would be subject to any applicable minimum tax. Additionally, dividends to the stockholders would be treated as ordinary income to the extent of the Company's earnings and profits. As a result of the "double taxation" (i.e. taxation at the corporate level and subsequently at the stockholder level when earnings are distributed) the dividends to the stockholders would decrease substantially, because a large portion of the cash otherwise available for distribution to stockholders would be used to pay taxes. Further, the failure of the Company to be treated as a REIT for any one year would disqualify the Company from being treated as a REIT for four subsequent years.
Qualification of the Company as a REIT
General
In order to qualify as a REIT for federal income tax purposes, the Company must elect to be so treated and must satisfy certain tests with respect to the sources of its income, the nature and diversification of its assets, the amount of its distributions, and the ownership of the Company. The following is a discussion of those tests.
Sources of Income
The Company must satisfy three separate income tests for each taxable year with respect to which it intends to qualify as a REIT: (i) the 75% income test, (ii) the 95% income test, and (iii) the 30% income test. Under the first test, at least 75% of the Company's gross income for the taxable year must be derived from certain qualifying real estate related sources. Income that qualifies under the 75% test includes (a) interest on obligations secured by mortgages on real property or on interests in real property (including, generally, income from regular and residual interests in REMICs), (b) dividends from other REITs, and (c) gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) that is not "dealer property" (i.e. property that is stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of business), (d) income from the operation, and gain from the sale, of property acquired at or in lieu of a foreclosure of a mortgage ("foreclosure property") , (e) commitment fees related to mortgage loans, and (f) income attributable to the temporary investment of the Company's capital proceeds (excluding amounts received pursuant to a dividend reinvestment program) in stock or debt instruments, if such income is received or accrued during the one-year period beginning on the date of receipt of the capital proceeds ("qualified temporary investment income").
In addition to meeting the 75% income test, at least 95% of the Company's gross income for the taxable year must be derived from items of income that either qualify under the 75% test or are from certain other types of passive investments. This is referred to as the 95% income test. Income that satisfies the 95% income test includes income from dividends, interest and gains from the sale or disposition of stock or other securities, other than stock or other securities that are dealer property.
Finally, the 30% income test requires that the Company derive less than 30% of its gross income for the taxable year from the sale or other disposition of (1) real property, including interests in real property and interests in mortgages on real property, held for less than four years, other than foreclosure property or property involuntarily converted through destruction, condemnation or similar events, (2) stock or securities held for less than one year, and (3) property in "prohibited transactions." A prohibited transaction is a sale or other disposition of property that is stock in trade, inventory, or property held for sale to customers in the ordinary course of business, other than foreclosure property or a real estate asset held for at least four years, if certain other conditions are satisfied.
If the Company inadvertently fails to satisfy either the 75% income test or the 95% income test, or both, and if the Company's failure to satisfy either or both tests is due to reasonable cause and not willful neglect, the Company may avoid loss of REIT status by satisfying certain reporting requirements and paying a tax generally equal to 100% of any excess nonqualifying income. There is no comparable safeguard that could protect against REIT disqualification as result of the Company's failure to satisfy the 30% income test.
The Company anticipates that its gross income will continue to consist principally of interest and gains on Mortgage Assets and income from short- term reinvestments. The composition and sources of the Company's income allowed the Company to satisfy the income tests for all fiscal years through December 31, 1994 and should allow the Company to satisfy the income tests during each year of its existence. If, however, the Company causes issuances of interests in REMICs or issuances of certificates representing certain equity interests in Mortgage Instruments (such as pass- through certificates), the Company could recognize income or gain that, if excessive, could result in the Company's failure to meet the 30% income test or, if from transactions in which the Company is deemed to be a dealer, could be subject to the 100% tax on prohibited transactions. See "Taxation of the Company" below. This effectively limits both the Company's ability to issue REMIC securities directly or through wholly owned subsidiaries and its ability to issue such securities indirectly through issuance of Funding Notes to Affiliated Issuers. See "Issuance of Structured Securities - CMOs." Further, certain short-term reinvestments may generate qualifying income for purposes of the 95% income test but nonqualifying income for purposes of the 75% income test, and certain hedging transactions could give rise to income that, if excessive, could result in the Company's disqualification as a REIT for failing to satisfy the 30% income test. In addition, income from Structured Securities which do not represent equity interests in Mortgage Loans and with respect to which a REMIC election has not been made (e.g. CMOs) may not qualify under the 75% income test. The Company intends to monitor its reinvestments and hedging transactions closely to avoid disqualification as a REIT.
Nature and Diversification of Assets
At the end of each quarter of the Company's taxable year, at least 75% of the value of the Company's assets must be cash and cash items (including receivables), "government securities" and "real estate assets." Real estate assets include real property, Mortgage Loans, Mortgage Certificates, equity interest in other REITs, any stock or debt instrument for so long as the income therefrom is qualified temporary investment income (as described below) and, subject to certain limitations, interests in REMICs. Structured Securities that do not represent equity interests in Mortgage Loans and with respect to which a REMIC election has not been made may not qualify as real estate assets. The balance of the Company's assets may be invested without restriction, except that holdings of the securities of any non-governmental issuer (other than a REIT or qualified REIT subsidiary) may not exceed 5% of the value of the Company's assets or 10% of the outstanding voting securities of that issuer. Securities that are qualifying assets for purposes of the 75% asset test will not be treated as securities for purposes of the 5% and 10% asset tests.
If a REIT receives "new capital," stock or debt instruments purchased with such new capital are treated as real estate assets for purposes of the 75% asset test (described above) during the one-year period beginning on the date the REIT receives such new capital. New capital is defined as any amount received by a REIT in exchange for its stock (other than amounts received pursuant to a dividend reinvestment plan) or received in a public offering of its debt obligations having maturities of at least five years.
The Company anticipates that its assets will continue to consist principally of (i) ownership interests in Mortgage Assets (including undivided ownership interests in Mortgage Instruments), (ii) interests in REMICs, (iii) interests in real estate, (iv) interests in other REITs, (v) stock or debt instruments that generate qualified temporary investment income, (vi) cash and (vii) certain short-term investments and reinvestments. The Company believes that such asset holdings will allow it to satisfy the assets tests necessary to qualify as a REIT, and the Company intends to monitor its activities to attempt to assure satisfaction of such tests.
If the Company fails to satisfy the 75% asset test at the end of any quarter of its taxable year as a result of its acquisition of securities or other property during that quarter, the failure can be cured by a disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. The Company intends to maintain adequate records of the value of its assets and take such action as may be required to cure any failure to satisfy the 75% asset test within 30 days after the close of any quarter. The Company may not be able to cure any failure to satisfy the 75% asset test, however, if assets that the Company believes are qualifying assets for purposes of the 75% asset test are later determined to be nonqualifying assets.
REITs are permitted to hold assets in wholly owned subsidiaries ("Qualified REIT Subsidiaries"). A subsidiary of a REIT is a Qualified REIT Subsidiary if 100% of its stock is owned by the REIT at all times during the period such subsidiary is in existence. A Qualified REIT Subsidiary is not treated as a separate corporate entity for federal income tax purposes, but rather, together with its parent REIT, is treated as a single taxpayer. Accordingly, all of the assets, liabilities and items of income, deduction and credit of a Qualified REIT Subsidiary are treated as the assets, liabilities, and items of income, deduction and credit of the parent REIT for federal income tax purposes and, in particular, for purposes of satisfying the applicable Code provisions for qualification as a REIT. The Company's wholly owned subsidiary, TISMAC, is a Qualified REIT Subsidiary.
Distributions
The Company must distribute as dividends to its stockholders for each taxable year an amount at least equal to (i) 95% of its "REIT taxable income" as defined below (determined before the deduction of dividends paid and excluding any net capital gain) plus (ii) 95% of the excess of its net income from foreclosure property over the tax imposed on such income by the Code, less (iii) any excess non-cash income (as determined under the Code).
Generally, a distribution must be made in the taxable year to which it relates. A portion of the required distribution, however, may be made in the following year (i) if the dividend is declared in October, November or December of any year, is payable to shareholders of record on a specified date in such a month, and is actually paid before February 1 of the following year; or (ii) if the dividend is declared before the date on which the Company's tax return for the taxable year is due to be filed (including extensions) and is paid on or before the first regular dividend payment date after such declaration. Further, if the Company fails to meet the 95% distribution requirement as a result of an adjustment to the Company's tax returns by the IRS, the Company may, if the deficiency is not due to fraud with intent to evade tax or a willful failure to file a timely tax return, retroactively cure the failure by paying a deficiency dividend (plus interest).
The Code imposes a non-deductible 4% excise tax on REITs to the extent that the "distributed amount" with respect to a particular calendar year is less than the sum of (i) 85% of the REITs taxable income (computed pursuant to Section 857(b)(2) of the Code, but before the dividends paid deduction and excluding capital gain or loss) for such calendar year, (ii) 95% of the REIT's capital gain net income (i.e. the excess of capital gains over capital losses) for such calendar year, and (iii) the excess, if any, of the "grossed up required distribution" (as defined in Section 4981(b)(3) of the Code) for the preceding calendar year over the distributed amount for such preceding year. For purposes of the excise tax provision, the "distributed amount" with respect to any calendar year is the sum of (i) the deduction for dividends paid during such calendar year (excluding dividends paid after the close of the taxable year under Section 858 of the Code but including dividends declared in October, November or December and paid in January, as described above), (ii) amounts on which the REIT is required to pay corporate tax and (iii) the excess, if any, of the distributed amount for the preceding year over the "grossed up required distribution" for such preceding taxable year. The Company paid excise tax of $38,051 for calendar year 1992, $2,009 for 1993 and $336 for 1994.
The Company intends to make distributions to its stockholders on a basis that will allow the Company to satisfy both the 95% distribution requirement and the excise tax distribution requirement. Certain factors inherent in the structure of certain mortgage-backed securities (particularly CMOs) and the federal income tax rules for calculating income of Mortgage Assets may cause the Company to realize taxable income in excess of net cash flows in certain years. The Company intends to monitor closely the interrelationship between its pre-distribution taxable income and its cash flow and intends to borrow funds or liquidate investments in order to overcome any cash flow shortfalls if necessary to satisfy the distribution requirement.
Ownership of the Company
Shares of the Company's Common Stock must be beneficially owned by a minimum of 100 persons for at least 335 days in each full taxable year (or a proportionate part of any short taxable year) after the Company's first taxable year. Further, at no time during the second half of any taxable year after the Company's first taxable year may more than 50% of the Company's shares be owned, actually or constructively, by five or fewer individuals (including pension funds except under certain circumstances, and certain other types of tax exempt entities). The Company's Articles of Incorporation contain repurchase provisions and transfer restrictions designed to prevent violation of the latter requirement. To evidence compliance with these requirements, the Company is required to maintain records that disclose the actual ownership of its outstanding shares. Each year, in order to satisfy that requirement, the Company will demand written statements from record holders owning designated percentages of Common Stock disclosing, among other things, the identities of the actual owners of such shares.
Taxation of the Company
For any taxable year in which the Company qualifies and elects to be treated as a REIT under the Code, the Company will be taxed at regular corporate rates (or, if less, at alternative rates in any taxable year in which the Company has an undistributed net capital gain) on its real estate investment trust taxable income ("REIT Taxable Income"). REIT Taxable Income is computed by making certain adjustments to a REIT's taxable income as computed for regular corporations. Significantly, dividends paid by a REIT to its stockholders with respect to a taxable year are deducted to the extent such dividends are not attributable to net income from foreclosure property. Thus, in any year in which the Company qualifies and elects to be treated as a REIT, it generally will not be subject to federal income tax on that portion of its taxable income that is distributed to its stockholders in or with respect to that year. In computing REIT Taxable Income, taxable income also is adjusted by (i) disallowing any corporate deduction for dividends received, (ii) disregarding any tax otherwise applicable as a result of a change of accounting period, (iii) excluding the net income from foreclosure property, (iv) deducting any tax resulting from the REIT's failure to satisfy either of the 75% of 95% income tests, and (v) excluding net income from prohibited transactions.
Regardless of distributions to stockholders, the Company will be subject to a tax at the highest corporate rate on its net income from foreclosure property, a 100% tax on its net income from prohibited transactions, and a 100% tax on the greater of the amount by which it fails either the 75% income test or the 95% income test, less associated expenses, if the failure to satisfy either or both of such tests does not cause the REIT to fail to qualify as such. See "Qualification of the Company as a REIT." In addition, as described above, the Company will be subject to a 4% excise tax for any taxable year in which, and on the amount by which, distributions made by the Company fail to equal or exceed a certain amount determined with reference to its REIT Taxable Income. See "Qualification of the Company as a REIT - Distributions" above. The Company is also subject to the alternative minimum tax, which is determined for REITs with reference to REIT Taxable Income as increased by tax preferences. The Company does not expect to have significant amounts of tax preference items. Accordingly, the Company anticipates that its federal tax liabilities, if any, will be minimal.
California Franchise tax regulations regarding REIT qualification currently conform to Federal income tax regulations. There is no assurance that this will continue in the future and, if state regulations do not conform to Federal regulations in the future, there is a possibility that the Company might be liable for state income taxes.
The Company uses the calendar year both for tax and financial reporting purposes. Due to the differences between tax accounting rules and generally accepted accounting principles, the Company's REIT Taxable Income may vary from its net income for financial reporting purposes.
Item 2.

Item 2. Properties.
The principal executive offices of the Company and the Manager are located at 655 Montgomery Street, Suite 800, San Francisco, California 94111, telephone (415) 393-8000. The offices are leased for a period of three years, ending on February 28, 1996, by the Manager of the Company. The Manager is reimbursed by the Company for a portion of the rent based on the percentage of spaced used by personnel who provide accounting and administration services to the Company.
Item 3.

Item 3. Legal Proceedings.
At March 15, 1995, there were no material pending legal proceedings (within the meaning of the Form 10-K instructions) to which the Company or its subsidiary is a party or to which any of their respective property was subject.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year covered by this report. PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company's Common Stock is listed on both the New York Stock Exchange and the Pacific Stock Exchange under the symbol "TIS." The high and low closing sales prices of shares of the Common Stock on the New York Stock Exchange for the periods indicated were as follows:
On March 15, 1995, the closing sales price of the shares of Common Stock on the New York Stock Exchange was $2.25. On that date the Company had outstanding 8,105,880 shares of Common Stock which were held by approximately 890 stockholders of record and the total number of beneficial shareholders was approximately 8,000.
In order to maintain its qualification as a REIT under the Code for any taxable year, the Company, among other things, must distribute as dividends to its stockholders an amount at least equal to (i) 95% of its REIT taxable income (determined before the deduction of dividends paid and excluding any net capital gain) plus (ii) 95% of the excess of its net income from foreclosure property over the tax imposed on such income by the Code less (iii) any excess non-cash income (as determined under the Code). The Company intends that the cash dividends paid each year to its stockholders will equal or exceed the Company's taxable income generated from operations. The following table details the dividends declared and/or paid for the Company's two most recent fiscal years.
The Board of Directors, at its regular meeting on March 1, 1994, suspended the regular quarterly dividend payment for the first quarter of 1994. On September 7, 1994, a dividend of $0.02 per share was declared in order to minimize corporate income taxes payable by the Company. The actual amount and timing of future dividend payments will be at the discretion of the Board of Directors and will depend upon the financial condition of the Company in addition to the requirements of the Code.
Subject to the distribution requirements to maintain REIT qualification, the Company intends, to the extent practicable, to utilize substantially all of the principal from repayments, sales and refinancings of the Company's Mortgage Assets to reduce debt or to acquire new assets. The Company may, however, under extraordinary circumstances, make a distribution of principal. Such distributions, if any, will be made at the discretion of the Company's Board of Directors.
It is anticipated that dividends generally will be taxable as ordinary income to stockholders of the Company (including, in some cases, stockholders that would otherwise be exempt from tax under the Code), although a portion of such dividends may be designated by the Company as capital gain or may constitute a return of capital. Such dividends received by stockholders of the Company will not be eligible for the dividends-received deduction so long as the Company qualifies as a REIT. The Company will furnish annually to each of its stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital or capital gain.
Substantially all of the REIT Taxable Income of the Company is, and is expected to continue to be, derived from the Company's Mortgage Assets. Such income is increased by non-cash credits from, among other things, the accretion of market discount on the Mortgage Certificates pledged as collateral for bonds and is decreased by non-cash expenses, including, among other things, the amortization of the issuance costs of bonds, market premium on the Mortgage Certificates pledged as collateral for bonds and the accretion of original issue discount on certain bond classes of bonds. In certain instances, the REIT Taxable Income of the Company for federal income tax purposes may differ from its net income for financial reporting purposes principally as a result of the different methods used to determine the effect and timing of recognition of such non-cash credits and expenses.
As a result of the requirement that the Company distribute to its stockholders an amount equal to substantially all of its REIT Taxable Income in order to qualify as a REIT, the Company may be required to distribute a portion of its working capital to its stockholders or borrow funds to make required distributions in years in which on a tax basis the "non-cash" items of income (such as those resulting from the accretion of market discount on the assets owned by the Company) exceed the Company's "non-cash" expenses. In the event that the Company is unable to pay dividends equal to substantially all of its REIT Taxable Income, it will not continue to qualify as a REIT. Item 6.

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 on Form 10-K. The data as of December 31, 1994, 1993 and 1992 and for the years ended December 31, 1994, 1993 and 1992 have been derived from the Company's financial statements which are included elsewhere in this Annual Report on Form 10-K.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company commenced operations on August 26, 1988 in connection with its initial public offering of 8,100,000 shares of Common Stock.
Investment Activities
During 1994 the Company reinvested $1,232,000 in Commercial Securitizations and reduced its short-term borrowings by $3,420,000. In addition, the Company incurred costs of $395,000 related to the 1995 purchase of multifamily residential properties. At December 31, 1994, these costs are included in other assets. During 1993 the Company reinvested $4,069,000 in IO Bonds and $340,000 in Residual Interests and reduced its short-term borrowing by $6,212,000. The funds came from operating activities and the principal returned to the Company from its investments. The Company continually reviews the composition of its portfolio and analyzes potential investments as additions to the portfolio. The Company reinvests the principal portion of its cash flow as soon as it finds suitable investments. The following table illustrates the Company's cash receipts, disbursements and reinvestments for the last four years.
The Company decreased the level of reinvestments in 1994 over the two prior years because the cash flows from investments did not provide cash at prior year's levels. The Company increased the level of reinvestments substantially in 1992 over 1991 levels due to a combination of the following: (1) the higher prepayments did not reduce the 1992 cash flows but instead caused most of the $20,949,000 cash flows from investments to be considered a return of investment - therefore, the Company had more cash to reinvest, (2) the drop in short term rates, and the resulting difference between long and short term rates, made it prudent for the Company to be as fully invested in longer term assets as was practical, (3) the funds from the sale of PO Bonds were available for reinvestment and (4) the Company wanted to replace some of the assets which had been written down.
From the middle of 1991 until mid-1993, the Company has reinvested its cash flows into PO and IO Bonds, including Inverse IO Bonds because issuers of CMOs were able to reallocate the economics formerly found only in Residual Interests to some of the other CMO tranches. In addition, most new Residual Interests were noneconomic and would not provide the investment attributes previously found in Residual Interests and now found in a variety of PO and IO Bonds. See "Effect of Interest and Prepayment Rates on Net Income" below for further detail on the investment characteristics of PO and IO Bonds as compared to Residual Interests.
In 1993 the Company purchased two Inverse IO Bonds for $4,069,000 and purchased for $340,000 all of the outstanding minority interest in an Equity Residual and minority interests in two other Equity Residuals.
In 1994 the Company purchased two commercial securitizations for $1,232,000. Based on current projections of return of investment from its portfolio, the Company expects to generate cash flows of $450,000 to $700,000 in each month of 1995 either for reinvestment or to be used to reduce borrowings. The Company continually reviews mortgage-related assets available for purchase and plans to acquire additional mortgage-related assets when they complement the current portfolio.
Accounting Change
In May 1993 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 115 - Accounting for Certain Investments in Debt and Equity Securities ("SFAS No. 115"). SFAS No. 115 requires the Company to classify its investments into one of three categories: held-to-maturity, available-for-sale, or trading. Investments in debt securities shall be classified as held-to-maturity and measured at amortized cost only if the Company has the positive intent and ability to hold those securities to maturity.
SFAS No. 115 requires investments in debt and equity securities that are classified as available-for-sale to be carried at fair value with any net unrealized gain or less excluded from earnings and reported as a separate component of shareholders' equity.
Furthermore SFAS No. 115 requires that investments classified as held- to-maturity or available-for-sale be written down to fair value as a realized loss if the fair value of an investment is less than its carrying value and the decline is determined to be "other than temporary". The Emerging Issues Task Force ("EITF") of the FASB reached a consensus (EITF 93-18) in March 1994 as to the definition of "other than temporary". The EITF concluded that if the projected yield on the carrying value of an investment is less than a risk free rate, the decline in value is considered to be other than temporary and the investment is written down to its fair value as the new cost basis. The amount of the write down, if any, is included in current earnings (i.e. accounted for as a realized loss). Prior to SFAS No. 115 and EITF 93-18 the Company wrote down its Mortgage Assets only when the undiscounted future estimated cash flows were less than the carrying value in accordance with EITF 89-4.
SFAS No. 115 became effective for years beginning after December 15, 1993; however an enterprise was permitted to apply this statement effective in the fourth quarter of 1993. Prior years' financial statements were not permitted to be restated. The Company elected to adopt SFAS No. 115 in the fourth quarter of 1993.
The Company is not in the business of trading its Mortgage Assets; however, from time to time the Company may sell an investment as part of its efforts to adjust its portfolio composition to reflect changes in economic conditions. As such, the Company does not meet the stringent requirements of SFAS No. 115 related to classifying its real estate investments as held-to-maturity and, therefore, has classified all of its real estate investments as available-for-sale.
The Company recognized a $9,879,000 charge to earnings in 1993 from the cumulative effect at December 31, 1993 of adopting the new standard for assets which meet the definition of other than temporary impairment. For assets which do not meet the definition of other than temporary impairment and for assets where the fair value exceeds amortized cost, the Company has recorded, as a cumulative effect of change in accounting for investments, a net unrealized gain of $1,351,000 as a separate component of equity as prescribed by SFAS No. 115 for assets classified as available-for-sale. Prior years' consolidated financial statements were not permitted to be restated.
Results of Operations
The Company had net income of $2,537,000, or $0.31 per share, for the year ended December 31, 1994. For the year ended December 31, 1993 it had a net loss of $25,439,000, or $3.14 per share. The 1993 loss included $9,879,000, or $1.22 per share, as the cumulative effect of a change in accounting for real estate investments occasioned by the Company's decision to adopt SFAS No. 115 as of its fiscal year ended December 31, 1993. Additionally, the 1993 net loss included write-downs of Mortgage Assets of $12,388,000. This loss compares to a net loss for the year ended December 31, 1992 of $21,387,000, or $2.64 per share. The 1992 net loss included write-downs of mortgage assets of $25,047,000. The Company declared dividends totaling $162,000 for 1994, or $0.02 per share as compared with $1,621,000 for 1993, or $0.20 per share. 1992 dividends declared totaled $4,942,000, or $0.61 per share. The Company's first and second quarter 1992 dividends were based on the Company's best estimate of taxable income for 1992 at the time the dividends were declared. When it became apparent that the Company might have a taxable loss for the year, the dividend was lowered to $0.05 per share. The Company also anticipated a taxable loss for 1993 and retained its quarterly dividend policy of $0.05 per share throughout the year. The 1994 dividend of $0.02 per share was declared to minimize the Company's corporate income taxes.
1994 Compared to 1993
As a result of the accounting change described above which adjusted the carrying value of the Company's Mortgage Assets to fair value, 1994 operating results were likely to be favorable in most stable interest rate environments. As shown in the Net Interest Income Analysis below, the average yield from residual interests and IO bonds was 35.65% and 18.77%, respectively.
Net interest margin (interest income from Mortgage Certificates net of interest expense on CMOs) improved to a net interest expense of $689,000 in 1994 from net interest expense of $1,450,000 in 1993 as shown in the following table.
(In thousands) 1994 1993 Change
Interest Income from $17,518 $33,160 ($15,642 Mortgage Certificates ) Amortization of Market 780 3,713 (2,933) Discount Net Interest Income 18,298 36,873 (18,575)
Interest Expense on CMOs 17,528 33,302 (15,774) Amortization of Original 1,459 5,021 (3,562) Issue Discount Net Interest Expense 18,987 38,323 (19,336)
Net Interest Margin ($ ($ $ 689) 1,450) 761
Net interest margin continues to be negative because of the retirement of some of the lower coupon bonds leaving primarily bonds which bear an interest rate equal to or close to the mortgage rate.
Interest expense on repurchase agreements decreased from $568,000 in 1993 to $509,000 in 1994. This the result of a decrease in the average amount of debt outstanding from $15,234,000 in 1993 to $9,854,000 in 1994. However, this was reduction offset by an increase in the weighted average interest rate from 3.70% in 1993 to 5.10% in 1994. Management and residual interest administration fees declined in 1994 because of the lower level of average invested assets which arose from the 1993 write downs of Mortgage Assets. In 1994 the Company incurred management fees of $121,000 and residual interest administration fees of $100,000 as compared to fees of $179,000 and $110,000, respectively, in 1993. General and administrative expense declined from $1,430,000 in 1993 to $1,229,000 in 1994 because costs of stockholder communications and the capitalization in 1994 of certain consulting fees.
1993 Compared to 1992
The increases in both actual mortgage prepayments and the forecasted level of future prepayments which gave rise to substantial write downs of Mortgage Assets commencing in mid-1992 continued throughout 1993. As a result, the Company sustained a net loss before the cumulative effect of the change in accounting for real estate investments of $15,560,000 or $1.92 per share. This compares to a net loss of $21,387,000 or $2.64 per share in 1992. Write downs in 1993 totaled $12,388,000 as compared to $25,047,000 in 1992. The carrying values of these assets were adjusted so that their book values at the end of each quarter equaled the sum of their projected future cash flows based on an assumed continuation of the high prepayment speeds. The projected increase in future prepayments shortened the anticipated future life of the investments and therefore reduced their existing values. The higher prepayments also caused lower income on some of the Company's Mortgage Assets which did not require downward adjustments.
Net interest margin (interest income from Mortgage Certificates net of interest expense on CMOs) declined from $1,590,000 in 1992 to a net interest expense of $1,450,000 in 1993 because of the retirement of some of the lower coupon bonds leaving primarily bonds which carried an interest rate equal to or close to the mortgage rate. Net interest margin was also adversely impacted by changes in non-cash expenses related to the mortgages and bonds such as an increase in total amortization of bond issuance costs and discount on Mortgage Certificates and CMOs from $1,566,000 in 1992 to $3,016,000 in 1993.
Interest expense on repurchase agreements decreased from $781,000 in 1992 to $568,000 in 1993 because of the lower average interest rate in 1993 as well as the decreased level of short-term borrowings. Management and residual interest administration fees declined in 1993 because of the decreased level of average invested assets arising from the write downs of mortgage-related assets. In 1993 the Company incurred management fees of $179,000 and residual interest administration fees of $110,000 as compared to management fees of $276,000 and residual interest administration fees of $100,000 in 1992. General and administrative expense in 1993 was $431,000 greater than in 1992 because of increased accounting fees related to tax matters, the employment of outside consultants to aid in the development of future investment strategies for the Company, increased franchise and excise taxes and increases in overhead expenses.
Outlook
Because mortgage interest rates increased in 1994, the high level of prepayments experienced in 1992 and 1993 subsided. As a result, most of the Company's Mortgage Assets yielded income in 1994 approximately equal to the amounts projected at the end of 1993. If mortgage interest rates remain stable or increase, the Company will continue to show profits on these assets. If mortgage rates decline sufficiently to cause prepayments to increase, the Company will again have write downs on certain of its single family Mortgage Assets.
The Company has determined that it will direct its future investments to multifamily residential properties and Commercial Securitizations. On December 29, 1994 the Company entered into a definitive agreement to acquire four multifamily housing properties in California's Central Valley. These properties consist of 539 units together with 9.75 acres of unimproved land slated for development of an additional 126 units. The properties will be purchased in a series of closings occurring between mid- January and mid-September, 1995. The aggregate purchase price for the properties will be $29,275,000, including existing debt to be assumed by the Company. During the second and fourth quarters of 1994, the Company acquired subordinate interests in Commercial Securitizations for $1,232,000.
The Company has generated significant tax loss carryforwards from losses experienced over the last several years. The Company has continued to generate cash flows from its Mortgage Assets and it is expected that in the future, to a large degree, these cash flows will represent a return of investment principal to the Company and not taxable income required to be distributed as dividends to stockholders. The Company has been seeking suitable real estate assets and Commercial Securitizations which would generate cash flows for additional reinvestment. Should these activities be successful, the Company would be in a tax position to continue to use cash flows to rebuild its investment portfolio prior to resuming taxable dividend payments.
Effect of Interest and Prepayment Rates on Net Income
The Company's income from its investments in Residual Interests is attributable to its share of the Residual Cash Flow. "Residual Cash Flow" is the difference between (i) the cash flow from the collateral pledged to secure a CMO together with reinvestment income and (ii) the amount required for debt service payments on the CMO bonds together with related administrative expenses. Residual Cash Flow results from the positive interest rate spread between the collateral pledged to secure a CMO and the outstanding CMO bonds of the CMO, and other factors inherent in the CMO structure.
Income from Residual Cash Flow on an individual Residual Interest is highest in the earlier years of a CMO since the CMO bonds having earlier stated maturities generally have lower interest rates. Such income will decline (and eventually terminate) over the life of the CMO since (i) progressively higher interest rates on later maturing CMO bonds reduce the positive spread between the weighted average interest rate on the CMO bonds and the weighted average pass-through rate on the collateral and (ii) the administrative expenses of the CMO as a percentage of the spread will increase as the outstanding principal balance of the collateral declines.
The amount of income that may be generated from the Company's ownership in Residual Interests is dependent upon the rate of principal prepayments on Mortgage Loans which underlie the CMO bonds. Lower rates of prepayment mean a longer life for the Residual Interest and thus higher income. Similarly, faster rates of prepayment mean a shorter life for the Residual Interest and lower income. The rate of principal payments on mortgage loans is influenced by a variety of economic, geographic, social and other factors, but probably the most important factor is the level of prevailing mortgage rates. In general, if prevailing mortgage interest rates rise significantly above the interest rates on the collateral pledged to secure the CMOs, such collateral is likely to experience lower prepayment rates and hence the Residual would have higher income. Conversely, if mortgage interest rates fall significantly, prepayments increase and income from the Residual Interests would be less.
A PO Bond is a bond which passes through only the principal portion of a mortgage-backed security. PO Bonds are created by splitting the principal cash flows from the coupon interest on a CMO Bond to create the PO Bond and an associated IO Bond. PO Bonds are sold at a deep discount to face value. They pay no periodic coupon interest. Principal is returned in the form of scheduled amortization and mortgage prepayments. Ultimately, the entire face amount of a PO Bond is repaid to the investor. Because there is no coupon, the income performance of a PO Bond is extremely sensitive to prepayments. Higher prepayments lead to a more rapid return of principal and a higher yield and lower prepayments lead to a slower return of principal and a lower yield. However, since a PO Bond is sold at a discount to its face value, and the total face value is ultimately received, the total yield on a PO Bond cannot drop below zero.
IO Bonds pass through a specified interest portion of a CMO. The interest due on an IO Bond is calculated by multiplying this interest rate times the outstanding balance of the underlying mortgage pools. As the balance of the underlying mortgages decline to zero, payments on the IO Bond also decline to zero. Usually the interest on the underlying mortgages is fixed. If the interest rate is variable, it is called a Floating Rate IO Bond. If the variable rate of interest is inversely related to an index, it is called an Inverse IO Bond. A regular IO Bond is similar to a fixed rate Residual Interest, in that its yield will generally increase as interest rates increase and decrease as interest rates decline. An Inverse IO is similar to a LIBOR or COFI indexed Residual. In general its yield will decrease as interest rates increase and increase as interest rates decline.
The Company's income from Residual Interests in CMOs which includes one or more LIBOR or COFI Bond Classes and from Inverse IO Bonds may fluctuate widely depending upon changes in the LIBOR or COFI rates, which will affect the amount of interest payable on such LIBOR or COFI bonds and on the Inverse IO Bond. The Company's income also will be affected by the relationship between changes in these rates and mortgage prepayments. As a result of 1994 return of principal and interest earnings, the composition of the Company's Structured Securities was approximately 23% fixed rate, 24% COFI, 31% IO Bonds and 22% inverse IO bonds. As a result of 1993 reinvestments, write downs, and return of principal, the composition of the Company's Structured Securities was approximately 31% fixed rate, 19% COFI, 19% IO Bonds and 31% Inverse IO Bonds at December 31, 1993. Because of this balance, the cash flow characteristics of the Company's Structured Securities are intended to complement each other in a way that, to some extent, hedges the portfolio internally. The goals are to avoid undue future interest rate risk and to obtain greater ability to produce steady cash flow levels.
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 Residual Interest or IO Bond could be significantly reduced. In the event that the projected return on Structured Securities falls below a risk free rate, the Company would be required to write down the asset to a fair value.
Liquidity and Capital Resources
The Company uses its cash flow to provide working capital to pay its expenses and debt service, acquire other assets and, at the discretion of the Board of Directors, to pay dividends to its shareholders. In 1994 the Company generated cash flow from its operations of $7,914,000 as compared to $4,342,000 in 1993, whereas in 1992 the Company used $5,934,000 of cash to support operations.
At December 31, 1994 the Company had outstanding borrowings with one investment banking firm under repurchase agreements totaling $8,325,000. All of the borrowing had initial terms of one month, are renewed on a month- to-month basis and have a floating rate of interest which is tied to the one month LIBOR rate. The weighted average interest rate of these borrowings at that date was 6.9776%. At December 31, 1993 the Company had outstanding borrowings with two investment banking firms under repurchase agreements. At that date the Company owed $11,745,000. The weighted average interest rate of these borrowings was 3.65%. At December 31, 1994, the Company had no other borrowings or committed lines of credit.
Management of the Company believes that the cash flow from operations and availability of repurchase agreements are sufficient to enable the Company to meet its current and anticipated future liquidity requirements including payment of dividends to its shareholders, which must equal at least 95% of the Company's taxable income in order for the Company to qualify as a REIT.
Item 8.

Item 8. Financial Statements and Supplementary Data
TIS Mortgage Investment Company and Subsidiary
Report of Independent Public Accountants ........................... 35
Consolidated Balance Sheets - December 31, 1994 and 1993 ........... 36
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992 ................................ 37
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992 .................... 38
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 ................................ 39
Notes to the Consolidated Financial Statements ..................... 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of TIS Mortgage Investment Company:
We have audited the accompanying consolidated balance sheets of TIS Mortgage Investment Company (a Maryland corporation) and Subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the financial statements referred to above present fairly, in all material respects, the financial position of TIS Mortgage Investment Company and Subsidiary as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2, in 1993 the Company changed its method of accounting for its investments to adopt the provisions of Statement of Financial Accounting Standards No. 115 - Accounting for Certain Investments in Debt and Equity Securities.
San Francisco, California, March 21, 1995
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
TIS Mortgage Investment Company (the "Company") was incorporated on May 11, 1988. At incorporation 100 shares of the Company's Common Stock were issued to TIS Financial Services, Inc., formerly Thrift Investment Services (the "Manager") at $10 per share. During the period from the Company's incorporation until August 26, 1988, the Company's activities consisted solely of preparations for its initial public offering. On August 26, 1988, the Company completed its initial public offering of 7,600,000 shares of Common Stock at a price to the public of $10 per share and commenced operations. On October 11, 1988, as part of the initial public offering, the Company issued an additional 500,000 shares of its Common Stock at $10 per share in connection with the exercise of an over- allotment option by the underwriters. In 1992, 5,780 shares were issued under the Company's Dividend Reinvestment and Share Purchase Plan (the "Plan"). No additional shares were issued in 1993 or 1994 as shares required for the Plan were purchased on the open market.
2. Summary of Significant Accounting Policies
Overall Methods of Accounting - On May 31, 1990, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus (Issue 89-4) for a uniform method of accounting for Residual Interests in collateralized mortgage obligations ("CMOs"). The consensus, among other things, required Residual Interests to be classified either as "equity" (and be accounted for under the Equity Method) or as "nonequity" (and be accounted for under a level yield method referred to as the Prospective Method). The methods described in Issue 89-4 are essentially the same as those used by the Company.
Accounting Change - On December 31, 1993 the Company adopted Financial Accounting Standards Board Standard No. 115 ("SFAS 115") - Accounting for Certain Investments in Debt and Equity Securities. In accordance with this new Standard, the Company is required to classify its investments as either trading investments, available-for-sale investments or held-to-maturity investments. The Company is not in the business of trading its real estate investments, however, from time to time the Company may sell an investment as part of its efforts to adjust its portfolio composition to reflect changes in economic conditions. Therefore, the Company has classified all its real estate related investments as available-for-sale investments, 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 shareholders' equity until realized.
All of the Company's investments are subject to write down whenever the yield on the projected cash flows is less than a risk free rate. If the yield on the projected cash flows is less than a risk free rate, the decline in value is considered to be "other than temporary" and the investment is written down to its fair value as the new cost basis. The amount of the write down is included in the Company's current earnings (i.e. accounted for as a realized loss). The Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus (EITF 93-18) as to the definition of "other than temporary" impairment. The Company's accounting policy is consistent with this consensus.
For purposes of applying the impairment provisions of SFAS No. 115, the Company considers its investment in each of its Equity Residuals to be a net cash flow investment (net of CMO Bond interest payments and related CMO Bond administrative expenses). The Company measures other than temporary impairment by comparing the yield on the projected net cash flows from the Equity Residual, (i.e. Mortgage Certificates net of discounts and CMO Bond Liabilities) to a risk free rate. If the yield on the projected cash flows from the Equity Residual is less than a risk free rate, the Company records a reserve to reduce the carrying value to fair value. The fair value is calculated using the forecasted net cash flows discounted at a risk adjusted rate. The risk adjusted rate is determined by the Company using established market transactions for securities having similar characteristics and backed by collateral of similar rate and term.
The Company recognized a $9,879,000 charge to earnings in 1993 from the cumulative effect at December 31, 1993 of adopting the new standard for assets which meet the definition of other than temporary impairment. For assets which do not meet the definition of other than temporary impairment and for assets where the fair value exceeds amortized cost, the Company has recorded, as a cumulative effect of change in accounting for investments, a net unrealized gain of $1,351,000 directly to equity as prescribed by SFAS No. 115 for assets classified as available-for-sale. Prior years' consolidated financial statements were not permitted to be restated.
The change in accounting principle significantly reduced the amortized cost of many of the Company's CMO Ownership Interests. As a result, it was anticipated that there would be earnings from these assets in future periods. However, faster prepayment speeds and lower estimates of cash flow from call rights may cause the fair value of CMO Ownership Interests and Acquired CMO Classes to decline further and may require additional write downs in the future.
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, TISMAC. The assets of TISMAC are not available to pay creditors of the Company. The Company has undertaken to indemnify certain parties who have contracted with TISMAC against certain losses which they might sustain in carrying out their obligations. In addition, under generally accepted accounting principles, the Company consolidates assets and liabilities of Owner Trust Residuals when over 50% equity interest in the trust is held by the Company. The portion of equity interest of each such Owner Trust Residual not owned by the Company is accounted for as minority interest.
Mortgage Certificates and CMOs - Mortgage certificates and CMO bonds of consolidated Owner Trusts are carried at their outstanding principal balance plus or minus any premium or discount, respectively.
Amortization of Premiums and Discounts - Premiums and discounts related to mortgage certificates and CMOs are amortized to income using the interest method over the stated maturity of the mortgage certificates or CMOs.
Residual Interests and Interest Only (IO) Bonds - Residual Interests held in bond form and Corporate Real Estate Mortgage Investment Conduit ("REMIC") Residual Interests, regardless of percentage ownership, are Nonequity Residual Interests and, along with IO Bonds, are accounted for under the Prospective method. Under this method, assets are carried at book value 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 financial statement income.
Restricted Cash - Restricted cash represents the cash balances of CMOs in which the Company holds a Residual Interest and whose assets and liabilities are consolidated with those of the Company. This cash is not available to the Company or its creditors.
Income Taxes - The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, the Company must distribute at least 95% of its taxable income to its shareholders. No provision has been made for income taxes in the accompanying consolidated financial statements as the Company is not subject to federal income taxes. The loss reported in the accompanying financial statements may be greater or less than the taxable loss because some income and expense items are reported in different periods for income tax purposes. Over the life of a Residual Interest or IO Bond, total taxable income will equal total financial statement income. However, the timing of income recognition may differ between the two from year to year.
Net Income (Loss) Per Share - Net income (loss) per share is based upon the weighted average number of shares of Common Stock outstanding for 1994, 1993, and 1992, respectively.
Statement of Cash Flows - For purposes of the statement of cash flows, the Company considers only highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
3. Taxation of Dividends Declared
The dividends paid by the Company of $0.02, $0.25 and $0.56 per share in the years 1994, 1993 and 1992, respectively, were fully taxable as ordinary income.
Under the Internal Revenue Code of 1986, a dividend declared by a REIT in December of a calendar year, which is payable to shareholders of record as of a specified date in December, will be deemed to have been paid by the Company and received by the shareholders on that record date if the dividend is actually paid before February 1st of the following calendar year. Therefore, the $0.34 dividend declared in December 1991 to shareholders of record at December 31, 1991 and paid in January 1992 was taxable income in 1991. However, since the $0.05 dividend declared in December 1992 and paid in January 1993 had a record date of January 4, 1993, it is considered 1993 income and its taxability is based on the REIT's 1993 taxable income. The Company's dividends are not eligible for the dividends-received deduction for corporations.
All of the 1994, 1993 and 1992 dividends paid are considered "excess inclusion" income. Excess inclusion income is attributable to Residual Interests for which an election has been made to be treated as a REMIC for federal income tax purposes. The portion of the Company's dividends determined to be excess inclusion income is taxable to certain otherwise tax-exempt shareholders as unrelated business income. Except for certain entities such as savings and loan associations, the portion of the dividend considered excess inclusion income may not be offset by any deductions or losses, including net operating losses.
4. Residual Interests
General - Each CMO in which the Company has purchased a Residual Interest was rated at the time of its issuance "AAA" by Standard & Poor's Corporation or "Aaa" by Moody's Investors Service, Inc. Each such CMO is comprised of one or more classes of bonds (each, a "Bond Class") and was issued pursuant to an Indenture between the CMO issuer and a specified trustee. Each CMO is structured so that the principal and interest payments received from the collateral pledged to secure such CMO, together with reinvestment income thereon, will be sufficient, irrespective of the rate of prepayments on the collateral, to make timely payments of interest on each Bond Class, to begin the payment of principal on each Bond Class not later than its "first mandatory principal date" and to retire each Bond Class not later than its "stated maturity."
Interest on Bond Classes is payable on specified payment dates (quarterly or monthly), except with respect to "compound interest bonds" on which interest accrues and is added to the principal amount thereof on each payment date until the conditions set forth in the related Indenture have been satisfied, and with respect to "principal only bonds" which do not bear interest at a stated rate. Each other Bond Class provides for payment of interest at a fixed or variable rate for the life of such Bond Class. The interest rate on variable rate Bond Classes resets monthly based on specified margins in relation to LIBOR or COFI.
Principal payments on Bond Classes are made on specified payment dates (quarterly or monthly) or in full at maturity in accordance with the terms of the related Indenture. Generally, payments of principal are allocated to the earlier maturing Bond Classes until such Bond Classes are paid in full. Payments of principal on certain Bond Classes occur pursuant to a specified repayment schedule or formula (to the extent funds are available therefore), regardless of which other Bond Classes are outstanding.
Residual Interests are classified as either equity or nonequity. Presented on the following table is a schedule of the Nonequity Residual Interests and the Prospective Yield at December 31, 1994.
Securitized Residuals and Corporate REMIC Residual Interests - Both Residual Interests held in bond form and Corporate REMIC Residual Certificates are Nonequity Residual Interests and are accounted for under the Prospective Method as described in Footnote 2. Certain characteristics of the CMO Bonds in the Company's Residual Interests held in these forms are on the following tables:
Equity Residual Interests - The Company holds interests in two Owner Trust Residuals. It also holds the Residual Interest in TISMAC 1989-1, the CMO issued by the Company's wholly-owned subsidiary. Although the underlying CMOs in these Residual Interests are not liabilities of the Company, under the requirements of generally accepted accounting principles, the Company consolidates assets and liabilities of TISMAC 1989- 1 and the Owner Trust Residuals when over 50% equity interest in the trust is held by the Company. Under the underlying bond indentures, the Company would never be required to pay more than the outstanding principal balance to retire the CMO Bonds. Therefore, the carrying value of these CMO Bonds are reasonable estimates of their fair value to the Company. Certain characteristics of the CMO Bonds in the Equity Residual Interests in which the Company holds an interest are set forth below:
CMO Collateral - The table below sets forth certain characteristics of the mortgage collateral pledged to secure each CMO in which the Company holds a Residual Interest.
5. Interest Only (IO) Bonds
IO Bonds include both regular IO Bonds and Inverse IO Bonds. No IO Bonds were purchased in 1994; however, during 1993, the Company invested $4,069,000 in IO Bonds; in 1992 the Company invested $30,760,000 in IO Bonds. Presented below is a schedule of the Company's IO Bonds and the Prospective yield at December 31, 1994.
Certain characteristics of the Company's IO Bonds are on the following table:
6. Fair Value of Equity Residuals and Mortgage Certificates
For purposes of determining fair value of the Company's investment in Equity Residuals in applying SFAS No. 115, the Company uses the cash flows from Mortgage Certificates, net of CMO Bond interest expenses and related trustee expenses. The Company includes in its net cash flows an assumption of redemption of the Series at the earliest available stated redemption date with an assumed sale of the Mortgage Certificates at a current market price. These cash flows are discounted at a fair value rate of 14%. The following table gives the pertinent fair value assumptions used in forecasting the cash flows as of December 31, 1994:
For purposes of SFAS No. 107, the Company is required to disclose the fair value of its Mortgage Certificates. Information with respect to the fair value of the mortgage certificates collateralizing the CMO Bonds is presented in the table below as of December 31, 1994. The Company is not able to sell the mortgage collateral, and therefore realize any gain, until the CMO Bonds which are collateralized by the mortgages mature or are called in accordance with the underlying bond indenture.
7. Fair Value of Nonequity Residual Interests and IO Bonds
General - Substantially all income to the Company is derived from the cash flows from the Company's Residual Interests and IO Bonds. The fair value of a Residual Interest and an IO Bond is the net present value of the projected future cash flows. The amount of cash flows that may be generated from the Company's Residual Interests and IO Bonds are uncertain and may be subject to wide variations depending primarily upon the rate and timing of prepayments on the mortgage collateral and, for Residual Interests with variable rate Bond Classes and Inverse IO Bonds, changes in LIBOR and COFI. The following information sets forth assumptions used to calculate the projected cash flows on the Company's Residual Interests and IO Bonds, and the present value of these assets at December 31, 1994 based on various assumptions and discount factors.
Assumptions - For purposes of the presentations below, the Nonequity Residual Interests have been separated into two groups: Residual Interests in CMOs with fixed rate Bond Classes and Residual Interests in CMOs with one or more LIBOR or COFI Bond Classes still outstanding. The IO Bonds have been separated into two groups: regular IO Bonds and Inverse IO Bonds. For purposes of projecting future cash flows, the following December 31, 1994 one-month LIBOR rate and the 11th District COFI rate for October which was released in December 1994 are used:
Principal payments on mortgage loans may be in the form of scheduled amortization or prepayments (for this purpose, "prepayments" includes principal prepayments and liquidations due to default or other dispositions). The prepayment assumptions used herein are based on an assumed rate of prepayment each month of the unpaid principal balance on a pool of mortgage loans. A 100% prepayment assumption assumes prepayment rates of 0.2% per annum of the then outstanding principal balance of such mortgage loans in the first month of the life of such mortgage loans and an additional 0.2% per annum in each month thereafter (for example, 0.4% per annum in the second month) until the 30th month. Beginning with the 30th month and in each month thereafter during the life of such mortgage loans, a 100% prepayment assumption assumes a constant prepayment rate of 6% per annum.
The prepayment assumptions used to estimate the fair value of the Company's Nonequity Residual Interests and IO Bonds are the Bloomberg Financial Markets ("Bloomberg") Dealer Prepayment Estimates Average as estimated by several dealers in mortgage-related assets and compiled by Bloomberg as of January 3, 1995. Bloomberg has obtained this information from sources it believes to be reliable but has not verified such information and assumes no responsibility for the accuracy of such information. The following are the prepayment assumptions used to project cash flows in order to calculate the present value of Nonequity Residual Interests and IO Bonds:
Neither the interest rates nor the prepayment assumptions used herein purports to be a historical description of interest rates or prepayment experiences or a prediction of future interest rates or prepayments of any pool of mortgage loans. The fair value of these assets can vary dramatically depending on future interest rates, prepayment speeds and the discount factor used.
Present Value of Projected Cash Flows - The tables which follow set forth the present value at December 31, 1994 of the projected cash flows discounted at the indicated discounted rates subject to the assumptions described above. For example, if cash flows are projected using the Bloomberg Financial Markets ("Bloomberg") Dealer Prepayment Estimates Average, as estimated by several dealers in mortgage-related assets and compiled by Bloomberg as of January 3, 1995, and Nonequity Residual Interests in CMOs with fixed rate Bond Classes are discounted at 14%, and the Nonequity Residual Interests in CMOs with variable rate Bond Classes are discounted at 18%, the present value of the projected cash flows of the Company's Nonequity Residual Interests would equal approximately $8,675,000. This is the Company's estimate of the fair value of these assets. In addition, if cash flows on the Company's regular IO Bonds are discounted at 14% and the cash flows on its Inverse IO Bonds are discounted at 30%, the present value of the projected cash flows on the IO Bonds would equal $9,558,000. This represents a decrease of $236,000 from the $9,794,000 book value of these assets. The difference of $236,000 is the difference between the present value of cash flows and the actual market values as of December 31, 1994 of FNMA SMBS Trust 7 Class 2 IO and FNMA SMBS Trust 4 Class 2 IO. The book value is the Company's estimate of the fair value of these IO Bonds. There will be differences between the projected cash flows used to calculate the present value of these assets and the actual cash flows received by the Company, and such differences may be material.
8. Short Term Debt
Short term debt is debt due within 360 days after the end of the year. At December 31, 1994 the Company owed $8,325,000 under one repurchase agreement. All of the borrowings had initial terms of one month, are renewed on a month-to-month basis and have a floating rate of interest which is tied to the one month LIBOR rate. The weighted average interest rate of such borrowings at December 31, 1994 was 6.9776%. At December 31, 1993 short-term borrowings totaled $11,745,000 and had a weighted average interest rate of 3.652%. The Company has no committed lines of credit.
9. Related Party Transactions
The Company has entered into an agreement (the "Management Agreement") with the Manager which is renewable annually. In June 1994 the Board of Directors renewed the Management Agreement through June 30, 1995 and it is thereafter renewable annually.
The Manager advises the Company on various facets of its business and manages its operations, subject to supervision by the Company's Board of Directors. For performing these services, the Manager receives a base management fee of 3/8 of 1% per annum of the Company's average invested assets and an incentive management fee equal to 25% of the amount by which the Company's annualized return on equity, calculated based on taxable income, exceeds the ten-year U.S. Treasury rate plus 1%. Management fees of $121,000, $179,000 and $276,000 were earned in 1994, 1993 and 1992, respectively. Within two months of the applicable year end, $32,000 of the 1994 fees, $31,000 of the 1993 fees and $59,000 of the 1992 fees were paid. In order to compensate the Manager for certain administrative functions that the Manager performs with respect to each Residual Interest purchased by the Company, for which neither the Manager nor an affiliate acts as bond administrator, the Company pays the Manager a fee equal to $10,000 per annum for each Residual Interest. A total of $100,000 of these Residual Interest Administration fees were earned by the Manager and paid in 1994 as compared to $110,000 in 1993 and $100,000 in 1992. For 1994, 1993 and 1992, the Manager did not charge a Residual Interest Administration Fee on those Residual Interests for which it projected total 1995, 1994 and 1993 income of less that $40,000. In addition, the Manager is reimbursed for certain direct expenses incurred on behalf of the Company. At December 31, 1994 and 1993, all of these reimbursable expenses were paid to the Manager. At December 31, 1992, $29,000 of these reimbursable expenses were due to the Manager. This amount was paid within one month after the applicable year end.
10. Wholly-Owned Subsidiary
On October 21, 1988 TISMAC, the wholly-owned Subsidiary of the Company, was incorporated for the purpose of issuing CMOs directly. At incorporation 100 shares of TISMAC's common stock were issued to the Company for $100. The assets of the Subsidiary are not available to pay creditors of the Company. The Company has undertaken to indemnify certain parties who have contracted with the Subsidiary against certain losses which they might sustain in carrying out their obligations.
11 . Other Fair Value Disclosure
The Company has the following other financial instruments: cash and cash equivalents, accrued interest and accounts receivable, accounts payable and accrued liabilities, accrued interest payable, short term debt and dividends payable. The carrying amounts of these instruments are reasonable estimates of their fair value due to their short term nature.
13. Acquisition of Multifamily residential property.
On December 29, 1994 the Company entered into a definitive agreement to acquire four multifamily housing properties in California's Central Valley. These properties consist of 539 units together with 9.75 acres of unimproved land slated for development of an additional 126 units. The properties will be purchased in a series of closings occurring between mid- January and mid-September 1995. The aggregate purchase price for the properties will be $29,275,000, including existing debt to be assumed by the Company. The purchase of the first two properties occurred in January and February 1995.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10.

Item 10. Information about Directors and Executive Officers of the Registrant.
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on June 7, 1995.
Item 11.

Item 11. Executive Compensation.
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on June 7, 1995.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on June 7, 1995.
Item 13.

Item 13. Certain Relationships and Related Transactions.
Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on June 7, 1995.
PART IV
Item 14.

Item 14. Exhibits, Financial Statements and Reports on Form 8-K.
(a) Documents filed as part of this report:
Consolidated financial statements of the Company - al listed in the "Index to Financial Statements" included in Part II, Item 8 of this Form 10-K
All financial statement schedules not included have been omitted because of the absence of conditions under which they are required or because the information is given in the consolidated financial statements and notes included in Part II, Item 8 of this Form 10-K. (3) Exhibits:
Number Exhibit ------ ------- 3(a) Amended Articles of Incorporation of the Registrant* 3(b) Amended Bylaws of the Registrant 4(a) Specimen Certificate representing $.001 par value Common Stock* 4(b) Dividend Reinvestment and Share Purchase Plan** 10(b) Management Agreement between the Registrant and TIS Financial Services, Inc. ***** 10(c) Bonus Program*** 10(d) Custody Agreement between Registrant and Mellon Bank N.A.**** 10(e) Transfer Agency Agreement between Registrant and Mellon Securities Trust Company**** 10(f) Reverse Repurchase Agreement between Registrant and Kidder, Peabody & Co.**** 10(g) Reverse Repurchase Agreement between Registrant and The First Boston Corporation**** 10(h) Reverse Repurchase Agreement between Registrant and Bear, Stearns Securities Corp.***** 10(i) Reverse Repurchase Agreement between Registrant and Shearson Lehman Brothers***** 22 Subsidiaries of the Registrant***** 24 Consent of Arthur Andersen LLP --------------------------------------------------------------------------- ___________________________________ * Incorporated herein by reference to Registrant's Registration Statement on Form S-11 (No. 33-22182) declared effective August 19, 1988.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 33-44526) filed with the Securities and Exchange Commission on December 30, 1991.
*** Incorporated herein by reference to Registrant's Annual Report on Form 10-K (File No. 1-10004) filed with the Securities and Exchange Commission on April 2, 1990.
**** Incorporated herein by reference to Registrant's Annual Report on Form 10-K (File No. 1-10004) filed with the Securities and Exchange Commission on March 30, 1992.
***** Incorporated herein by reference to Registrant's Annual Report on Form 10-K (File No. 1-10004) filed with the Securities and Exchange Commission on March 30, 1993.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the period covered by this report.
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.
TIS MORTGAGE INVESTMENT COMPANY
Date: March 24, 1995 By: /s/ Lorraine O. Legg -------------- ---------------------- Lorraine O. Legg, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ----
/s/ Lorraine O. Legg Director, President and March 24, 1995 ----------------------- Principal Executive Officer Lorraine O. Legg
/s/ John E. Castello Executive Vice President March 24, 1995 ----------------------- (Principal Financial Officer) John E. Castello
/s/ Michael J. Stone Controller March 24, 1995 ----------------------- Michael J. Stone
/s/ Patricia M. Howe Director, March 24, 1995 ----------------------- Chairman of the Board Patricia M. Howe
/s/ John D. Boyce Director March 24, 1995 ----------------------- John D. Boyce
/s/ Robert H. Edelstein Director March 24, 1995 ----------------------- Robert H. Edelstein
/s/ Douglas B. Fletcher Director March 24, 1995 ----------------------- Douglas B. Fletcher
/s/ Robert W. Ledoux Director March 24, 1995 ----------------------- Robert W. Ledoux
/s/ Harvie M. Merrill Director March 24, 1995 ----------------------- Harvie M. Merrill
/s/ Will M. Storey Director March 24, 1995 ----------------------- Will M. Storey