UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Nos.: 033-73748
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FUND AMERICA INVESTORS CORPORATION II
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(Exact name of registrant as specified in its charter)
Delaware 84-1218906
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
6400 S. Fiddler's Green Circle, Suite 1200B, Englewood, Colorado 80111
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(Address of principal executive offices)
Registrant's telephone number including area code: (303) 290-6025
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Indicate by check mark whether the registrant (1) has filed all reports
Required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 14, 2002- 349,000 shares
FUND AMERICA INVESTORS CORPORATION II
FORM 10-Q FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2002
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1. Financial Statements 3
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 7
Item 4. Controls and Procedures 8
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports 9
SIGNATURES 10
CERTIFICATIONS 11
Page 2
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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FUND AMERICA INVESTORS CORPORATION II
Balance Sheets
(Unaudited)
September 30, December 31,
2002 2001
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Assets
Cash and cash equivalents $ 33,494 $ 5,071
Deferred offering costs, net 256,361 256,361
Prepaid expenses 2,150 204
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Total assets $ 292,005 $ 261,636
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Liabilities - accounts payable $ 214 $ -
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Commitments and Contingencies - -
Shareholder's equity
Common stock, par value $.01 per share;
1,000,000 shares authorized; 349,000
shares issued and outstanding 3,490 3,490
Additional paid-in capital 504,010 488,010
Shareholder distributions (1,874,798) (1,874,798)
Retained earnings 1,659,089 1,644,934
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Total shareholder's equity 291,791 261,636
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Total liabilities and
shareholder's equity $ 292,005 $ 261,636
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See notes to financial statements
Page 3
FUND AMERICA INVESTORS CORPORATION II
Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
2002 2001 2002 2001
------ ------ ------ ------
Revenue
Other bond income $ - $ - $44,166 $30,000
Interest - - - 8
------- ------- ------- -------
Total revenue - - 44,166 30,008
------- ------- ------- -------
Expenses
General and
administrative 1,151 3,119 12,011 13,599
Management fees 6,000 6,000 18,000 18,000
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Total expenses 7,151 9,119 30,011 31,599
------- ------- ------- -------
Net (loss)/income $(7,151) $(9,119) $14,155 $(1,591)
======= ======= ======= =======
See notes to financial statements
Page 4
FUND AMERICA INVESTORS CORPORATION II
Statements of Cash Flows
(Unaudited)
Nine months ended
September 30,
--------------------
2002 2001
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Operating activities:
Net (loss)/income $ 14,155 $ (1,591)
Adjustments to reconcile net(loss)/income
to net cash from operating activities:
Changes in operating assets
and liabilities:
Accounts payable 214 6,055
Prepaid expenses (1,946) 195
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Net cash provided by operating activities: 12,423 4,659
Financing activities:
Capital contributions 16,000 20,000
Shareholder distributions - (25,000)
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Net cash provided by/(used in)
financing activities: 16,000 (5,000)
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Net increase/(decrease) in cash
and cash equivalents 28,423 (341)
Cash and cash equivalents
at beginning of year 5,071 797
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Cash and cash equivalents
at end of period $ 33,494 $ 456
======== ========
See notes to financial statements
Page 5
FUND AMERICA INVESTORS CORPORATION II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, 2002 and 2001
1. Basis of Presentation
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Organization
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Fund America Investors Corporation II (the "Company") was incorporated in
the State of Delaware on December 14, 1992 as a limited purpose finance
corporation. The Company was established to engage in the issuance and
administration of Collateralized Mortgage Obligations (the "Bonds") and Asset-
backed Certificates (the "Certificates", and together with the Bonds, the
"Securities"). The Securities are issued in one or more series, from time to
time, by the Company in accordance with the provisions in the prospectus and
series-related prospectus supplement of the Company's latest effective
registration statement.
The Securities of each series can be issued directly by the Company, but
typically the Company forms a separate trust to act as the issuer solely for
the purpose of issuing a series of Securities. A series of Securities that
consist of Bonds will be issued pursuant to an indenture and will represent
indebtedness of the trust or issuer. A series of Securities that consist of
Certificates will represent beneficial ownership in the related trust or
issuer. The sole source of payments to Bondholders or Certificateholders
within each series of Securities is produced from the related trust property.
The trust property is generally comprised of mortgage loans and/or mortgage
- -related assets as described in each of the series' related prospectus
supplements.
The Company may not, either directly or indirectly through a beneficially
owned trust, engage in any business or investment activity other than to; (1)
issue and sell Bonds; (2) purchase, own, hold, pledge or sell mortgage loans or
other mortgage-related assets; (3) invest and maintain cash balances on an
interim basis in high quality short-term securities; and (4) engage in other
activities which are necessary or convenient to accomplish the foregoing and
are incidental thereto.
On January 1, 2002, the Company had a total of $561 million registered and
unissued Securities on its Registration Statement No. 333-33823. No Securities
were issued during the nine months ended September 30, 2002. From inception to
date, the Company has issued nineteen series of Securities, which aggregate $2.4
billion in original issued principal. The Company does not have any further
obligations in connection with the issuance of these Securities. Under
accounting principles generally accepted in the United States of America, these
issuances are considered to be a direct sale of the collateral.
The Company's fifth Registration Statement on Form S-3 was filed on
September 30, 1998 with the Securities and Exchange Commission. The purpose of
this filing was to register an additional amount of Securities and to merge the
Company's Effective Registration Statement No. 333-33823, thereby increasing the
total amount of Securities that can be issued by the Company. As of September
30, 2002, this Registration Statement was not effective and was subject to
completion or amendment. The Company intends to file one or more further
amendments to complete this Registration Statement and to bring it effective.
2. Unaudited Financial Statements
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In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of the Company at September 30, 2002 and December 31, 2001, and the
results of its operations and cash flows for the periods ended September 30,
2002 and 2001. These financial statements should be read in conjunction with
the audited financial statements and the accompanying notes included in the
Company's latest report on Form 10-K for the year ended December 31, 2001.
Page 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Liquidity and Capital Resources
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The Company expects to fund ongoing operations from its cash balances,
revenues derived from the issuance of Securities, and if necessary, from loans
or capital contributions from its sole shareholder. The current cash position
will not adequately fund overhead costs over the next twelve months without
additional revenues generated during this period. Capital funding has and will
continue to be provided by the sole shareholder to cover operating costs on a
monthly basis or until the Company generates sufficient revenue. The funding
source for any additional capital costs relating to the registration of
securities will be determined when the funding is required and will depend on
the cash position at that time.
Results of Operations
- ---------------------
The Company operates on relatively fixed general and administrative costs
which have not substantially changed from comparable periods in prior years.
Typically, periodical fluctuations in net income are directly related to
activity from the issuance of Securities. Under normal circumstances, periods
reporting net income are the direct result of issuance fees earned by the
Company, and periods reporting a net loss, no issuance fees were earned. For
the three-months ended September 30, 2002, the Company reported net loss of
$7,151 and a net loss of $9,119 for the three months ended September 30, 2001.
The difference in the two reporting periods was a result of additional costs for
an amendment that was never filed. The remaining income and expense items for
September 30, 2002 are comparable to the three-months ended September 30, 2002.
The nine-month period ended September 30, 2002 reported a net income of
$14,155 as compared to the nine-months ended September 30, 2001, which reported
a net loss of $1,591. The primary difference between the two reporting periods
was the result of the Company having revenue in 2001 in the form of call option
income in the amount of $30,000 when the call rights to Fund America Investors
Corporation II 1993-E were sold, as compared to the same nine months in 2002
when call option income of $44,166 was earned on the sale of the call rights to
Fund America Investors Corporation II Series 1993-J. Other items of income and
expense were comparable between the two reporting periods, except for some
additional costs incurred in 2001 relating to an amendment that was never filed.
Forward Looking Statements
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The statements contained in this Item 2 that are not historical facts,
including, but not limited to, statements that can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, and involve a number of risks
and uncertainties. The actual results of the future events described in such
forward-looking statements could differ materially from those stated in such
forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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Securities issued by the Company are either debt securities or securities
which evidence beneficial ownership interest in designated trusts established to
facilitate the transfer of trust asset payments to the Bondholders who hold such
debt securities or to the Certificateholders who hold such beneficial ownership
interests. Assets securing payments to Bondholders or Certificateholders are
pledged or sold to designated trusts and are not assets of the Company.
Additionally, Bonds and Certificates that are issued either by the Company or a
trust formed by the Company do not represent an ownership interest in or an
obligation of the Company.
Page 7
Disclosures required in this Item 3 are intended to clarify a registrant's
exposures to market risk associated with activities in derivative financial
instruments, other financial instruments, and derivative commodity instruments.
The purpose of this section is to disclose the material effects on earnings,
fair values, and cash flows that are inherent to potential market risk exposure.
Potential market risk associated with Securities issued under the Company's
registration statement will not have a material effect on the Company's earnings
or cash flow since the Securities do not represent an interest in or an
obligation of the Company. In addition, the Company has no public common
equity; all common stock of the Company is held by one shareholder. Therefore,
material effects of potential market risk exposure on Securities issued from the
Company will not have any significant impact on the Company.
Item 4. Controls and Procedures
-----------------------
The Company is not required to disclose the information required by
Item 307 Controls and Procedures because the Company meets the definition
of a registrant that is an Asset-Backed Issuer as defined in Section
240.15d-14(g).
Page 8
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None
B. Form 8-K
None
Page 9
SIGNATURES
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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.
FUND AMERICA INVESTORS CORPORATION II
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(Registrant)
Date: November 14, 2002 By: /s/ Helen M. Dickens
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Helen M. Dickens
Vice President and Secretary
(Duly authorized and
Principal Financial Officer)
Page 10
CERTIFICATIONS
I, Steven B. Chotin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fund America
Investors Corporation II;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Steven B. Chotin
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Steven B. Chotin
Chairman and Chief Executive Officer
Page 11
I, Helen M. Dickens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fund America
Investors Corporation II;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Helen M. Dickens
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Helen M. Dickens
Chief Financial Officer
Page 12