<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/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:
SOURCE ONE MORTGAGE SERVICES CORPORATION
EMPLOYEE STOCK OWNERSHIP AND 401(k) SAVINGS PLAN
27555 Farmington Road, Farmington Hills, Michigan 48334-3357
(248) 488-7000
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> 2
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 Source One Mortgage
Services Corporation Employee Stock Ownership and 401(k) Savings Plan so that it
may be incorporated by reference into the Registration Statement on Form S-8
which Fund American Enterprises Holdings, Inc. filed on September 30, 1996 with
respect to shares of Common Stock, $1.00 par value per share, of Fund American
Enterprises Holdings, Inc. issuable under the Plan.
INFORMATION FILED
The following financial statements and exhibits are filed with, and
included in, this Report:
A. Financial statements for the Plan consisting of:
1. Reports of Independent Auditors
2. Statements of Assets Available for Benefits as of
December 31, 1997 and 1996
3. Statements of Changes in Assets Available for
Benefits for the years ended December 31, 1997 and
1996
4. Notes to Financial Statements
5. Schedule of Assets held for Investment Purposes
6. Schedule of Reportable Transactions
B. Exhibits:
23. Consents of Experts
(a) Consent of KPMG Peat Marwick LLP
(b) Consent of Ernst & Young LLP
<PAGE> 3
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Source One Mortgage Services
Corporation Employee Stock
Ownership and 401(k) Savings Plan
Date: June 29, 1998 By /s/ Greg Ghilardi
-----------------------------
Greg Ghilardi
Vice President -Human Resources
Source One Mortgage Services
Corporation
<PAGE> 4
Independent Auditors' Report
The Board of Directors
Source One Mortgage Services Corporation
We have audited the accompanying statement of assets available for benefits of
the Source One Mortgage Services Corporation Employee Stock Ownership and 401(k)
Savings Plan (the "Plan") as of December 31, 1997, and the related statement of
changes in 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. The accompanying statement of assets available for benefits of the
Plan as of December 31, 1996, and the related statement of changes in assets
available for benefits for the year then ended were audited by other auditors
whose report thereon dated April 11, 1997, expressed an unqualified opinion on
those statements.
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 1997 financial statements referred to above present fairly,
in all material respects, the assets available for benefits of the Source One
Mortgage Services Corporation Employee Stock Ownership and 401(k) Savings Plan
as of December 31, 1997, and the changes in its assets available for benefits
for the year then ended, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes and reportable transactions as of and for the year
ended December 31, 1997, are presented for purposes of complying with the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974 and are not a required part
of the financial statements. The supplemental schedules have been subjected to
the auditing procedures applied in the audit of the financial statements and, in
our opinion, are fairly presented in all material respects in relation to the
financial statements taken as a whole.
June 26, 1998
/s/ KPMG Peat Marwick LLP
<PAGE> 5
Report of Independent Auditors
The Board of Directors
Source One Mortgage Services Corporation
We have audited the accompanying statement of assets available for benefits of
the Source One Mortgage Services Corporation Employee Stock Ownership and 401(k)
Savings Plan (the "Plan") as of December 31, 1996 and the related statement of
changes in 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 assets available for benefits of the Plan at December
31, 1996, and the changes in its assets available for benefits for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Detroit, Michigan
April 11, 1997
<PAGE> 6
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Statement of Assets Available for Benefits
December 31, 1997
<TABLE>
<CAPTION>
Global Corporate AIM AIM
Institutional Allocation Bond Capital Constellation Value
Fund Fund Fund Fund Fund Fund
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments at fair value (Note 4)
Merrill Lynch Trust Company Funds:
Institutional Fund $2,171,745
Global Allocation Fund $680,340
Corporate Bond Fund $142,529
Capital Fund $522,369
AIM Family of Funds:
AIM Constellation Fund $1,203,353
AIM Value Fund $1,319,146
Fund American Enterprises Holdings, Inc.
Loans receivable from participants
------------------------------------------------------------------------------------
Total investments 2,171,745 680,340 142,529 522,369 1,203,353 1,319,146
Cash
Receivables:
Company contributions (Note 3)
Participants' contributions 3,011 13,765 2,568 10,043 20,286 14,438
------------------------------------------------------------------------------------
Total receivables 3,011 13,765 2,568 10,043 20,286 14,438
------------------------------------------------------------------------------------
Total assets available for benefits $2,174,756 $694,105 $145,097 $532,412 $1,223,639 $1,333,584
====================================================================================
<CAPTION>
Fund
American Loans
Enterprises Receivable
Holdings, Inc. from
Common Stock Participants Cash Combined
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at fair value (Note 4)
Merrill Lynch Trust Company Funds:
Institutional Fund $2,171,745
Global Allocation Fund 680,340
Corporate Bond Fund 142,529
Capital Fund 522,369
AIM Family of Funds:
AIM Constellation Fund 1,203,353
AIM Value Fund 1,319,146
Fund American Enterprises Holdings, Inc. $5,384,915 5,384,915
Loans receivable from participants $9,092 9,092
-------------------------------------------------------------
Total investments 5,384,915 9,092 11,433,489
Cash $73,471 73,471
Receivables:
Company contributions (Note 3) 900,494 900,494
Participants' contributions 2,518 66,629
-------------------------------------------------------------
Total receivables 903,012 967,123
-------------------------------------------------------------
Total assets available for benefits $6,287,927 $9,092 $73,471 $12,474,083
=============================================================
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE> 7
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Statement of Assets Available for Benefits
December 31, 1996
<TABLE>
<CAPTION>
GLOBAL CORPORATE
INSTITUTIONAL ALLOCATION BOND CAPITAL
FUND FUND FUND FUND
----------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at fair value (Note 4)
Merrill Lynch Trust Company Funds:
Institutional Fund $14,900
Global Allocation Fund $ 93,554
Corporate Bond Fund $13,734
Capital Fund $63,817
AIM Family of Funds:
AIM Constellation Fund
AIM Value Fund
Fund American Enterprises
Holdings, Inc.
-----------------------------------------------------
Total investments 14,900 93,554 13,734 63,817
Receivables:
Company contributions (Note 3)
Participants' contributions 2,110 15,475 2,110 10,551
Accrued income 1 4 1 3
-----------------------------------------------------
Total receivables 2,111 15,479 2,111 10,554
=====================================================
Total assets available for benefits $17,011 $109,033 $15,845 $74,371
=====================================================
</TABLE>
<TABLE>
<CAPTION>
FUND
AMERICAN
AIM AIM ENTERPRISES
CONSTELLATION VALUE HOLDINGS, INC.
FUND FUND COMMON STOCK COMBINED
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at fair value (Note 4)
Merrill Lynch Trust Company Funds:
Institutional Fund $ 14,900
Global Allocation Fund 93,554
Corporate Bond Fund 13,734
Capital Fund 63,817
AIM Family of Funds:
AIM Constellation Fund $142,606 142,606
AIM Value Fund $ 88,238 88,238
Fund American Enterprises
Holdings, Inc. $7,171,499 7,171,499
-------------------------------------------------------------
Total investments 142,606 88,238 7,171,499 7,588,348
Receivables:
Company contributions (Note 3) 1,628,817 1,628,817
Participants' contributions 23,212 14,067 2,814 70,339
Accrued income 5 4 313 331
------------------------------------------------------------
Total receivables 23,217 14,071 1,631,944 1,699,487
============================================================
Total assets available for benefits $165,823 $102,309 $8,803,443 $9,287,835
============================================================
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE> 8
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Statement of Changes in Assets Available for Benefits
Year ended December 31, 1997
<TABLE>
<CAPTION>
Global Corporate AIM
Institutional Allocation Bond Capital Constellation
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions to assets attributed to:
Investment income:
Net realized and unrealized appreciation $ - $(44,115) $1,323 $19,121 $(12,950)
(depreciation) in fair value of investments
Dividend and interest income 14,107 72,922 3,736 25,065 73,773
-----------------------------------------------------------------------
14,107 28,807 5,059 44,186 60,823
Contributions:
Participant contributions 106,104 466,283 79,161 303,503 639,177
Company contributions - - - - -
-----------------------------------------------------------------------
106,104 466,283 79,161 303,503 639,177
-----------------------------------------------------------------------
Total additions 120,211 495,090 84,220 347,689 700,000
Deductions from net assets attributed to
benefits paid to participants 11,133 52,029 6,784 55,387 82,813
-----------------------------------------------------------------------
Net increase (decrease) before interfund transfers and
net loans to participants 109,078 443,061 77,436 292,302 617,187
Interfund transfers 2,051,420 142,240 52,186 166,360 441,495
Net loans to participants (2,753) (229) (370) (621) (866)
-----------------------------------------------------------------------
Net increase (decrease) 2,157,745 585,072 129,252 458,041 1,057,816
Assets available for benefits at
beginning of year 17,011 109,033 15,845 74,371 165,823
-----------------------------------------------------------------------
Assets available for benefits at
end of year $2,174,756 $694,105 $145,097 $532,412 $1,223,639
=======================================================================
<CAPTION>
Fund
American Loans
AIM Enterprises Receivable
Value Holdings, Inc. From
Fund Common Stock Participants Cash Combined
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions to assets attributed to:
Investment income:
Net realized and unrealized appreciation $ (30,090) $1,969,478 $ - $ - $ 1,902,767
(depreciation) in fair value of investments
Dividend and interest income 101,860 58,974 - - 350,437
-----------------------------------------------------------------------
71,770 2,028,452 - - 2,253,204
Contributions:
Participant contributions 452,784 77,881 - 69,360 2,194,253
Company contributions - 900,494 - - 900,494
-----------------------------------------------------------------------
452,784 978,375 - 69,360 3,094,747
-----------------------------------------------------------------------
Total additions 524,554 3,006,827 - 69,360 5,347,951
Deductions from net assets attributed to
benefits paid to participants 69,401 1,893,206 - (9,050) 2,161,703
-----------------------------------------------------------------------
Net increase (decrease) before interfund transfers and
net loans to participants 455,153 1,113,621 - 78,410 3,186,248
Interfund transfers 779,047 (3,627,809) - (4,939) -
Net loans to participants (2,925) (1,328) 9,092 - -
-----------------------------------------------------------------------
Net increase (decrease) 1,231,275 (2,515,516) 9,092 73,471 3,186,248
Assets available for benefits at
beginning of year 102,309 8,803,443 - - 9,287,835
-----------------------------------------------------------------------
Assets available for benefits at
end of year $1,333,584 $6,287,927 $ 9,092 $73,471 $12,474,083
=======================================================================
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE> 9
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Statement of Changes in Assets Available for Benefits
Year ended December 31, 1996
<TABLE>
<CAPTION>
Global Corporate
Institutional Allocation Bond Capital
Fund Fund Fund Fund
-----------------------------------------------------
<S> <C> <C> <C> <C>
Additions to assets attributed to:
Investment income:
Net realized and unrealized appreciation
(depreciation) in fair value of investments $ - $ (4,010) $ (132) $ (1,677)
Dividend and interest income 52 4,525 59 1,800
-----------------------------------------------------
52 515 (73) 123
Contributions:
Participant contributions 16,959 108,518 15,918 74,248
Company contributions - - - -
-----------------------------------------------------
16,959 108,518 15,918 74,248
-----------------------------------------------------
Total additions 17,011 109,033 15,845 74,371
Deductions from net assets attributed to
benefits paid to participants - - - -
-----------------------------------------------------
Net increase 17,011 109,033 15,845 74,371
Assets available for benefits at
beginning of year - - - -
-----------------------------------------------------
Assets available for benefits at
end of year $ 17,011 $109,033 $15,845 $74,371
=====================================================
<CAPTION>
FUND
AMERICAN
AIM AIM ENTERPRISES
CONSTELLATION VALUE HOLDINGS, INC.
FUND FUND COMMON STOCK COMBINED
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Additions to assets attributed to:
Investment income:
Net realized and unrealized appreciation
(depreciation) in fair value of investments $ (4,625) $ (1,994) $ 1,619,335 $ 1,606,897
Dividend and interest income 3,301 2,940 65,490 78,167
-----------------------------------------------------------
(1,324) 946 1,684,825 1,685,064
Contributions:
Participant contributions 167,147 101,363 18,031 502,184
Company contributions - - 1,628,817 1,628,817
-----------------------------------------------------------
167,147 101,363 1,646,848 2,131,001
-----------------------------------------------------------
Total additions 165,823 102,309 3,331,673 3,816,065
Deductions from net assets attributed to
benefits paid to participants - - (572,289) (572,289)
-----------------------------------------------------------
Net increase 165,823 102,309 2,759,384 3,243,776
Assets available for benefits at
beginning of year - - 6,044,059 6,044,059
-----------------------------------------------------------
Assets available for benefits at
end of year $ 165,823 $ 102,309 $ 8,803,443 $ 9,287,835
===========================================================
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE> 10
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997 and 1996
1. SIGNIFICANT ACCOUNTING POLICIES
The Source One Mortgage Services Corporation Employee Stock Ownership and 401(k)
Savings Plan ("Plan") was originally established as a profit-sharing plan
designed to invest primarily in the stock of Fund American Enterprises Holdings,
Inc. ("FAEH"). FAEH is a publicly held company. Source One Mortgage Services
Corporation (the "Company" or "SOMSC") is an indirect wholly-owned subsidiary of
FAEH. Effective October 1, 1996, the Plan was amended to add a 401(k) savings
feature.
The fair values of the participation units in the mutual funds are based on
quoted market values on the last business day of the plan year. The fair value
of the investment in FAEH stock is based on the last sales price on the last
business day of the plan year. Realized gains and losses are computed based
upon a weighted average cost basis. Purchases and sales of securities are
recorded on a trade-date basis.
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. DESCRIPTION OF THE PLAN
The Plan is a contributory defined contribution plan sponsored by the Company.
All employer contributions through December 31, 1997 are made to the Employee
Stock Ownership portion of the Plan and all employee contributions are made to
the 401(k) savings portion of the Plan (see note 6). All administrative expenses
associated with the Plan are paid by the Company.
Employees are eligible to participate in the Employee Stock Ownership portion of
the Plan after completing one year of service. A year of service for purposes of
determining whether an individual is eligible to participate in the Plan means
the 12 consecutive month period following the date the individual starts work
upon completion of 1,000 hours of service. Employees become eligible to
participate in the Employee Stock Ownership portion of the Plan each year on
either January 1st or July 1st.
Employees are eligible to participate in the 401(k) portion of the Plan
generally upon the first day of the calendar quarter following the date of hire
and attainment of age 18.
6
<PAGE> 11
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (continued)
Each eligible participant in the Employee Stock Ownership portion of the Plan
has a FAEH stock account and a cash account. These accounts are adjusted each
year for (1) an allocation of the FAEH's common stock contributed to the Plan,
if any, and (2) any forfeitures of FAEH stock resulting from the termination of
employment of other participants in the Plan before their accounts are fully
vested and (3) interest and dividends. These allocations are based on a
percentage of participant compensation, as defined. Participants are eligible
for 100% of their account balance upon retirement after attaining age 65,
becoming disabled, or to the employee's beneficiary in the case of death.
Account balances are payable to the participants at termination, in accordance
with the following vesting table:
<TABLE>
<CAPTION>
PERCENTAGE
YEARS OF SERVICE VESTING
<S> <C>
Less than 3 0%
3 but less than 4 30
4 but less than 5 40
5 but less than 6 60
6 but less than 7 80
7 years or more 100
</TABLE>
Upon termination for any reason, participants in the Employee Stock Ownership
portion of the Plan can elect to receive the vested portion of their accounts as
either the cash proceeds from the sale of their stock by the trustee or the FAEH
stock. Payments and distributions are made in accordance with Plan provisions.
Eligible participants in the 401(k) portion of the Plan may contribute between
1% and 14% of their total compensation, as defined, and are 100% vested in their
account balance. Additionally, participants may elect several available options
of investing and have the opportunity to change their elections daily. Upon
termination of service, a participant whose account balance does not exceed
$3,500 will receive a lump-sum amount equal to the value of his or her account.
If employment terminates before a participant's 65th birthday and his or her
account balance exceeds $3,500, the participant may defer payment plus any
earnings on that balance until his or her 65th birthday in accordance with ERISA
requirements.
7
<PAGE> 12
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
The Company reserves the right at any time to amend or terminate the Plan. Upon
termination of the Plan, participant accounts, after the payment of any Plan
termination expenses, would be valued as of the date of such termination and
would be 100% vested.
The investment objectives of each of the Funds available to Plan participants
are as follows:
Institutional Fund - To seek maximum current income consistent with liquidity
and the maintenance of a high quality portfolio of money market instruments. The
Fund seeks to maintain a stable net asset value of $1.00 per share.
Global Allocation Fund - To achieve the highest total investment return
consistent with prudent risk. The fund uses financial models and analysis to
determine the best distribution of portfolio holdings among the basic asset
classes of U.S. and foreign equities, U.S. and foreign bonds, and money market
instruments, as well as the mix between U.S. and foreign securities.
Corporate Bond Fund - To earn as high a level of current income as is consistent
with the investment policies of such portfolio and with prudent investment
management. Investments primarily in long-term corporate bonds rated A or
better, offering attractive income, subject to cyclical market fluctuations.
Capital Fund - To achieve the highest total investment return consistent with
prudent risk. A fully managed investment policy, which permits management of the
Fund to vary investment in equity, debt, convertible, and money market
securities based on its evaluation of changes in economic and market trends.
AIM Constellation Fund - A diversified portfolio which seeks to provide capital
appreciation through investments in common stocks, with emphasis on medium-sized
and smaller emerging growth companies.
AIM Value Fund - To achieve long-term growth of capital by investing primarily
in equity securities judged by the Fund's investment advisor to be undervalued
relative to the investment advisor's appraisal of the current or projected
earnings of the companies issuing the securities, or relative to current market
values of assets owned by the companies issuing the securities or relative to
the equity market generally. Income is a secondary objective.
Additional information about the Plan agreement and benefit provisions is
contained in the Summary Plan Description.
3. CONTRIBUTIONS
The Company normally contributes to the Plan each calendar year, through
December 31, 1997, an amount determined at the discretion of the Company's Board
of Directors, not exceeding certain limits imposed by the Internal Revenue Code
(IRC) (see note 6). For the Plan years ended December 31, 1997 and 1996, the
Board voted to contribute FAEH stock having a value equal to $900,494 and
$1,628,817, respectively (approximately 3% and 5% of the sum of the individual
participant's creditable compensation for the Plan years ended December 31, 1997
and 1996, respectively).
4. INVESTMENTS
During 1997 and 1996, the Plan's investments (including investments bought,
sold, as well as held during the year) appreciated (depreciated) in fair value,
as determined by quoted market price, as follows:
<TABLE>
<CAPTION>
NET REALIZED
& UNREALIZED
APPRECIATION FAIR
(DEPRECIATION) VALUE
IN FAIR VALUE AT END
DURING YEAR OF YEAR
-----------------------------------
<S> <C> <C>
Year ended December 31, 1997:
Mutual funds $ (66,711) $ 6,039,482
Common stock 1,969,478 5,384,915
Participant loans - 9,092
-----------------------------------
$ 1,902,767 $11,433,489
===================================
Year ended December 31, 1996:
Mutual funds $ (12,438) $ 416,849
Common stock 1,619,335 7,171,499
-----------------------------------
$ 1,606,897 $ 7,588,348
===================================
</TABLE>
8
<PAGE> 13
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Notes to Financial Statements (continued)
4. INVESTMENTS (CONTINUED)
The fair value of individual investments that represent 5% or more of the Plan's
net assets at either year-end are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Mutual funds:
Merrill Lynch Institutional Fund $2,171,745 $ 14,900
AIM Value Fund $1,319,146 $ 88,238
AIM Constellation Fund $1,203,353 $ 142,606
Merrill Lynch Global Allocation Fund $ 680,340 $ 93,554
Common stock:
Fund American Enterprises Holdings, Inc.* $5,384,915 $7,171,499
* Indicates a party-in-interest to the Plan
</TABLE>
5. INCOME TAX STATUS
The original Plan, prior to the amendment to add the 401(k) savings feature,
received a favorable determination letter from the Internal Revenue Service
dated July 29, 1992. The administrators of the Plan have requested, but have not
received, a determination letter, stating that the amended Plan is qualified
under section 401(a) of the Internal Revenue Code of 1986 (the "Code"). Once
qualified, the Plan is required to operate in conformity with the Code and ERISA
to maintain its tax exempt status. The administrators of the Plan are not aware
of any course of action or series of events that have occurred that might
adversely affect the Plan's qualified status.
6. PLAN AMENDMENTS
In 1997, certain amendments to the Plan were approved effective January 1, 1998.
The most significant of the Plan amendments was a change of the Company's
contributions from the Employee Stock Ownership portion of the Plan to a
matching contribution to the 401(k) portion of the Plan. The amount of the
Company's matching contribution will be determined using a formula based on the
amount each participant elects to contribute (up to a maximum of 5% of eligible
compensation matched) and the Company's return on equity for the corresponding
Plan year. The vesting schedule for the Company's matching contributions will be
the same as the vesting schedule for the Company's previous contributions to the
Employee Stock Ownership portion of the Plan as outlined in note 2.
9
<PAGE> 14
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Notes to Financial Statements (continued)
6. PLAN AMENDMENTS (CONTINUED)
In addition, an amendment was approved that provided for the transfer of all
participants' accounts in the Employee Stock Ownership portion of the Plan to
new accounts in the 401(k) portion of the Plan. Plan participants will then have
the right to direct the investment of their accounts among any of the 401(k)
investment options. The vesting schedule for these new accounts will be the same
as the vesting schedule for participants' accounts in the Employee Stock
Ownership portion of the Plan prior to January 1, 1998.
10
<PAGE> 15
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT INCLUDING
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, CURRENT
LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Trust Company* Institutional Fund
2,171,745 units $ 2,171,745 $ 2,171,745
Merrill Lynch Trust Company* Global Allocation Fund
48,149 units 730,840 680,340
Merrill Lynch Trust Company* Corporate Bond Fund
12,405 units 141,301 142,529
Merrill Lynch Trust Company* Capital Fund
15,159 units 508,609 522,369
AIM Family of Funds AIM Constellation Fund
45,616 units 1,230,872 1,203,353
AIM Family of Funds AIM Value Fund
40,689 units 1,360,337 1,319,146
Participant Loans Loan Fund
9,092 units 9,092 9,092
Fund American Enterprises Holdings, Inc.* Common Stock
44,503 shares 3,905,250 5,384,915
----------------------------------
$ 10,058,046 $11,433,489
==================================
</TABLE>
*Indicates a party-in-interest to the Plan.
12
<PAGE> 16
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Item 27d Schedule of Reportable Transactions
Year ended December 31, 1997
<TABLE>
<CAPTION>
Description of Asset (Including
Interest Rate and Maturity in Purchase Selling
Identity of Party Involved Case of a Loan) Price Price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category i) A transaction with respect
to any plan asset involving an amount in
excess of 5% of the current value of the
Plan assets:
Merrill Lynch* 3,644,493 units of
Institutional Fund $ 1.00 $ -
Fund American Enterprises
Holdings, Inc.* 15,234 shares of Common Stock 106.92 -
29,156 shares of Common Stock - 125.00
</TABLE>
<TABLE>
<CAPTION>
Current
Value of
Cost Asset on Net
of Transaction Gain
Identity of Party Involved Asset Date (Loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Category i) A transaction with respect
to any plan asset involving an amount in
excess of 5% of the current value of the
Plan assets:
Merrill Lynch*
$ 3,644,493 $3,644,493 $ -
Fund American Enterprises
Holdings, Inc.* 1,628,817 1,628,817 -
2,501,075 3,644,493 1,143,419
</TABLE>
13
<PAGE> 17
Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Item 27d-Schedule of Reportable Transactions (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Current
Value of
Description of Asset (Including Cost Asset on Net
Interest Rate and Maturity in of Transaction Gain
Identity of Party Involved Case of a Loan) Asset Date (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Category iii) A series of transactions
involving securities of the same issue
which, when aggregated, involve an amount
in excess of 5% of the current value
of plan assets:
Merrill Lynch* Institutional Fund:
47 sales $1,616,366 $1,616,366 $ -
Merrill Lynch* Global Allocation Fund:
63 purchases 723,895 723,895 -
Merrill Lynch* AIM Value Fund:
81 purchases 1,343,516 1,343,516 -
Merrill Lynch* AIM Equity Constellation Fund:
68 purchases 1,193,435 1,193,435 -
Fund American Enterprises Common Stock:
Holdings, Inc.* 75 sales 1,704,179 2,085,166 380,987
</TABLE>
There were no category ii) or iv) reportable transactions.
* Indicates a party-in-interest to the Plan.
14
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
23 Consent of Experts
(a) Consent of KPMG Peat Marwick LLP
(b) Consent of Ernst & Young LLP
<PAGE> 1
EXHIBIT 23(a)
Consent of Independent Auditors
The Board of Directors
Source One Mortgage Services Corporation
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-13027) pertaining to the Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan of our report dated June 26,
1998, with respect to the financial statements and schedules of the Source One
Mortgage Services Corporation Employee Stock Ownership and 401(k) Savings Plan
in this Annual Report (Form 11-K) for the year ended December 31, 1997.
/s/ KPMG Peat Marwick LLP
Detroit, Michigan
June 29, 1998
<PAGE> 1
Exhibit 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-13027) pertaining to the Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan of our report dated April 11,
1997, with respect to the financial statements of the Source One Mortgage
Services Corporation Employee Stock Ownership and 401(k) Savings Plan in this
Annual Report (Form 11-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Detroit, Michigan
June 29, 1998
