UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Nos.: 33-67202
FUND AMERICA INVESTORS CORPORATION II
(Exact name of registrant as specified in its charter)
Delaware 84-1218906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
6400 S. Fiddler's Green Circle, Suite 1200B, Englewood, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number including area code: (303) 290-6025
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 require-
ments for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 14, 1999-- 349,000 shares
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FUND AMERICA INVESTORS CORPORATION II
FORM 10-Q FOR THE
THREE MONTHS ENDED MARCH 31, 1999
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports 9
SIGNATURES 10
Page 2
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUND AMERICA INVESTORS CORPORATION II
BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash $ 219,503 $ 226,446
Deferred offering costs 248,555 248,555
Prepaid expenses 2,000 179
--------- ---------
Total assets $ 470,058 $ 475,180
========= =========
Liabilities - accounts payable $ 7,140 $ 215
--------- ---------
Shareholder's equity
Common stock, par value $.01 per share;
1,000,000 shares authorized; 349,000
shares issued and outstanding 3,490 3,490
Retained earnings 459,428 471,475
--------- ---------
Total shareholder's equity 462,918 474,965
--------- ---------
Total liabilities and share-
holder's equity $ 470,058 $ 475,180
========= =========
See notes to financial statements
Page 3
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended
March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenue
Interest income $ 2,159 $ 1,168
---------- ----------
Total revenue 2,159 1,168
---------- ----------
Expenses
General and administrative 8,207 8,160
Legal fees - 408
Management fees 6,000 6,000
---------- ----------
Total expenses 14,207 14,568
---------- ----------
Net loss $ (12,048) $ (13,400)
========== ==========
See notes to financial statements
Page 4
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended
March 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net cash flow used in operating activities:
Net loss $ (12,048) $ (13,400)
Adjustments to reconcile net loss to net
cash flow from operating activities:
Changes in operating assets and
liabilities:
Prepaid expenses ( 1,820) 172
Accounts payable 6,925 (1,660)
---------- ----------
Net cash flow used in operating
activities ( 6,943) (14,888)
---------- ----------
Net decrease in cash ( 6,943) (14,888)
Cash at beginning of period 226,446 110,311
---------- ----------
Cash at end of period $ 219,503 $ 95,423
========== ==========
See notes to financial statements
Page 5
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FUND AMERICA INVESTORS CORPORATION II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Three months ended March 31, 1999 and 1998
1. Basis of Presentation
---------------------
Organization
- ------------
Fund America Investors Corporation II (the "Company") was incorporated in the
State of Delaware on December 14, 1992 as a limited purpose finance corporation.
The Company was established to engage in the issuance and administration of
Collateralized Mortgage Obligations (the "Bonds") and Asset-Backed Certificates
(the "Certificates", and together with the Bonds, the"Securities"). The Securi-
ties are issued in one or more series, from time to time, by the Company in
accordance with the provisions in the prospectus and series-related prospectus
supplement of the Company's latest effective registration statement.
The Securities of each series can be issued directly by the Company, but typi-
cally the Company forms a separate trust to act as the issuer solely for the
purpose of issuing a series of Securities. A series of Securities that consist
of Bonds will be issued pursuant to an indenture and will represent indebtedness
of the trust or issuer. A series of Securities that consist of Certificates
will represent beneficial ownership in the related trust or issuer. The sole
source of payments to Bondholders or Certificateholders within each series of
Securities is produced from the related trust property. The trust property is
generally comprised of mortgage loans and/or mortgage-related assets as describ-
ed in each of the series' related prospectus supplements.
The Company may not, either directly or indirectly through a beneficially owned
trust, engage in any business or investment activity other than to; (1) issue
and sell Bonds; (2) purchase, own, hold, pledge or sell mortgage loans or other
mortgage-related assets; (3) invest and maintain cash balances on an interim
basis in high quality short-term securities; and (4) engage in other activities
which are necessary or convenient to accomplish the foregoing and are incidental
thereto.
At January 1, 1999, the Company had a total of $564 million remaining and
unissued Securities on its Registration Statement No. 333-33823. During the
first quarter ended March 31, 1999, the Company did not issue any additional
Securities. The balance of unissued Securities on Registration Statement No.
333-33823 remains at $564 million for the first quarter ended March 31, 1999.
To date, the Company has issued eighteen series of Securities which aggregate
$2.4 billion in original issued principal. The Company does not have any further
obligations in connection with the issuance of these Securities. Under generally
accepted accounting principles, such issuances are considered to be a direct
sale of the collateral.
On September 30, 1998, the Company filed its fifth Registration Statement on
Form S-3 with the Securities and Exchange Commission. The purpose of this
Registration Statement is to register an additional amount of Securities and to
merge the Company's Effective Registration Statement No. 333-33823, thereby
increasing the total amount of Securities that can be issued by the Company. As
of March 31, 1999, this Registration Statement was not effective and was subject
to completion or amendment. The Company intends to file one or more further
amendments to complete this Registration Statement and to bring it effective.
2. Unaudited Financial Statements
------------------------------
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position of
the Company at March 31, 1999, and the results of its operations and cash flows
for the periods ended March 31, 1999 and 1998.
Page 6
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Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The Year 2000 Issue
- -------------------
With the year 2000 approaching, potential computer failures and errors may
occur due to problems with the computerized recognition of date codes. The
Year 2000 ("Y2K") issue addresses potential problems that may be encountered
with date-related transactions on systems that have historically recognized
years using two digits versus four digits. For example, these systems may recog-
nize "00" as the year 1900 instead of 2000. This could potentially affect
computerized operations that rely on date calculations or are date sensitive.
All operations of the Company are essentially driven by the issuance of securi-
ties. In order to assess and determine potential Y2K issues within the opera-
tions, the Company has separated operations into three sections, the registra-
tion of securities, the issuance of securities, and the administrational
operations.
The preparation, filing, and follow-up of the registration and issuance proces-
ses are typically out-sourced to third-party service providers that specialize
in these services. The Company is reinvesting confirmation from its third-party
servicing providers that their systems are Y2K compliant. The Company has rec-
eived assurance of Y2K compliance for some of its third-party service providers.
In addition, the Company is still continuing its efforts to receive assurance
from its other third-party service providers.
The Company in conjunction with its facilities provider, The Chotin Group
Corporation (TCG), a related party, has assessed the third area of the Company's
operations, administration systems. TCG provides the Company with office
facilities and administrative functions. TCG has assessed its internal systems
and has developed a Y2K Compliance Plan. Currently, TCG is in the process of
implementing the plan steps to update and upgrade its internal systems that were
determined not compliant. The Company will closely monitor TCG's progress.
Due to the fact that all operational systems are hired out, the Company does not
expect to incur any direct costs for Y2K remediation that would materially af-
fect its financial condition. The risk, however, to the Company could poten-
tially be a delay in its operations of registering securities and issuing secur-
ities. Delays may be caused by the Company's reliance on third- party service
providers who handle out-sourced operations and who are not Y2K compliant. To
address this issue, the Company will consider out-sourcing operations to other
third-party service provider who confirm their compliance.
If necessary updates and upgrades of TCG's systems are not made on a timely
basis, or if third- party service providers are not Y2K ready, Y2K problems
could have a material adverse effect on the Company's operations.
Without a reasonably complete upgrade and testing of systems that may be
vulnerable to problems, the Company does not have reasonable basis to conclude
that the Year 2000 compliance issue will not likely have an operational impact
on the Company. In addition, without a reasonable conclusive basis, reported
financial information will not necessarily be a indication of future operating
results or future financial condition.
Liquidity and Capital Resources
- -------------------------------
The Company expects to fund ongoing operations from working capital and
revenues derived from the issuance of Securities. Management believes that the
Company's current cash position will adequately fund overhead and capital costs
related to the registration of additional securities for the remainder of 1999.
Results of Operations
- ---------------------
The Company reported a net loss for the three months ended March 31, 1999 of
$12,048 as compared to a net loss for the three months ended March 31, 1998 of
$13,400. As increase of interest earned on cash balances for the three months
ended March 31, 1999 is the primary difference in the results of operations
between the two reporting periods.
Page 7
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Forward Looking Statements
- --------------------------
The statements contained in this Item 2 that are not historical facts, inclu-
ding, but not limited to, statements that can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology, are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, and involve a number of
risks and uncertainties. The actual results of the future events described
in such forward-looking statements could differ materially from those stated
in such forward-looking statements. Among the factors that could cause actual
results to differ materially are: the Y2K preparedness of the Company's third
party information service providers, the market for mortgage-backed securities,
competition, government regulation and possible future litigation.
Page 8
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PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Form 8-K - None
Page 9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FUND AMERICA INVESTORS CORPORATION II
-------------------------------------
(Registrant)
Date: May 14, 1999 By: /s/ Helen M. Dickens
------------------- ---------------------------------
Helen M. Dickens
Vice President and Secretary
(Duly authorized and
Principal Financial Officer)
Page 10
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 219,053
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 221,053
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 470,057
<CURRENT-LIABILITIES> 7,140
<BONDS> 0
0
0
<COMMON> 3,490
<OTHER-SE> 459,427
<TOTAL-LIABILITY-AND-EQUITY> 470,057
<SALES> 0
<TOTAL-REVENUES> 2,159
<CGS> 0
<TOTAL-COSTS> 14,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,048)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,048)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,048)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>
Not presented since all shares of common stock are held by a sole
shareholder.
</FN>
</TABLE>
