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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998, 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 No.: 33-73748
FUND AMERICA INVESTORS CORPORATION II
(Exact name of registrant as specified in its charter)
Delaware 84-1218906
(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
(Address of principal executive offices)
Registrant's telephone number including area code: (303) 290-6025
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: As of December 31, 1998: $0.00.
The number of shares outstanding of the Registrant's $0.01 par value
common stock, as of March 30, 1999 was 349,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS
------ --------
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 as described in the prospectus and series-rela-
ted prospectus supplement of the Company's latest effective registration
statement.
The Securities of each series can be issued by the Company, but
typically the Company forms a separate trust to act as the issuer solely
for the purpose of issuing a series. A series of Securities that include
Bonds will be issued pursuant to an indenture and will represent indebtedness
of the trust or issuer. A series of Securities that include 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 property or
assets within each trust are comprised of mortgage-related assets as defined
in each of the series related prospectus supplements, and represent the colla-
teral for either the Bonds or the Certificates.
The Company may not, either directly or indirectly through a benef-
icially owned trust, engage in any business or investment activity other
than to; (1) issue and sell Bonds; (2) purchase, own, hold, pledge or sell
collateral 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.
At January 1, 1998, the Company had a total of $912 million registered
and unissued securities on its Registration Statement No. 333-33823, the
Company's current effective Registration Statement. The Company issued
$348 million of Securities in three series from its Registration Statement
No. 333-33823 during 1998. Each series of Securities was issued pursuant
to a separate prospectus supplement, listed below. At December 31, 1998,
$564 million of Securities remained unissued on Registration Statement No.
333-33823.
Prospectus Supplement Information:
Amount Type of
Date Issuer/Series of Offering Securities
-------- -------------------------- ----------- ----------
04-28-98 Fund America Investors
Corporation II/Pass-Through
Certificates, Series 1998-A $ 60,373,853 Certificates
06-24-98 Fund America Investors
Trust 1998-NMC1/Collater-
alized Mortgage Obligations,
Series 1998-NMC1 $236,526,000 Bonds
06-28-98 Fund America Investors
Corporation II/Pass-Through
Certificates, Series 1998-B $ 50,703,106 Certificates
The Certificates in Series 1998-A and Series 1998-B represent the entire
beneficial ownership in trusts specifically formed for each series. Each
trust holds underlying securities which are the sole source of distribution
payments to the certificateholders. These Certificates do not represent an
interest in or obligation of the Issuer or the Company.
ITEM 1. CONTINUED
------ ---------
The Bonds in Series 1998-NMC1 represent non-recourse obligations of the
Issuer, Fund America Investors Trust 1998-NMC1 (the "Trust'), and do not
represent interests in or obligations of the Company. The assets that were
pledged to the Trust are the sole source of payments on the Bonds. The
pledged assets consist of adjustable rate, fully amortized mortgage loans
that are secured by residential properties.
The mortgage loans in Series 1998-NMC1 were originated or acquired by
National Mortgage Corporation ("NMC"), an affiliate of the Company through
common control. In addition to NMC's participation as the seller of these
mortgage loans, NMC is servicing the mortgage loans and is the holder of the
residual interest that represents all of the beneficial ownership interest
in Fund America Investors Trust 1998-NMC1.
To date, the Company has issued eighteen series of Securities aggre-
gating initial principal amount of $2.4 billion. In 1996 and prior years,
the Company issued a total of $2 billion in initial principal amount. During
1997, one Bond series was issued for $122 million. In 1998, the Company
issued three series of Securities aggregating $348 million in initial princ-
ipal. The Company does not have any further obligations in connection with
the issuance of these Securities. Under generally accepted accounting princ-
iples, such issuances are considered to be a direct sale of the collateral.
On September 30, 1998, the Company filed its fifth Registration Statement
on Form S-3 with the Securities and Exchange Commission. The purpose of this
Registration Statement is 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 December 31, 1998, 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.
ITEM 2. PROPERTIES
------ ----------
The Company has no material physical properties.
ITEM 3. LEGAL PROCEEDINGS
------ -----------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------ ---------------------------------------------------
No matters were submitted to the security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
------ ----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
There is no established public trading market for the Company's common
stock and no dividends have been declared or paid. All of the Company's
common stock is owned by a sole shareholder.
ITEM 6. SELECTED FINANCIAL DATA
- - ------ -----------------------
Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Income Statement
Data:
Revenue $370,890 $132,196 $199,448 $ 26,538 $788,133
Net income(loss) 196,084 24,035 42,165 (94,766) 102,519
Net income(loss) per
share of common stock (1) (1) (1) (1) (1)
Balance Sheet Data:
Total assets 475,180 475,280 442,444 440,373 1,871,994
Shareholder's equity 474,965 466,479 442,444 440,279 1,722,245
(1) Not presented, as all shares of common stock are held by a
sole shareholder.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
1. General
-------
To date, the Company has issued eighteen series of registered Pass-
Through Securities aggregating $2,436,596,829 in initial amount for all the
issuances. As of December 31, 1998, thirteen series of Bonds remain out-
standing. The following list consists of only those outstanding series
shown with initial issuance amounts.
Series Amount Collateral
------ ------------ -------------------------------------------------
1993-A $262,435,000 Trust consisting primarily of adjustable rate
one- to four-family, first lien mortgage loans
1993-B $ 77,409,000 Trust consisting primarily of adjustable rate
one- to four-family, first lien mortgage loans
1993-C $319,000,000 Trust consisting primarily of Federal National
Mortgage Association and Federal Home Loan
Mortgage Corporation Securities; private
mortgage backed securities including certain
residual interest securities; principal
component of bonds issued by the Resolution
Funding Corporation
1993-E $190,145,165 Trust consisting primarily of adjustable rate
one- to four-family, first lien mortgage loans
1993-F $ 50,845,601 Trust consisting primarily of Fixed-rate,
closed-end, simple interest, residential first
and second mortgage loans and deed of trust
loans
1993-H $ 45,634,831 Trust consisting primarily of adjustable rate
one- to four-family, first lien mortgage loans
1993-J $150,069,158 Trust consisting primarily of adjustable rate
one- to four-family, first lien mortgage loans
1994-A $ 44,599,100 Trust consisting primarily of adjustable rate
one- to four-family, first lien mortgage loans
1996-A $295,315,915 Trust consisting primarily of adjustable rate,
conventional first lien mortgage loans and
fixed rate, second lien mortgage loans
1997-NMC1 $121,765,000 Trust assets consisting primarily of adjustable
rate mortgage loans that are secured by first
lien mortgages on one- to four-family
residential property
1998-A $ 60,373,853 Trust consisting primarily of one Pooled Fannie
Mae Certificate, two Pooled Freddie Mac
Certificates and one Pooled Non-Agency
Certificate
1998-B $ 50,703,106 Trust consisting primarily of three Pooled
Fannie Mae Certificates, one Pooled Ginnie Mae
Certificate, two Pooled Freddie Mac
Certificates and one Pooled Non-Agency
Certificate
1998-NMC1 $236,526,000 Trust assets consisting primarily of adjustable
rate mortgage loans that are secured by first
lien mortgages on one- to four-family
residential properties
2. The Year 2000 Issue
-------------------
With the year 2000 approaching, potential computer failures and errors
may occur due to problems with the computerized recognition of date codes.
The Year 2000 ("Y2K") issue addresses potential problems that may be encoun-
tered with date-related transactions on systems that have historically recog-
nized years using two digits versus four digits. For example, these systems
may recognize "00" as the year 1900 instead of 2000. This could potentially
affect computerized operations that rely on date calculations or are date
sensitive.
All operations of the Company are essentially driven by the issuance of
Securities. In order to assess and determine potential Y2K issues within the
operations, the Company has separated operations into three sections, the
registration of Securities, the issuance of Securities, and the administrative
operations.
The preparation, filing, and follow-up of the registration and issuance
processes are typically out-sourced to third-party service providers that
specialize in these services. The Company is requesting confirmation from
its third-party service providers that their systems are Y2K compliant. The ]
Company has received assurance of Y2K compliance from some of its third-party
service providers. In addition, the Company is still continuing its efforts
to receive assurance from its other third-party service providers.
The Company, in conjunction with its facilities provider, The Chotin
Group Corporation ("TCG"), a related party, has assessed the third area of
the Company's operations, administrative systems. TCG provides the Company
with office facilities and administrative functions. TCG has assessed its
internal systems and has developed a Y2K Compliance Plan. Currently, TCG is
in the process of implementing the plan, which involves updating and upgrading
all of TCG's internal systems that were determined to not be Y2K compliant.
The Company will closely monitor TCG's progress.
Due to the fact that all operational systems are hired out, the Company
does not expect to incur any direct costs for Y2K compliance or remediation
that would materially affect its financial condition. The potential risk
to the Company, however, would be a delay in its operations of registering
Securities and issuing Securities. Delays may be caused by the Company's
reliance on third-party service providers who handle out-sourced operations
and who are not Y2K compliant. To resolve this issue, the Company will con-
sider out-sourcing operations to other third-party service providers who
confirm their Y2K compliance.
If the necessary updates to TCG's systems are not made on a timely
basis, or if third party service providers are not Y2K ready, Y2K problems
could have a material adverse effect on the Company's operations.
Without a reasonably complete upgrade and testing of systems that may be
vulnerable to problems, the Company does not have a reasonable basis to con-
clude that the Year 2000 compliance issue will not likely have an operational
impact on the Company. In addition, without a reasonable conclusive basis,
reported financial information will not necessarily be indicative of future
operating results or future financial condition.
3. Liquidity and Capital Resources
-------------------------------
In 1998, management anticipated that a significant portion of the
Company's registered and unissued Securities would be utilized by NMC, an
affiliated mortgage company. Market conditions, however, for mortgage
products changed which favored holding mortgage loan portfolios to selling
the portfolios for securitization. As a result, the volume of Securities
issued was lower than originally expected. Going forward in 1999 and there-
after, the Company continues its expectations that the issuance volume will
increase to accommodate increasing loan production from NMC as well as other
third party issuers.
The Company expects to fund ongoing operations from working capital and
revenues derived from the issuance of Securities. Over the next 12 months,
the Company's current cash position will adequately fund overhead and capital
costs related to the registration of additional securities without additional
revenues from anticipated issuances.
4. Results of Operations
---------------------
The Company does not have any significant assets other than cash held
for operations and capitalized deferred offering costs. Major operating
activity is initiated from the issuance of Securities or the preparation
in registering Securities to be issued. Costs incurred with registering
Securities are capitalized until such time the Securities are issued in an
offering.
Net income may fluctuate from period to period based on the use of the
Company's registered and unissued Securities. The Company generally charges
the issuer of a series of Securities a flat fee and a proportionate share of
deferred costs associated with its registration statement.
Typically, periods reporting net income are the result of issuance fees
earned by the Company for the use of its shelf registration. Conversely, in
periods reflecting net losses, no issuance fees were earned and the loss is
the result of fixed general and administrative expenses.
An evaluation of long-lived assets at December 31, 1998 and December 31,
1997 resulted in impairment of the Company's deferred offering costs. It was
determined that costs in excess of the currently accepted market pass-through
costs should be charged to net income. The net impairment charged to opera-
tions in 1998 and 1997 was $1,127 and $18,503, respectively.
The Company reported net income for the year ended December 31, 1998 of
$196,084 compared to net income of $24,035 for the year ended December 31,
1997 and net income of $42,165 for the year ended December 31, 1996. In all
three years issuance fees were earned, however, in 1998 three bond series
were issued versus one in each of the years of 1997 and 1996. In comparing
1997 to 1996, years in which one series of Securities was issued, 1997 results
were $42,538 without the reduction by the impairment of $18,503. Variables
affecting comparable results of operations are typically the number of secur-
itizations completed and/or impairments of assets.
5. Forward Looking Statements
--------------------------
The statements contained in this Item 7 and Item 7A 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 state-
ments 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. Among the
factors that could cause actual results to differ materially are: the Y2K
preparedness of the Company's third-party service providers, the market for
mortgage-backed securities, competition, government regulation and possible
future litigation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- ----------------------------------------------------------
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 Certificate-
holders 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 inter-
est in or an obligation of the Company.
Disclosures required in this Item 7A are intended to clarify a regis-
trant'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 in 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------ ------------------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Shareholders
Fund America Investors Corporation II
Englewood, Colorado 80111
We have audited the accompanying balance sheets of Fund America
Investors Corporation II as of December 31, 1998 and 1997, and the
related statements of operations, shareholder's equity, and cash flows
for each of the three years in the period ended December 31, 1998. 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, such financial statements present fairly, in all
material respects, the financial position of the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 15, 1999
FUND AMERICA INVESTORS CORPORATION II
Balance Sheets
December 31,
-------------------
1998 1997
------ ------
Assets
Cash and cash equivalents (Note 2) $226,446 $110,311
Deferred offering costs, net (Note 2) 248,555 364,797
Prepaid expenses 179 172
-------- --------
Total assets $475,180 $475,280
======== ========
Liabilities - Accounts payable $ 215 $ 8,801
-------- --------
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
Retained earnings 471,475 462,989
-------- --------
Total shareholder's equity, net 474,965 466,479
-------- --------
Total liabilities and shareholder's
equity $475,180 $475,280
======== ========
See notes to financial statements
FUND AMERICA INVESTORS CORPORATION II
Statements of Operations
Year Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
Revenue
Issuance fees $360,418 $125,995 $193,335
Interest 10,472 6,201 6,113
-------- -------- --------
Total revenue 370,890 132,196 199,448
-------- -------- --------
Expenses
Amortization of deferred
offering costs 135,418 50,995 119,900
General and administrative 14,261 14,663 13,383
Management fees (Note 4) 24,000 24,000 24,000
Impairment of long-lived
assets (Note 2) 1,127 18,503 -
-------- -------- --------
Total expenses 174,806 108,161 157,283
-------- -------- --------
Net income $196,084 $ 24,035 $ 42,165
======== ======== ========
See notes to financial statements
FUND AMERICA INVESTORS CORPORATION II
Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
Common Stock
Number of Par Retained Shareholder's
Shares Value Earnings Equity-Net
---------- -------- ---------- -------------
Balance at
January 1, 1996 349,000 $3,490 $436,789 $440,279
Shareholder
distributions - - (40,000) (40,000)
Net income - - 42,165 42,165
------- ------- -------- --------
Balance at
December 31, 1996 349,000 3,490 438,954 442,444
Net income - - 24,035 24,035
------- ------- -------- --------
Balance at
December 31, 1997 349,000 3,490 462,989 466,479
Shareholder
distributions - - (187,598) (187,598)
Net income - - 196,084 196,084
------- ------- -------- --------
Balance at
December 31, 1998 349,000 $3,490 $471,475 $474,965
======= ======= ======== ========
See notes to financial statements
FUND AMERICA INVESTORS CORPORATION II
Statements of Cash Flows
Year ended December 31,
---------------------------------
1998 1997 1996
------ ------ ------
Net cash flows from operating
activities:
Net income $196,084 $ 24,035 $ 42,165
Adjustments to reconcile
net income to net cash from
operating activities:
Amortization of deferred
offering costs 135,418 50,995 119,900
Amortization of organization
costs - 583 635
Impairment of deferred
offering costs 1,127 18,503 -
Changes in operating assets
and liabilities:
Accounts payable (8,586) 8,801 (94)
Prepaid expenses (7) (9) (163)
-------- -------- --------
Net cash provided by
operating activities: 324,036 102,908 162,443
Cash flows provided by (used in)
investing activities:
Additions to deferred
offering costs (20,303) (183,171) (14,185)
Recovery of deferred
offering costs from issuer - - 41,866
-------- -------- --------
Net cash provided by (used in)
investing activities (20,303) (183,171) 27,681
Cash flows used in financing
activities-
Shareholder distributions (187,598) - (40,000)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 116,135 (80,263) 150,124
Cash and cash equivalents at
beginning of year 110,311 190,574 40,450
-------- -------- --------
Cash and cash equivalents
at end of year $226,446 $110,311 $190,574
======== ======== ========
See notes to financial statements
FUND AMERICA INVESTORS CORPORATION II
Notes to Financial Statements
Note 1. The Company
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 prospec-
tus and series-related prospectus supplement of the Company's latest effective
registration statement.
The Securities of each series can be issued by the Company, but
typically the Company forms a separate trust to act as the issuer solely
for the purpose of issuing a series. A series of Securities that include
Bonds will be issued pursuant to an indenture and will represent indebtedness
of the trust or issuer. A series of Securities that include 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 property or
assets within each trust are comprised of mortgage-related assets as defined
in each of the series' related prospectus supplements.
The Company will not, either directly or indirectly through a benefici-
ally owned trust engage in any business or investment activity other than to;
(1) issue and sell Bonds; (2) invest cash balances on an interim basis in
high quality short-term securities; (3) purchase, own, hold, pledge or sell
Collateral or other mortgage-related assets; (4) engage in other activities
which are necessary or convenient to accomplish the foregoing and are incid-
ental thereto.
Note 2. Summary of Significant Accounting Policies
In connection with the issuance of Securities, the Company generally
will enter into a purchase agreement ("Purchase Agreement") with the seller
of the Mortgage Assets or the Collateral. Simultaneously, the Collateral is
conveyed, by the Company, to the trust who issues the Securities, pursuant
to a pooling and servicing agreement ("Pooling Agreement"). Correspondingly,
the purchase price for the Collateral payable to the seller is netted out from
the proceeds realized from the sale of the Securities. Therefore, the Com-
pany's financial statements reflect the net result of the issuance and not
the gross amounts attributable to the purchase price of the Collateral and
the sales proceeds from the issuance of the Securities.
Costs of registering securities are deferred. As the Securities are
issued from the registered securities, costs are charged to operations. The
charge is based on the ratio of bonds issued to securities registered but
previously unissued.
Fees from the Security issuance transactions are recognized as revenue
when the transactions close. All expenses of the transaction, including
a portion of deferred offering costs, are charged to operations.
For purposes of reporting cash flows, cash and cash equivalents include
demand deposit accounts.
Certain organizational costs incurred by the Company have been deferred
and have been charged to operations over a five-year period.
Net income per share is not presented, as all shares of common stock are
held by a sole shareholder.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements, and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
SFAS No. 107 "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet. The Company's financial
instruments include: cash and cash equivalents, and accounts payable. The
carrying amount of these assets and liabilities approximates their fair value.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" requires companies to evaluate long-lived
assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If a long-lived
asset is identified as impaired, the value of the asset must be reduced to its
fair value. The Company's deferred offering costs are considered long-lived
assets under this pronouncement. An evaluation of long-lived assets resulted
in impairment of the Company's deferred offering costs at December 31, 1997
and December 31, 1998. It was determined that costs in excess of the cur-
rently accepted market pass-through costs should be charged to net income.
The net impairment charged to operations was $18,503 in 1997 and $1,127 in
1998.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", requires certain accounting
and reporting for securitizations of mortgage loans, mortgage backed
securities and other mortgage collateral. There was no effect on the
financial position or results of operations of the Company as a result
of SFAS No. 125. The Company does not expect SFAS No. 125 to change the
accounting of issuances for future securitizations, to the extent such
issuances are structured similarly to past transactions.
Note 3. Income Taxes
Under S Corporation guidelines of the Internal Revenue Code, the Comp-
any has elected to be treated substantially as a partnership for income tax
purposes. As a result, the sole shareholder reports any taxable income
or loss of the Company on his individual tax return. Accordingly, no
provision for federal income taxes has been recorded in the financial
statements.
Note 4. Related Party Transactions
The Company has engaged in various related party transactions as
discussed below. Accordingly, the accompanying financial statements are
not necessarily indicative of the financial position that would exist or
the results of operations that would have occurred if the transactions
had been with unaffiliated entities.
The sole shareholder of the Company is also the sole shareholder,
President and Director of The Chotin Group Corporation and Fund America
Management Corporation ("FAMC"). On January 1, 1993, the Company
entered into a Management Agreement with The Chotin Group Corporation
(the "Facilities Manager"). This agreement remains in force until
written termination of the agreement is presented by either party. As
of December 31, 1998, no such notice of termination has been given or
received by the Company. Under the terms of the agreement, the
Facilities Manager is required to provide facilities use and other
services necessary for the Company to manage its business affairs. The
management fees paid during each of the three years ended December 31,
1998 were $24,000.
The mortgage loans in Series 1998-NMC1, issued in 1998, were originated
or acquired by National Mortgage Corporation ("NMC") an affiliate of the
Company through common control. In addition to NMC's participation as
the seller of the mortgage loans in this series, NMC is servicing the
mortgage loans and is the holder, through a wholly-owned subsidiary, of
the residual interest that represents all of the beneficial ownership
interest in Fund America Investors Trust 1998-NMC1.
Note 5. CMO Information
At December 31, 1998 and 1997, the outstanding principal balance of the
issued Securities and the amount of publicly and privately issued securities
were as follows:
1998
---------------------------------------------------------------------------
Total Publicly Privately
Series Certificates Issued Issued
------ -------------- ------------- ------------
1993-A $ 95,272,301 $ 91,805,109 $ 3,467,192
1993-B 18,127,195 14,504,919 3,622,276
1993-C 183,230,771 183,230,771 -
1993-E 37,005,049 32,546,951 4,458,098
1993-F 6,862,610 6,862,610 -
1993-H 8,578,280 8,578,280 -
1993-J 24,714,688 23,562,771 1,151,917
1994-A 6,320,685 5,421,786 898,899
1996-A 79,139,451 79,139,451 -
1997-NMC1 72,903,391 72,903,391 -
1998-A 40,704,057 40,704,057 -
1998-B 42,849,600 42,849,600 -
1998-NMC1 208,756,942 208,756,942 -
------------ ------------ -----------
Total $824,465,020 $810,866,638 $13,598,382
============ ============ ===========
1997
-------------------------------------------------------------------
Total Publicly Privately
Series Certificates Issued Issued
------ ------------- ------------- -----------
1993-A $120,745,478 $115,889,343 $ 4,856,135
1993-B 25,768,640 21,813,103 3,955,537
1993-C 215,317,630 215,317,630 -
1993-E 65,943,839 59,705,590 6,238,249
1993-F 11,181,845 11,181,845 -
1993-H 11,653,426 11,596,528 56,898
1993-J 40,643,162 38,738,284 1,904,878
1993-K 10,000 - 10,000
1994-A 10,284,418 9,045,889 1,238,529
1996-A 151,877,854 151,877,854 -
1997-NMC1 114,983,630 114,983,630 -
------------ ------------ -----------
Total $768,409,922 $750,149,696 $18,260,226
============ ============ ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE None.
-----------------------------------
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------- --------------------------------------------------
Name Position Age
Steven B. Chotin Director, Chairman, Chief Executive
Officer and President 51
Howard J. Glicksman Director, Vice President and Assistant
Secretary 53
M. Garrett Smith Director 37
Helen M. Dickens Director, Vice President, and Secretary 45
Kenneth S. Birnbaum Vice President 54
Annel Henderson Principal Accounting Officer, and Controller 37
Steven B. Chotin, 51, has been a Director and the Chairman, Chief
Executive Officer and President of the Company since its inception. Mr.
Chotin has been President of The Chotin Group Corporation, a financial
service firm, since July 1984. Mr. Chotin was a director of American
Southwest Financial Corporation and of American Southwest Finance Co.,
Inc. from 1982 to 1994. Mr. Chotin may be deemed to be a "promoter"
within the meaning of Rule 405 under the Securities Act of 1933,as
amended (the "Act").
Howard J. Glicksman, 53, has been a Director of the Company since 1995,
Vice President since 1993 and Assistant Secretary since 1989. Mr.
Glicksman has been Vice President since 1993, Assistant Secretary and
General Counsel since 1989 of The Chotin Group Corporation. Prior to
joining The Chotin Group Corporation, Mr. Glicksman was a partner in the
Denver, Colorado law firm of Glicksman, Woodrow & Shaner. He currently
holds bar and association memberships in Colorado and New York.
M. Garrett Smith, 37, is currently Executive Vice President and Chief
Financial Officer of Pioneer Natural Resources Company, a Dallas-based
company. Mr. Smith has been associated with Pioneer's top financial
group for eight years, most recently serving as Senior Vice President -
Corporate Acquisitions. Previously Mr. Smith was a partner with BTC
Partners, a financial consultant to MESA, Inc.
Helen M. Dickens, 45, has been a Director of the Company since 1995,
Vice President and Secretary of the Company since 1989. Ms. Dickens is
also Vice President and Chief Operations Officer of The Chotin Group
Corporation, positions she has held since 1989. Prior to joining The
Chotin Group Corporation, Ms. Dickens served as Assistant Corporate
Secretary and Assistant to the Chairman of the Board and President of
Uniwest Financial Corp., a non-diversified savings and loan holding
company.
Kenneth S. Birnbaum, 54, has been Vice President of the Company since
1993. Mr. Birnbaum is Vice President of The Chotin Group Corporation, a
position he has held since 1990. He is also the Manager of The Chotin
Group Corporation's Washington, D.C., office. Prior to joining The
Chotin Group Corporation, Mr. Birnbaum was General Counsel of Bracy
Williams & Company, a government affairs firm specializing in advising
corporations on federal, financial, energy and transportation-related
legislative and administrative matters. He is currently a member of
the bar of the District of Columbia.
Annel Henderson, 37, has been the Controller of the Company since 1992
and the Principal Accounting Officer since 1995. Mrs. Henderson has
been the Controller of The Chotin Group Corporation since 1992. Prior
to 1992, she was Accounting Manager of Community Holdings Corporation.
Directors and Executive Officers are elected annually for a one-year
term.
ITEM 11. EXECUTIVE COMPENSATION
------- ----------------------
As of December 31, 1998, no executive officer had received any compen-
sation exceeding $100,000.
The Company has not paid any compensation pursuant to plans or any other
compensation arrangement. The Company pays its outside director a monthly
fee of $150.00. No other officers or directors receive any compensation for
their services.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------- --------------------------------------------------------------
Amount and
Nature Of
Beneficial Percent of
Title Name and Address Ownership (1) Class
of Class of Beneficial Owner
-------- ------------------------------ ------------- ----------
Common Steven B. Chotin 349,000 100%
6400 S. Fiddler's Green Circle
Suite 1200
Englewood, CO 80111
(1) Amount of such shares with respect to which persons indicated have
the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934: Zero.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------- ----------------------------------------------
The information relating to this Item is incorporated herein by reference
to Item 8, "Financial Statements and Supplementary Data" under Note 4
"Related Party Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
------- ---------------------------------------------------------------
( a )(1) Financial Statements
- Independent Auditors' Report
- Balance Sheets at December 31, 1998 and 1997
- Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996
- Statements of Shareholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996
- Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
- Notes to Financial Statements for the Years Ended December
31, 1998, 1997 and 1996
( a )(2) Financial Statement Schedules
The financial statement schedules have been omitted because
they are inapplicable.
( b ) Reports on Form 8-K
None
( c ) Exhibits
Exhibit 27. Financial Data Schedule
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.
FUND AMERICA INVESTORS CORPORATION II
(Registrant)
Date: March 30, 1999 By: /s/ Helen M. Dickens
-------------- -------------------------
Helen M. Dickens
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Steven B. Chotin Director, Chairman,
Steven B. Chotin Chief Executive March 30, 1999
Officer and President
(Principal Executive Officer)
/s/ Helen M. Dickens Director, Vice President and
Helen M. Dickens Treasurer (Principal
Financial Officer) March 30, 1999
/s/ Howard J. Glicksman Director, Vice President
Howard J. Glicksman And Assistant Secretary March 30, 1999
/s/ Garrett Smith Director March 30, 1999
Garrett Smith
/s/ Kenneth S. Birnbaum Vice President March 30, 1999
Kenneth S. Birnbaum
/s/ Annel Henderson Principal Accounting
Annel Henderson Officer March 30,1999
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
Since the Company has a sole shareholder, the Company has not sent and
will not send an annual report or proxy material to its shareholder.