UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
COMMISSION FILE NUMBER:
IMPERIAL GOVERNMENT INCOME TRUST SERIES I
CALIFORNIA 33-6172937
------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
20371 IRVINE AVENUE, SANTA ANA HEIGHTS, CALIFORNIA 92707
(714) 474-8500
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES NO X
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST POSSIBLE DATE:
CLASS CERTIFICATES OUTSTANDING AT MAY 10, 1996
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PASS-THROUGH CERTIFICATES 3,769,830
IMPERIAL GOVERNMENT INCOME TRUST
FORM 10-Q
TABLE OF CONTENTS
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Part 1 - Financial Information
Page
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Item 1. Financial Statements:
Balance Sheet - (Unaudited)
March 31, 1996 1
Statement of Income - (Unaudited)
March 31, 1996 2
Statement of Cash Flows - (Unaudited)
March 31, 1996 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Part II - Other Information
Items 1-5 Not Applicable
Item 6. Exhibit - and Reports on Form 8-K 8
Signatures 9
IMPERIAL GOVERNMENT INCOME TRUST
BALANCE SHEET
(Unaudited)
December 31, March 31,
1995 1996
ASSETS
Cash................................................ $ 45,694 $ 44,935
Mortgage-backed securities available-for-sale....... 2,232,540 2,154,555
Purchased mortgage servicing rights................. 1,097,738 1,065,074
Other assets........................................ 113,796 114,323
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Total assets................................... $3,489,768 $3,378,887
========== ==========
LIABILITIES AND CERTIFICATE HOLDERS' EQUITY
Other liabilities................................... $ 6,553 $ 12,373
Dividends Payable................................... 41,445 41,023
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Total liabilities.............................. 47,998 53,396
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Certificate holders' equity:
Trust certificates.................................. 3,458,819 3,458,819
Retained earnings (Deficit)......................... 118,822 201,409
Distribution to certificate holders................. (189,454) (310,335)
Securities valuation allowance, net................. 53,583 (24,402)
---------- ----------
Total certificate holders' equity.............. 3,441,770 3,325,491
---------- ----------
Total liabilities and certificate holders'
equity........................................ $3,489,768 $3,378,887
========== ==========
See accompanying notes to financial statements
1
IMPERIAL GOVERNMENT INCOME TRUST
Statement of Income
For the three months ending
March 31, 1996
(Unaudited)
Revenues:
Interest income......................... $41,781
Loan administration, net of $32,664
amortization......................... 45,465
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87,246
-------
Expenses:
General and administrative expenses 18,159
-------
18,159
-------
Net Income $69,087
=======
See accompanying notes to financial statements
2
IMPERIAL GOVERNMENT INCOME TRUST
STATEMENT OF CASH FLOW
Unaudited
---------------------------
Three months ending 3/31/96
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Cash flows from operating activities:
Net income.............................................. $ 69,087
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Amortization of purchased mortgage servicing rights..... 32,664
Net change in other liabilities......................... (22,652)
----------
Net cash (used in) by operating activities............ 79,099
----------
Cash flows from financing activities:
Distributions to certificate holders...................... (120,881)
Declared dividends unpaid................................. 41,023
----------
Net cash provided by financing activities............. (79,858)
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Net change in cash........................................ (759)
Cash at beginning of period............................... 45,694
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Cash at end of period..................................... $ 44,935
==========
See accompanying notes to financial statements.
3
IMPERIAL GOVERNMENT INCOME TRUST
Notes to Financial Statements
December 31, 1995
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Imperial Government Income Trust (the Trust) was formed on August 4, 1995 for
the purpose of acquiring investments in mortgage-backed securities guaranteed by
Government National Mortgage Association (GNMA) and Federal National Mortgage
Association (FNMA) and beneficial interests in mortgage servicing rights for
GNMA.
The assets of the Trust will be liquidated on the earlier of (I) May 2, 2001 and
(ii) the date the total remaining mortgage-backed securities and beneficial
interests in mortgage servicing rights fall below a net asset value of
approximately $850,000.
PURCHASED MORTGAGE SERVICING
An analysis of purchased mortgage servicing is as follows:
12/31/95 3/31/96
---------- ---------
Balance, beginning of period 0 1,097,738
Purchased servicing $1,155,726 0
Amortization (57,988) (32,664)
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Balance, end of period $1,097,738 1,065,074
========== =========
LOAN ADMINISTRATION
At March 31, 1996 the Trust's portfolio of mortgage loan servicing cash flows
which are serviced by ICII was comprised of approximately $77 million of GNMA
securities and are backed by FHA and VA.
Related fiduciary funds held by ICII on behalf of the investors in non-interest
bearing accounts totaled approximately $1.7 million at March 31, 1996. In
connection with its loan administration activities, ICII makes certain payments
of attorney's fees and other costs related to loan foreclosures. To the extent
these payments are not reimbursable to ICII, the Trust may be required to cover
the cost. Additionally, ICII is required to make payments of certain property
taxes and insurance premiums in advance of collecting them from specific
mortgagors when necessary.
4
MORTGAGE-BACKED SECURITIES
The carrying value (amortized cost) and estimated fair values of mortgage-backed
securities available for sale are as follows;
March 31, 1995
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Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
Federal National
Mortgage Association $ 383,533 - (14,836) 368,697
Government national
Mortgage Association 1,795,424 - (9,566) 1,785,858
---------- ---------- -------- ---------
$2,178,957 - (24,402) 2,154,555
========== ========== ======== =========
The mortgage-backed securities included above have contractual terms to maturity
ranging up to 30 years, but require periodic payments to reduce principal. In
addition, expected maturities will differ from contractual maturities because
borrowers have the right to prepay the underlying mortgages.
FAIR VALUE OF FINANCIAL INSTUMENTS
The estimated fair values of the Trust's financial instruments are as follows as
of March 31, 1996.
Carrying Fair
value value
---------- ---------
Financial instrument:
Cash $ 44,935 44,935
Mortgage-basked securities 2,154,555 2,154,555
Purchased mortgage servicing 1,065,074 1,234,409
Cash: The fair value of cash approximates the carrying value reported in the
balance sheet.
Mortgage-Backed Securities: The fair value of mortgage-backed securities is
estimated based on quoted market prices.
Purchased Mortgage Servicing: The fair value is estimated by discounting future
cash flows using credit and discount rtes that the Trust believes reflects the
estimated credit, interest rate and prepayment risks associated with similar
types of instruments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Trust was formed on August 4, 1995 ( the "Commencement Date"). The
Trust is a self liquidating trust, with a 66 month target term. Upon the
commencement date, it had 90 days to acquire assets according the terms of its
Trust Agreement.
On November 2, 1995, the Trust closed pursuant to the Trust Asset
Acquisition and Administration Agreement and a Reference Agreement dated August
4, 1995 between Imperial Credit Advisors, Inc. as Administrator and First Trust
of California National Association, as Trustee. The Trust accepted a total of
$3,769,830 gross offering proceeds, resulting in $3,458,819 net proceeds
available for investment in Trust assets.
The Trust is required to pass through to its certificate holders on
the 22nd day of each month the previous months' collection of principal and
interest from the mortgage backed securities and the servicing fees collected
from its GNMA mortgage servicing rights portfolio, net of fees and expenses.
SERVICING RIGHTS
The Trust's basis in mortgage servicing rights, net of amortization
based on assumed prepayment rates, is reflected on the balance sheet as
"Purchased Mortgage Servicing Rights" ("PMSR's"). During the period from the
Commencement Date through March 31, 1996, the Trust purchased beneficial
interests in a pool of GNMA mortgage servicing rights at a purchase price of
$1,155,726. This represented approximately 35% of the total Trust assets.
The MSR pool on March 31, 1996 contained 768 loans with a principal
balance of $76,926,044 and an average loan balance of $100,164. The weighted
average note rate is 7.36%. The portfolio is geographically distributed in 12
states, with major distribution in Virginia, California, Maryland, Nevada, and
Tennessee. At December 31, 1995, loans delinquent 30 days or more comprised of
9.1% of the total portfolio.
The Trust's beneficial interests in servicing rights are subject to
volatility in the event of unanticipated prepayments or defaults. Prepayments in
excess of those anticipated at the time such interests are purchased would
result in decreased future servicing income. Such decreases in future servicing
income would result in accelerated amortization and/or impairment of servicing
rights.
MORTGAGE BACKED SECURITIES
The Trust purchased $1,798,745 of fixed rate mortgage backed
securities issued by the Government National Mortgage Association (GNMA) with an
annual yield of 7.50% due October 15, 2025, at a price of 101-19/32% of the face
value of such securities and $383,646.00 of Federal National Mortgage
Association (FNMA) mortgage backed securities with an annual yield of 6.50% due
November 1, 2002, at a price of 100-11/32% of the face value of such securities.
The total purchase price of the mortgage backed securities including accrued
interest was $2,178,957.
These mortgage backed securities are classified as "available-for-
sale" and are recorded at fair value, with unrealized gains and losses included
from operations and reported as a separate component of Certificate holder's
equity. The estimated fair value of these securities at March 31, 1996 is
$1,785,858 and $368,697 for the GNMA and FNMA pools respectively, based on
quoted market prices.
6
For the quarter ended March 31, 1996, the Trust received $87,246 in
total revenues, comprised of $41,781 of interest income on the GNMA and FNMA
mortgage backed securities and $45,465 in net servicing fees from the Trust's
beneficial interest in mortgage servicing rights. Total expenses for the period
were $18,159 representing advisor fees and other general and administrative
expenses. The net income during the period was $69,087.
INFLATION
The Financial Statements and Notes thereto herein have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased costs of the Trust's operations. Unlike many operating companies,
nearly all of the assets and liabilities of the Trust's operations are monetary
in nature. As a result, interest rates have a greater impact on the Trust's
performance than do the effects of general levels of inflation. Inflation
affects the Trust's operations primarily through its effect on interest rates,
since interest rates normally increase during periods of high inflation and
decrease during periods of low inflation. During periods of rising interest
rates, the fair market value the Trust's mortgage backed securities will tend to
decline as current interest rates become higher than the Trust's mortgage
portfolio. However, as interest rates increase, loan prepayments tend to
decline, such that the value and earnings from the servicing portfolio tend to
increase.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's is not an operating entity, and has no need for liquidity.
All revenues of the Trust, net of fees and expenses, are distributed to the
Certificate holders.
7
PART II. OTHER INFORMATION
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Item 1 - 5 Not Applicable
Item 6 Exhibits and reports on Form 8-K
Exhibit 27 - Financial Data Schedule
No reports on Form 8-K were filed during the quarter ended March 31,
1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPERIAL GOVERNMENT INCOME TRUST
Series I
By, Imperial Credit Advisors, Inc.,
Trust Administrator
Date: May 14, 1996 By: /s/ Thomas O. Markel, Jr.
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Thomas O. Markel, Jr.
President
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