<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 1-8993
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
VALLEY GROUP EMPLOYEES' 401(K) SAVINGS PLAN
C/o: Valley Insurance Company
2450 14th Avenue S.E.
P.O. Box 1119
Albany, Oregon 97321
(541) 928-2344
B. Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office:
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
80 South Main Street
Hanover, New Hampshire 03755-2053
(603) 643-1567
<PAGE>
EXPLANATORY NOTE
This Annual Report on Form 11-K is being filed pursuant to Section 15(d)
of the Securities Exchange Act of 1934 with respect to Valley Group Employees'
401(k) Savings Plan (the "Plan") so that it may be incorporated by reference
into the Registration Statement on Form S-8 which Fund American Enterprises
Holdings, Inc. (the "Company") filed on June 27, 1997 with respect to its shares
of Common Stock, $1.00 par value per share, issuable under the Plan.
As stated in a Form 8-K dated January 24, 1997, the Company's Board of
Directors, upon recommendation of its Audit Committee, appointed KPMG Peat
Marwick LLP ("KPMG") as its independent auditors for the fiscal year ending
December 31, 1997, to replace Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as
independent auditors, effective upon the date of their reports on such
consolidated financial statements for the year ended December 31, 1996.
In connection with the audit of the Plan for the year ended December 31,
1996, there were no disagreements with Coopers & Lybrand on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to their satisfaction, would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
The reports of KPMG and PricewaterhouseCoopers LLP for the Plan years
ended December 31, 1997 and 1996, respectively, are included herein.
INFORMATION FILED
The following financial statements and exhibits are filed with, and are
included in, this Report:
A. Financial statements for the Plan consisting of:
1. Report of KPMG Peat Marwick LLP for the Plan year ended December
31,1997
2. Report of PricewaterhouseCoopers LLP for the Plan year ended
December 31,1996
3. Statements of Net Assets Available for Benefits as of December 31,
1997 and 1996
4. Statements of Changes in Net Assets Available for Benefits for the
years ended December 31, 1997 and 1996
5. Notes to Financial Statements
6. Schedule of Assets held for Investment Purposes
7. Schedule of Reportable Transactions
B. Exhibits:
1. Consent of KPMG Peat Marwick LLP
2. Consent of PricewaterhouseCoopers LLP
<PAGE>
SIGNATURES
The Plan. Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the trustees have duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VALLEY GROUP EMPLOYEES' 401(K)SAVINGS PLAN
Date: July 17, 1998
By:
----------------------------------------
/s/ STUART E. OLSON
Trustee
By:
---------------------------------------
/s/ KENNETH R. HISEL
Trustee
By:
---------------------------------------
/s/ CAREY D. BENSON
Trustee
<PAGE>
EXHIBIT INDEX
Exhibit Number
A. Financial statements for the Plan consisting of:
Report of KPMG Peat Marwick LLP for the Plan year ended
December 31,1997
Report of PricewaterhouseCoopers LLP for the Plan year
ended December 31,1996
Statements of Net Assets Available for Benefits as of
December 31, 1997 and 1996
Statements of Changes in Net Assets Available for
Benefits for the years ended December 31, 1997 and 1996
Notes to Financial Statements
Schedule of Assets held for Investment Purposes
Schedule of Reportable Transactions
B. Consent of KPMG Peat Marwick LLP
C. Consent of PricewaterhouseCoopers LLP
<PAGE>
VALLEY GROUP EMPLOYEES' Exhibit A
401(k) SAVINGS PLAN
Financial Statements and Supplemental Schedules
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Valley Group Employees' 401(k) Savings Plan:
We have audited the accompanying statement of net assets available for benefits
of Valley Group Employees' 401(k) Savings Plan (the Plan) as of December 31,
1997, and the related statement of changes in net assets available for benefits
for the year then ended. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Valley Group
Employees' 401(k) Savings Plan as of December 31, 1997, and the changes in net
assets available for benefits for the year then ended, in conformity with
generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Item 27(a)
- - schedule of assets held for investment purposes and Item 27(d) - schedule of
reportable transactions as of or for the year ended December 31, 1997 are
presented for the purpose of additional analysis and are not a required part of
the basic financial statements, but are supplementary information required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The fund information
in the statement of net assets available for benefits and the statement of
changes in net assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets available for benefits
and changes in net assets available for benefits for each fund. The supplemental
schedules and fund information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
The supplemental schedules that accompany the Plan's financial statements do not
disclose the historical cost or the realized gain or loss of certain Plan
assets. Disclosure of this information is required by the Department of Labor's
Rules and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974.
San Francisco, California KPMG Peat Marwick LLP
July 14, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Valley Group Employees' 401(k) Savings Plan
Albany, Oregon
We have audited the accompanying statement of net assets for benefits of the
Valley Group Employees' 401(k) Savings Plan as of December 31, 1996 and the
related statement of changes in net assets available for benefits for the year
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Valley Group
Employees' 401(k) Savings Plan as of December 31, 1996, and the changes in net
assets available for benefits for the year then ended in conformity with
generally accepted accounting principles.
Portland, Oregon PricewaterhouseCoopers LLP
June 4, 1997
<PAGE>
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
Statement of Net Assets Available for Benefits
December 31, 1997
<TABLE>
<CAPTION>
Neuberger & 20th Century
Group Berman Ultra Fidelity
Annuity Guardian Fidelity Investors Dreyfus S&P Advisor High
Contract Fund Puritan Fund Fund 500 Fund Yield Fund
---------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Pooled separate accounts, at fair
value (note 2) $ -- 1,026,330 573,360 861,117 755,997 150,877
Insurance contract, at contract value (note 3) 1,389,815 -- -- -- -- --
Common stock, at fair value (note 2) -- -- -- -- -- --
Money market account -- -- -- -- -- --
Participant loans -- -- -- -- -- --
---------- --------- --------- --------- -------- ---------
1,389,815 1,026,330 573,360 861,117 755,997 150,877
---------- --------- --------- --------- -------- ---------
Contributions receivable:
Participant 3,353 11,475 4,805 9,230 7,636 1,683
Employer 1,351 4,089 1,822 3,452 2,756 689
---------- --------- --------- --------- -------- ---------
4,704 15,564 6,627 12,682 10,392 2,372
---------- --------- --------- --------- -------- ---------
Net assets available for benefits $1,394,519 1,041,894 579,987 873,799 766,389 153,249
---------- --------- --------- --------- -------- ---------
---------- --------- --------- --------- -------- ---------
<CAPTION>
Warburg
Pincus Janus Fund
Emerging Worldwide American Participant
Janus Fund Growth Fund Fund Stock Loans Total
---------- ----------- --------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Pooled separate accounts, at fair
value (note 2) 494,402 395,562 944,953 -- -- 5,202,598
Insurance contract, at contract value (note 3) -- -- -- -- -- 1,389,815
Common stock, at fair value (note 2) -- -- -- 155,485 -- 155,485
Money market account -- -- -- 66,109 -- 66,109
Participant loans -- -- -- -- 62,989 62,989
---------- --------- --------- --------- -------- ---------
494,402 395,562 944,953 221,594 62,989 6,876,996
---------- --------- --------- --------- -------- ---------
Contributions receivable:
Participant 4,326 4,225 10,785 1,974 -- 59,492
Employer 1,530 1,655 4,177 993 -- 22,514
---------- --------- --------- --------- -------- ---------
5,856 5,880 14,962 2,967 -- 82,006
---------- --------- --------- --------- -------- ---------
Net assets available for benefits 500,258 401,442 959,915 224,561 62,989 6,959,002
---------- --------- --------- --------- -------- ---------
---------- --------- --------- --------- -------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
Statement of Net Assets Available for Benefits
December 31, 1996
<TABLE>
<CAPTION>
Neuberger & 20th Century
Group Berman Fidelity Ultra
Annuity Guardian Magellan Fidelity Oppenheimer Investors
Contract Fund Fund Puritan Fund Global Fund Fund
---------- ----------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Pooled separate accounts, at fair
value (note 2) $ -- 854,767 821,122 571,523 526,235 727,117
Insurance contract,
at contract value (note 3) 1,292,953 -- -- -- -- --
Participant loans -- -- -- -- -- --
---------- ----------- -------- ------------ ----------- ------------
1,292,953 854,767 821,122 571,523 526,235 727,117
---------- ----------- -------- ------------ ----------- ------------
Contributions receivable:
Participant -- -- -- -- -- --
Employer -- -- -- -- -- --
---------- ----------- -------- ------------ ----------- ------------
-- -- -- -- -- --
---------- ----------- -------- ------------ ----------- ------------
Net assets available for benefits $1,292,953 854,767 821,122 571,523 526,235 727,117
---------- ----------- -------- ------------ ----------- ------------
---------- ----------- -------- ------------ ----------- ------------
<CAPTION>
Dreyfus A
Bond Plus Participant Contributions
Fund Loans Receivable Total
---------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Assets:
Pooled separate accounts, at fair
value (note 2) $ 63,963 -- -- 3,564,727
Insurance contract,
at contract value (note 3) -- -- -- 1,292,953
Participant loans -- 43,457 -- 43,457
---------- ----------- -------------- ------------
63,963 43,457 -- 4,901,137
---------- ----------- -------------- ------------
Contributions receivable:
Participant -- -- 26,253 26,253
Employer -- -- 10,785 10,785
---------- ----------- -------------- ------------
-- -- 37,038 37,038
---------- ----------- -------------- ------------
Net assets available for benefits 63,963 43,457 37,038 4,938,175
---------- ----------- -------------- ------------
---------- ----------- -------------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VALLEY GROUP EMPLOYEES' 401(K) SAVINGS PLAN
Statement of Changes in Net Assets Available for Benefits
Yead ended December 31, 1997
<TABLE>
<CAPTION>
Neuberger & 20th Century
Group Berman Fidelity Fidelity Ultra
Annuity Guardian Magelan Puritan Oppenheimer Investors
Contract Fund Fund Fund Global Fund Fund
---------- --------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributable to:
Investment income:
Net appreciation (depreciation) in
fair value of investments $ -- $134,427 26,204 107,442 15,756 150,767
Interest 87,587 -- -- -- -- --
Dividends -- -- -- -- -- --
---------- --------- --------- --------- ----------- ------------
Total investment income 87,587 134,427 26,204 107,442 15,756 150,767
Contributions
Participant 147,533 128,089 -- 74,400 -- 139,474
Employer 58,110 44,533 -- 27,553 -- 50,950
Rollover 66,078 25,269 892 7,194 -- 18,270
---------- --------- --------- --------- ----------- ------------
Total contributions 271,721 197,891 892 109,147 -- 208,694
---------- --------- --------- --------- ----------- ------------
Total additions 359,308 332,318 27,096 216,589 15,756 359,461
---------- --------- --------- --------- ----------- ------------
Deductions from net assets attributed in:
Distributions to participants 163,456 97,834 -- 62,218 -- 57,907
---------- --------- --------- --------- ----------- ------------
Net increase (decrease) prior to
interfund transfers $195,852 $234,484 27,096 154,371 15,756 301,554
Interfund transfers (94,286) (47,357) (848,218) (145,907) (541,991) (154,872)
---------- --------- --------- --------- ----------- ------------
Net increase (decrease) 101,566 187,127 (821,122) 8,464 (526,235) 146,682
Net assets available for benefits:
Beginning of year $1,292,953 854,767 821,122 571,523 526,235 727,117
---------- --------- --------- --------- ----------- ------------
End of year $1,394,519 1,041,894 -- 579,987 -- 873,799
---------- --------- --------- --------- ----------- ------------
---------- --------- --------- --------- ----------- ------------
Warburg
Dreyfus A Fidelity Pinkus
Bonds Plus Dreyfus S&P Advisors High Emerging
Fund 500 Fund Yield Fund Janus Fund Growth Fund
---------- ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributable to:
Investment income:
Net appreciation (depreciation) in
fair value of investments (287) 134,897 20,002 82,055 59,975
Interest -- -- -- -- --
Dividends -- -- -- -- --
---------- ------------ -------------- ---------- -----------
Total investment income (287) 134,897 20,002 82,055 59,975
Contributions
Participant -- 107,844 38,966 78,659 87,342
Employer -- 37,980 15,595 27,134 33,448
Rollover -- 22,049 -- 14,212 2,053
---------- ------------ -------------- ---------- ----------
Total contributions -- 167,873 54,561 120,005 122,843
---------- ------------ -------------- ---------- ----------
Total additions (287) 302,770 74,563 202,060 182,818
---------- ------------ -------------- ---------- ----------
Deductions from net assets attributed in:
Distributions to participants -- 19,884 23,528 33,142 14,849
---------- ------------ -------------- ---------- ----------
Net increase (decrease) prior to
interfund transfers (287) 282,886 51,035 168,918 167,969
Interfund transfers (63,676) 483,503 102,214 331,340 233,473
---------- ------------ -------------- ---------- -----------
Net increase (decrease) (63,963) 766,389 153,249 500,258 401,442
Net assets available for benefits:
Beginning of year 63,963 -- -- -- --
---------- ------------ -------------- ---------- -----------
End of year -- 766,389 153,249 500,258 401,442
---------- ------------ -------------- ---------- -----------
---------- ------------ -------------- ---------- -----------
Janus Fund
Worldwide American Participant
Fund Stock Loans Other Total
--------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributable to:
Investment income:
Net appreciation (depreciation) in
fair value of investments 96,281 20,084 -- -- 847,603
Interest -- 586 5,006 -- 93,179
Dividends -- 528 -- 528
--------- --------- ---------- --------- -----------
Total investment income 96,281 21,198 5,006 -- 941,310
Contributions
Participant 174,829 30,027 -- -- 1,007,163
Employer 66,184 14,815 -- -- 376,302
Rollover 27,512 4,297 -- -- 187,826
--------- --------- ---------- -------- -----------
Total contributions 268,525 49,139 -- -- 1,571,291
--------- --------- ---------- -------- -----------
Total additions 364,806 70,337 5,006 -- 2,512,601
--------- --------- ---------- -------- -----------
Deductions from net assets attributed in:
Distributions to participants 14,032 -- 4,924 -- 491,774
--------- --------- ---------- -------- -----------
Net increase (decrease) prior to
interfund transfers 350,774 70,337 82 -- 2,020,827
Interfund transfers 609,141 154,224 19,450 (37,038) --
--------- --------- ----------- -------- -----------
Net increase (decrease) 959,915 224,561 19,532 (37,038) 2,020,827
Net assets available for benefits:
Beginning of year -- -- 43,457 37,038 4,938,175
--------- -------- ----------- -------- -----------
End of year 959,915 224,561 62,989 -- 6,959,002
---------- --------- ----------- -------- -----------
---------- --------- ----------- -------- -----------
</TABLE>
<PAGE>
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1996
<TABLE>
<CAPTION>
Neuberger &
Group Berman Fidelity
Annuity Guardian Magellan Fidelity Oppenheimer
Contract Fund Fund Puritan Fund Global Fund
-------- ---------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net appreciation in fair
value of investments $ -- 110,406 67,657 65,644 49,749
Interest 67,433 -- -- -- --
----------- ---------- --------- ------- ---------
Total investement income 67,433 110,406 67,657 65,644 49,749
----------- ---------- --------- -------- ---------
Contributions:
Participant 126,824 128,604 153,151 80,425 64,452
Employer 52,495 47,083 59,556 29,097 25,241
Rollover 424,611 295,218 347,510 237,247 117,270
----------- ---------- --------- -------- ---------
Total contributions 603,930 470,905 560,217 346,769 206,963
----------- ---------- --------- -------- ---------
Total additions 671,363 581,311 627,874 412,413 256,712
----------- ---------- --------- -------- ---------
Deductions from net assets
attributed to:
Distributions to participants 71,409 79,965 36,973 62,831 12,895
----------- ---------- --------- -------- ---------
Net increase (decrease) prior to
interfund transfers 599,954 501,346 509,901 349,582 243,817
Interfund transfers (56,090) (11,377) (97,595) (130,096) 156,913
----------- ---------- --------- -------- ---------
Net increase(decrease) 543,864 489,969 493,306 219,486 400,730
Net assets available for benefit:
Beginning of year 749,089 364,798 327,816 352,037 125,505
----------- ---------- --------- -------- ---------
End of year $ 1,292,953 854,767 821,122 571,523 526,235
----------- ---------- --------- -------- ---------
----------- ---------- --------- -------- ---------
<CAPTION>
20th Century
Ultra Dreyfus A
Investors BondsPlus Participant
Fund Fund Loans Other Total
------------ ---------- ----------- ----- ------
<S> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net appreciation in fair
value of investments 61,640 2,910 -- -- 358,006
Interest -- -- 3,428 -- 70,861
--------- --------- ---------- -------- ----------
Total investement income 61,640 2,910 3,428 -- 428,867
--------- --------- ---------- -------- ----------
Contributions:
Participant 147,555 4,154 -- (8,864) 696,301
Employer 55,459 1,595 -- (3,271) 267,255
Rollover 200,768 13,866 24,388 -- 1,660,878
--------- --------- ---------- -------- ----------
Total contributions 403,782 19,615 24,388 (12,135) 2,624,434
--------- --------- ---------- -------- ----------
Total additions 465,422 22,525 27,816 (12,135) 3,053,301
--------- --------- ---------- -------- ----------
Deductions from net assets
attributed to:
Distributions to participants 24,780 -- 5,302 -- 294,155
--------- --------- ---------- -------- ----------
Net increase (decrease) prior to
interfund transfers 440,642 22,525 22,514 (12,135) 2,759,146
Interfund transfers 91,234 41,438 5,585 (12) --
--------- --------- ---------- -------- ----------
Net increase(decrease) 531,876 63,963 28,009 (12,147) 2,759,146
Net assets available for benefit:
Beginning of year 195,241 -- 15,358 49,185 2,179,029
--------- --------- ---------- -------- ----------
End of year 727,117 63,963 43,457 37,038 4,938,175
--------- --------- ---------- -------- ----------
--------- --------- ---------- -------- ----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 1997 and 1996
(1) Description of the Plan
The following description of the Valley Group Employees' 401(k) Savings
Plan (the "Plan") provides only general information. Participants should
refer to the Plan Document for a more complete description of the Plan's
provisions.
General
The Plan is a defined contribution plan which was originally established
on January 1, 1988 to provide retirement benefits for eligible employees
of Valley Pacific, Inc. (the Company). Effective December 1, 1995, the
Plan was amended to include the employees of The Charter Group, Inc. and
the Plan's name was changed to the Valley Group Employees' 401(k) Savings
Plan. Effective January 1, 1997, the Plan was amended to include the
employees of Fund American Enterprises Holding, Inc., White Mountains
Insurance Company, White Mountains Holdings, Inc., and The Upper Valley
Company. Participants in the Plan include employees of the respective
companies and are collectively referred to as the "Companies." The Plan
is subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended (ERISA). Employees of the Companies must complete
ninety days of service and have attained the age of 21 to become eligible
for participation in the Plan.
During 1996, employees of The Charter Group, Inc. (Charter) that
participated in the Skandia Direct Operations Employee 401(k) Plan and
the Skandia Direct Operations Retirement Plan were given the option to
rollover their account balances to the Plan or any other qualified
retirement plan. In addition, Valley Pacific Inc. employees who
participated in the Skandia Direct Operations Retirement Plan were also
given the option to rollover their account balances to the Plan or any
other qualified retirement plan. Rollovers from these retirement plans
totaled approximately $1.1 million in 1996.
Contributions
Each year participants may elect to defer up to 15 percent of pretax
annual compensation, as defined by the Plan. The Companies contribute 50
percent of the first 6 percent of compensation that a participant
contributes to the Plan. The Companies may also choose to make an
additional discretionary contribution to the Plan. No discretionary
contributions were made for the years ended December 31, 1997 and 1996.
Participant Accounts
Each participant's account is credited with the participant's
contribution and allocations of (a) the Companies contribution and, (b)
Plan earnings. Allocations are based on participant earnings or account
balances, as defined. The benefit to which a participant is entitled is
the benefit that can be provided from the participant's vested account.
<PAGE>
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
Vesting
Participants are immediately vested in their contributions plus actual
earnings thereon. The Plan provides for full (100%) vesting of the
Companies contributions from the first day of participation if employed
prior to December 1, 1995. If employed after December 1, 1995,
participants become vested in the Companies contributions based on years
of service as follows:
<TABLE>
<CAPTION>
Years of Service Percentage
---------------- ----------
<S> <C>
1 20%
2 40
3 60
4 80
5 100
</TABLE>
Investments
The Plan provides for participant-directed investment programs with
Employers Life Insurance Company of Wausau. Effective January 1, 1997,
the Plan was amended to increase the investment options available to Plan
participants. The Janus Fund, Warburg Pincus Emerging Growth Fund, Janus
Worldwide Fund, Fidelity Advisor High Yield Fund and Dreyfus S&P 500
Index Fund were added to the list of participant-directed investment
options available to the Plan participants. The amendment also removed
the Dreyfus A Bond Plus Fund, Fidelity Magellan Fund, and Oppenheimer
Global Fund from the list of participant-directed investment options
available to Plan participants. In addition, during 1997, the stock of
Fund American Enterprises Holdings, Inc. was added to the list of
participant-directed investment options.
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up
to a maximum equal to the lesser of $50,000 or 50% of their account
balance. Loan transactions are treated as a transfer to (from) the
investment fund from (to) the Participant Loan fund. Loan terms range
from 1-5 years or up to 30 years for the purchase of a primary residence.
The loans are secured by the balance in the participant's account and
bear interest at the prime rate +3%. Interest rates range from 9.75% to
11.75%. Principal and interest is paid ratably through payroll
deductions.
Payment of Benefits
On termination of service due to death, long-term disability or normal
retirement, a participant may elect to receive either a lump-sum amount
equal to the value of the participant's interest in his or her account,
an annuity, or installments over a fixed period of years up to the legal
maximum. For termination of service due to other reasons, a participant
may receive the value of the vested interest in his or her account as a
lump-sum distribution.
Forfeited Accounts
At December 31, 1997, forfeited nonvested accounts totaled $702. At
December 31, 1996 there were no forfeited nonvested accounts. These
accounts will be used to reduce future employer contributions.
<PAGE>
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
(2) Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual
basis of accounting.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make certain
estimates and assumptions that affect the reported amounts of assets,
liabilities, and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value except for its investment
in the Group Annuity Contract which is valued at contract value, which
approximates fair value. Contract value represents contributions made
under the contract, plus interest earned, less funds withdrawn. The
contract is included in the financial statements at contract value
because it is fully benefit responsive. For example, participants may
ordinarily direct the withdrawal or transfer of all or a portion of their
investment in the investment contract. Guaranteed interest rates were
6.4% in 1997 and 1996. The contract investments are high quality
intermediate term corporate bonds and mortgages. Pooled Separate Accounts
are valued based on quoted market prices which represent the net asset
values of the underlying investments held by the Plan in the Pooled
Seperate Accounts at year-end.
Payment of Benefits
Benefits are recorded when paid.
Reclassifications
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.
(3) Plan Termination
Although it has not expressed any intent to do so, the Companies have the
right under the Plan to suspend, terminate or completely discontinue
contributions at any time and to terminate the Plan subject to the
provisions of ERISA.
(4) Administrative Expenses
Administrative expenses associated with the Plan are paid by the
Companies.
(5) Related Party Transactions
Certain Plan investments are units of pooled separate accounts managed by
Employers Life Insurance Company of Wausau and Nationwide Life Insurance
Company, the custodians; therefore, these transactions
<PAGE>
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
qualify as party-in-interest.
Fund American Enterprises Holdings, Inc. stock transactions involving the
Plan also qualify as exempt party-in-interest transactions.
(6) Tax Status
The Internal Revenue Service has determined and informed the Company by a
letter dated June 12, 1995, that the Plan and related trust are designed
in accordance with applicable sections of the Internal Revenue Code
(IRC). The Plan has been amended since receiving the determination
letter. However, the Plan administrator believes that the Plan is
designed and is currently being operated in compliance with the
applicable requirements of the IRC.
(7) Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits
per the financial statements to the Form 5500 at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Net assets available for plan benefits per financial statements $ 6,959,002 4,938,175
Less: Contributions receivable at December 31 (82,006) (37,038)
---------------- ----------------
Net assets available for benefits per the Form 5500 $ 6,876,996 4,901,137
---------------- ----------------
---------------- ----------------
</TABLE>
The following is a reconciliation of contributions and investment income
per the financial statements to the Form 5500 for the year ended December
31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Total contributions per financial statements $ 1,571,291 2,624,434
Add: Prior contributions receivable 37,038 49,185
Less: Current year contributions receivable (82,006) (37,038)
Classification difference included in investment income -- (64)
---------------- ----------------
Total contributions per Form 5500 $ 1,526,323 2,636,517
---------------- ----------------
---------------- ----------------
</TABLE>
(7) Subsequent Events
Subsequent to year end, it was discovered that 119 shares of Fund
American Enterprises Holdings, Inc. stock (stock) were not purchased by a
third-party trust department as requested by the Plan Trustees and Plan
Administrator but was invested in a money market account. The stock price
has increased between the discovery and the time it was rectified by
Valley Pacific, Inc., a subsidiary of Valley Group, Inc., on behalf of
the Plan. The cost to the Plan has been estimated at approximately
$17,600 and was paid to the Plan by Valley Pacific, Inc. in June 1998.
The Company is currently negotiating with the third-party trust
department and Plan Administrator for reimbursement.
<PAGE>
Schedule 1
VALLEY GROUP EMPLOYEES' 401(k) SAVINGS PLAN
ITEM 27(A) -- SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION NUMBER OF
OF UNITS OR CURRENT
ISSUER INVESTMENT SHARES COST VALUE
- ---------------------------------- ---------------------------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Employers Life Insurance Group Annuity Contract --
Company of Wausau* #01054 1,389,815 $1,389,815 1,389,815
Nationwide Life Insurance Neuberger & Berman Guardian
Company* Fund -- Pooled Separate
Account 564,249 (1) 1,026,330
Nationwide Life Insurance Fidelity Puritan Fund -- Pooled
Company* Separate Account 249,352 (1) 573,360
Nationwide Life Insurance Twentieth Century Ultra
Company* Investors Fund -- Pooled
Separate Account 330,735 (1) 861,117
Nationwide Life Insurance Dreyfus S&P 500 Fund --
Company* Pooled Separate Account 263,909 (1) 755,997
Nationwide Life Insurance Fidelity Advisor High Yield
Company* Fund -- Pooled Separate
Account 114,235 (1) 150,877
Nationwide Life Insurance Janus Fund -- Pooled Separate
Company* Account 327,588 (1) 494,402
Nationwide Life Insurance Warburg Pincus Emerging
Company* Growth Fund -- Pooled
Separate Account 281,009 (1) 395,562
Nationwide Life Insurance Janus Worldwide Fund --
Company* Pooled Separate Account 762,352 (1) 944,953
Fund American Enterprises Common Stock
Holdings, Inc.* 1,285 (1) 155,485
Wells Fargo Bank* Money Market Account 66,109 66,109 66,109
Participants* Participant loans (Interest rate:
range: 9.75% to 11.75%) 22 62,989 62,989
----------
Total assets held for
investment purposes $6,876,996
----------
----------
</TABLE>
- ------------------------
* Party-in-interest
(1) Information not available
See accompanying independent auditors' report.
<PAGE>
Schedule 2
VALLEY GROUP EMPLOYEES' 401(K) SAVINGS PLAN
ITEM 27(d) -- SCHEDULE OF REPORTABLE TRANSACTIONS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
NUMBER NET
OF PURCHASE SALES COST GAIN/
ISSUER DESCRIPTION TRANSACTIONS PRICE PRICE OF ASSET (LOSS)
- -------------------------- ----------------------------- ------------ ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Employers Life Insurance
Company of Wausau Group Annuity Contract Various $2,202,660 -- $2,202,660 --
Various -- 2,103,175 2,103,175 --
Nationwide Life Insurance Neuberger & Berman
Company Guardian Fund -- Various 303,068 -- 303,068 --
Pooled Separate Account Various 265,933 (1) (1)
Nationwide Life Insurance Fidelity Magellan Fund-- Various 12,649 -- 12,649 --
Company Pooled Separate Account Various -- 859,975 (1) (1)
Nationwide Life Insurance Fidelity Puritan Fund-- Various 134,398 -- 134,398 --
Company Pooled Separate Account Various -- 240,003 (1) (1)
Nationwide Life Insurance Oppenheimer Global Fund-- Various 6,754 -- 6,754 --
Company Pooled Separate Account Various -- 548,745 (1) (1)
Nationwide Life Insurance Twentieth Century Ultra
Company Investors Fund-- Various 248,846 -- 248,846 --
Pooled Separate Account Various -- 265,613 (1) (1)
Nationwide Life Insurance Dreyfus S&P 500 Fund-- Various 646,322 -- 646,322 (1)
Company Pooled Separate Account Various -- 25,222 (1) (1)
Nationwide Life Insurance Fidelity Advisor High Yield
Company Fund-- Various 203,004 -- 203,004 --
Pooled Separate Account Various -- 72,129 (1) (1)
Nationwide Life Insurance Janus Fund-- Various 549,221 -- 549,221 --
Company Pooled Separate Account(1) Various -- 136,874 (1) (1)
Nationwide Life Insurance Warburg Pincus Emerging Various 368,730 -- 368,730 --
Company Growth Fund-- Various -- 33,143 (1) (1)
Pooled Separate Account
Nationwide Life Insurance Janus Worldwide Fund-- Various 899,020 -- 899,020 --
Company Pooled Separate Account Various -- 69,296 (1) (1)
Nationwide Life Insurance Nationwide Money Market Various 1,473,055 -- 1,473,523 --
Company Various -- 1,473,055 1,473,523 --
</TABLE>
- ------------------------
(1) Information not available
<PAGE>
Exhibit B
Consent of Independent Auditors
-------------------------------
The Board of Directors
Valley Group Employees' 401(k) Savings Plan:
We consent to the incorporation by reference in Registration Statement No.
333-30233 on Form S-8 of Fund American Enterprises Holdings, Inc. of our
report dated July 14, 1998, relating to the statement of net assets available
for benefits of Valley Group Employees' 401(k) Savings Plan as of December
31, 1997, and the related statement of changes in net assets available for
benefits for the year then ended, which report appears in the December 31,
1997 annual report on Form 11-K of Valley Group Employees' 401(k) Savings
Plan.
Our report refers to the supplemental schedules required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. With respect to the supplemental
schedules of assets held for investment purposes and reportable transactions,
our report contains an explanatory paragraph that states that the schedules
do not disclose the historical cost or the realized gain or loss of certain
Plan assets.
San Francisco, California KPMG Peat Marwick LLP
July 14, 1998
<PAGE>
Exhibit C
Consent
-------
We consent to the inclusion in this Annual Report on Form 11-K of our report
dated June 4, 1997, on our audit of the financial statements of the Valley
Group Employees' 401(k) Savings Plan as of December 31, 1996 and for the year
then ended.
New York, New York PricewaterhouseCoopers
July 16, 1998
