Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

For the quarterly period ended September 30, 2004

Or

For the transition period from              to             

Commission File Number 333-82040

MAIN PLACE FUNDING, LLC

(Exact name of registrant as specified in its charter)

9 W 57^th Street New York, NY 10019

(Address of principal executive offices) (Zip Code)

(212) 583-8078

(Registrant’s telephone number, including area code)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

On November 15, 2004, there were no shares of common stock outstanding. As of November 15, 2004, Bank of America, N.A. holds 100 percent membership interest in Main Place.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION H(2) OF THE FORM 10-Q.

Table of Contents

Main Place Funding, LLC

September 30, 2004 Form 10-Q

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Main Place Funding, LLC

Statement of Income

(Dollars in Thousands)

See accompanying notes to financial statements.

3

Table of Contents

Main Place Funding, LLC

Balance Sheet

(Dollars in Thousands)

See accompanying notes to financial statements.

4

Table of Contents

Main Place Funding, LLC

Statement of Cash Flows

(Dollars in Thousands)

See accompanying notes to financial statements.

5

Table of Contents

Main Place Funding, LLC

Statement of Changes in Member’s Equity

(Dollars in Thousands)

See accompanying notes to financial statements.

6

Table of Contents

Main Place Funding, LLC

Notes to Financial Statements

Note 1 – Description of Business

Main Place Funding, LLC (“Main Place”), a Delaware limited liability company, is a wholly owned subsidiary of Bank of America, N.A. (the “Parent”), which is a wholly owned indirect subsidiary of Bank of America Corporation (the “Corporation”).

Main Place was established originally as a Maryland real estate investment trust to consolidate the acquisition, holding and management of certain closed-end residential mortgage loans owned by certain affiliates of the Corporation. In August 2002, Main Place Trust, a Delaware business trust, was liquidated into Parent. The Parent holds a 100 percent membership interest in Main Place. Main Place is also considered a single-member LLC under current tax law.

On October 21, 2002, Main Place adopted an Amended and Restated Limited Liability Company Agreement, which removed certain restrictions on the business activities of Main Place and permitted it to engage in any activity and to exercise any powers permitted to limited liability companies under the laws of the State of Delaware.

Under these expanded powers, Main Place has entered into the business of entering into financial warranty agreements in favor of third parties for a fee. As of September 30, 2004, Main Place was a party to three financial warranty agreements with third-party trusts. These trusts are open-ended diversified, registered investment companies. Under the terms of these warranty agreements, Main Place provides financial warranties in order to ensure that the trusts are able to redeem all of the outstanding shares of specified series on the warranty maturity dates for an amount at least equal to an aggregate protected amount. For each of the agreements entered into by Main Place with a third party, Main Place has also entered into a financial warranty agreement with the Parent. Under the terms of these agreements, the Parent provides financial warranties in favor of Main Place corresponding to Main Place’s obligations under the financial warranties with the third parties.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The information contained in these financial statements is unaudited. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the interim period results have been made. Certain prior period amounts have been reclassified to conform to current period classifications. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to the Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for annual statements. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from these estimates. Significant estimates made by management are discussed in these footnotes as applicable. Accounting policies followed in the presentation of interim financial results are presented in Note 2 on pages 15 to 16 of Main Place’s Annual Report on Form 10-K for the year ended December 31, 2003. These financial statements should be read in conjunction with the audited financial statements for the period ended December 31, 2003, and notes included in Main Place’s Form 10-K for the year ended December 31, 2003.

Accounting Pronouncements

On April 30, 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, (SFAS 149) which is effective for hedging relationships entered into or modified after June 30, 2003. SFAS 149 amends and

7

Table of Contents

clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS 133). The adoption of this standard did not have a material impact on Main Place’s results of operations or financial condition.

Note 3 – Derivatives – Financial Warranty Agreements

Main Place is in the business of entering into financial warranty agreements with third parties. As of September 30, 2004, Main Place was a party to three financial warranty agreements with third party trusts. The aggregate net asset value of outstanding shares subject to these financial warranty agreements was $542.9 million at September 30, 2004. For each of the agreements entered into by Main Place with a third party, Main Place has also entered into a financial warranty agreement with the Parent. Net trading account losses from these agreements totaled $394 thousand and $1.2 million for the three and nine months ended September 30, 2004, respectively.

On October 29, 2002, Main Place entered into a financial warranty agreement with Pioneer Principal Protection Trust on behalf of its series Pioneer Protected Principal Plus Fund and Pioneer Investment Management, Inc. The trust is an open-ended diversified, registered investment company registered under the Investment Company Act of 1940, as amended. Under the terms of the agreement, Main Place provided a financial warranty to the trust in the amount of up to $180.3 million in order to ensure that the trust is able to redeem all of the outstanding shares of the series on the maturity date, as defined in the financial warranty agreement. The last day upon which the financial warranty may be drawn is January 8, 2010.

On December 20, 2002, Main Place entered into a financial warranty agreement with the Parent. Under the terms of this agreement, the Parent provided a financial warranty in favor of Main Place in the amount of up to $180.3 million, corresponding to Main Place’s obligations under the financial warranty in favor of Pioneer Principal Protection Trust on behalf of its series, Pioneer Protected Principal Plus Fund.

On November 1, 2002, Main Place entered into a financial warranty agreement with Merrill Lynch Principal Protected Trust, on behalf of its series Merrill Lynch Fundamental Growth Principal Protected Fund and Merrill Lynch Investment Managers, L.P. The trust is an open-ended diversified, registered investment company registered under the Investment Company Act of 1940, as amended. Under the terms of the agreement, Main Place provided a financial warranty in the amount of up to $265.9 million in order to ensure that the trust is able to redeem all of the outstanding shares of the series on the maturity date, as defined in the financial warranty agreement. The last day upon which the financial warranty may be drawn is December 1, 2009.

On November 13, 2002, Main Place entered into a financial warranty agreement with the Parent. Under the terms of this agreement, the Parent provided a financial warranty in favor of Main Place in the amount of up to $265.9 million, corresponding to Main Place’s obligations under the financial warranty in favor of Merrill Lynch Principal Protected Trust, on behalf of its series Merrill Lynch Fundamental Growth Principal Protected Fund.

On November 1, 2002, Main Place also entered into a financial warranty agreement with Merrill Lynch Principal Protected Trust, on behalf of its series Merrill Lynch Basic Value Principal Protected Fund and Fund Asset Management, L.P. The trust is an open-ended diversified, registered investment company registered under the Investment Company Act of 1940, as amended. Under the terms of the agreement, Main Place provided a financial warranty in the amount of up to $335.8 million in order to ensure that the trust is able to redeem all of the outstanding shares of the series on the maturity date, as defined in the financial warranty agreement. The last day upon which the financial warranty may be drawn is December 1, 2009.

On November 13, 2002, Main Place also entered into a financial warranty agreement with the Parent. Under the terms of this agreement, the Parent provided a financial warranty in favor of Main Place in the

8

Table of Contents

amount of up to $335.8 million, corresponding to Main Place’s obligations under the financial warranty in favor of Merrill Lynch Principal Protected Trust, on behalf of its series Merrill Lynch Basic Value Principal Protected Fund.

Main Place structures these financial warranties to include investment constraints and certain pre-defined triggers that would require the underlying assets or portfolio of the relevant trust to be liquidated and invested in zero-coupon bonds that mature at a preset future date. Main Place is required to fund any shortfall at the preset future date between the value of the trust’s assets and a preset amount. These financial warranties are booked as derivatives and marked to market in the trading portfolio. As of September 30, 2004 the aggregate net asset value of outstanding shares subject to these financial warranties with third party trusts totaled $542.9 million. Main Place has never made a payment to fund any shortfall amount under these products and management believes that the probability of such a payment under these financial warranties is remote.

Note 4 – Affiliate Transactions

Main Place maintains its cash and cash equivalent accounts with the Parent. As of September 30, 2004 and December 31, 2003, Main Place had approximately $6.9 billion of time deposits placed with the Parent. Remaining amounts disclosed within cash and cash equivalents on the accompanying balance sheet represent cash balances maintained with the Parent. Interest income on time deposits placed with the Parent for the three and nine months ended September 30, 2004 was $24.6 million and $56.5 million, respectively, compared to $17.4 million and $73.2 million, respectively, for the same prior year periods. In February 2003, Main Place distributed $7.5 billion to the Parent as a return of capital.

The Parent has entered into financial warranty agreements with Main Place. Under the terms of these agreements, the Parent provides financial warranties in favor of Main Place in an aggregate amount, at September 30, 2004, of $542.9 million, which corresponds with Main Place’s obligations under financial warranty agreements in favor of third parties. For the three and nine months ended September 30, 2004, Main Place paid $603 thousand and $2.6 million, respectively, of fees to the Parent related to these agreements.

Accrued expenses due to affiliates as of September 30, 2004 and December 31, 2003 were $53.0 million and $28.9 million respectively. The September 30, 2004 and the December 31, 2003 balances were comprised primarily of income tax payable to the Parent.

The Parent performs all of the operational services for Main Place. Total expenses allocated to Main Place by the Parent for the three and nine months ended September 30, 2004, were $25 thousand and $75 thousand, respectively, and are included in other general and operating expenses.

Note 5 – Fair Values of Financial Instruments

Statement of Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments,” requires the disclosure of the estimated fair values of financial instruments. The fair value of an instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices, if available, are utilized as estimates of the fair values of financial instruments. Fair values of items for which no quoted market prices exist has been derived based on management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates. The estimation methods for individual classifications of financial instruments are more fully described below. Different assumptions could significantly affect these estimates. Accordingly, the net realizable values could be materially different from the estimates presented below. In addition, the estimates are only indicative of individual instruments’ values and should not be considered an indication of the fair value of Main Place.

9

Table of Contents

Short-Term Financial Instruments

The carrying value of short-term financial instruments, including cash and cash equivalents, accounts receivable from and accrued expenses due to affiliates and interest receivable approximates the fair value. These financial instruments generally expose Main Place to limited credit risk, have no stated maturities or have maturities of less than 90 days and carry interest rates, which approximate market.

Derivatives

All derivatives are recognized on the balance sheet at fair value.

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

Total net income for the three and nine months ended September 30, 2004 was $15.5 million and $34.8 million, respectively, representing an increase of $4.6 million and a decrease of $11.9 million, respectively, from the corresponding periods in 2003. The increase in the three month period was a result of increased interest on time deposits due to higher interest rates. The decrease in the nine month period was primarily a result of the change in business activities of Main Place, as $7.5 billion in capital was distributed to the Parent in February 2003. Due to the distribution, interest on time deposits placed decreased. Income tax expense for the three and nine months ended September 30, 2004 was $8.7 million and $19.6 million, respectively, representing an increase of $2.7 million and a decrease of $6.6 million, respectively, from the corresponding periods in 2003.

Total income for the three and nine months ended September 30, 2004 was $24.2 million and $55.3 million, respectively, representing an increase of $7.2 million and a decrease of $17.9 million, respectively, from the corresponding periods in 2003. The increase in the three month period was a result of increased interest on time deposits due to higher interest rates. The decrease was primarily a result of the change in business activities of Main Place, as $7.5 billion in capital was distributed to the Parent in February 2003. Primarily due to the distribution, for the nine months ended September 30, 2004, interest on time deposits decreased by $16.6 million. The increase in the three month period was a result of increased interest on time deposits due to higher interest rates. In addition, trading profits (losses) for the three and nine months ended September 30, 2004 increased $54 thousand and decreased $1.3 million, respectively. The decrease in the nine month period was a result of a decrease in the NAV of the underlying mutual fund series’ covered by the principal protection guarantees.

Total expenses (excluding income taxes) for the third quarter were $48 thousand, representing a decrease of $60 thousand compared to the same period in 2003. Total expenses (excluding income taxes) for the first nine months of 2004 were $890 thousand, representing an increase of $608 thousand compared to the same period in 2003.

Liquidity & Capital Resources

Main Place’s primary source of liquidity is its cash and cash equivalents on hand and interest income thereon. At September 30, 2004, Main Place had approximately $6.9 billion in cash and cash equivalents, which were held as time deposits with the Parent. Main Place holds cash primarily for future growth opportunities, to fund its obligations under its financial warranty agreements, if necessary, and for ongoing operating expense. At September 30, 2004, Main Place’s maximum obligation under the financial warranties was $542.9 million. Main Place has never made a payment to fund any shortfall amount under these products and management believes that the probability of such a payment under these financial warranties is remote.

10

Table of Contents

Critical Accounting Estimates and Principles

Main Place’s significant accounting principles are described in Note 2 of the financial statements and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. Some of Main Place’s accounting principles require significant judgment to estimate values of either assets or liabilities. In addition, certain accounting principles require significant judgment in applying the accounting principles to individual transactions to determine the most appropriate treatment. We have established procedures and processes to facilitate making the judgments necessary to prepare financial statements.

The following is a summary of the more judgmental and critical accounting estimates and principles. In each area, we have identified the variables most important in the estimation process. Management has used the best information available to make the estimations necessary to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in the key variables could change future valuations and impact net income.

Derivative Assets and Liabilities

Main Place engages in trading-related activities. Trading positions recorded on the balance sheet are at fair value. Valuations for derivative assets and liabilities not traded on an exchange, or over the counter, are obtained using mathematical models that require inputs of external rates and prices to generate continuous yield or pricing curves used to value the positions. Pricing risk is greater for positions with either option-based or longer-dated attributes where inputs are not readily available and model-based extrapolations of rate and price scenarios are used to generate valuations. In these situations, this risk is mitigated through the use of valuation adjustments. For additional detail, see “Item 7A – Quantitative and Qualitative Disclosures About Market Risk” in Main Place’s Form 10-K for the year ended December 31, 2003.

Income Taxes

Main Place estimates tax expense based on the amount it expects to owe various tax authorities as part of a tax allocation agreement with the Corporation. Accrued taxes represent the net estimated amount due or to be received from taxing authorities. In estimating accrued taxes, Main Place assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance in the context of its tax position.

Item 4. Controls and Procedures

Pursuant to Rule 15d-15(b) under the Securities Exchange Act of 1934, Main Place carried out an evaluation, with the participation of Main Place’s management, including Main Place’s President and Principal Financial and Accounting Officer, of the effectiveness of Main Place’s disclosure controls and procedures (as defined under Rule 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, Main Place’s President and Principal Financial and Accounting Officer, concluded that Main Place’s disclosure controls and procedures are effective in timely alerting them to material information relating to Main Place required to be included in Main Place’s periodic SEC filings. There has been no change in Main Place’s internal control over financial reporting during the quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, Main Place’s internal control over financial reporting.

11

Table of Contents

Part II. OTHER INFORMATION

Item 6. Exhibits

12

Table of Contents

SIGNATURE

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.

13

Table of Contents

Main Place Funding, LLC

Form 10-Q

Index to Exhibits

14