UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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.: 33-73748
FUND AMERICA INVESTORS CORPORATION II
(Exact name of registrant as specified in its charter)
Delaware 84-1218906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
6400 S. Fiddler's Green Circle, Suite 1200B, Englewood, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number including area code: (303) 290-6025
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 November 12, 1999 -- 349,000 shares
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FUND AMERICA INVESTORS CORPORATION II
FORM 10-Q FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 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 7
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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUND AMERICA INVESTORS CORPORATION II
BALANCE SHEETS
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
Cash $ 44,733 $ 226,446
Deferred offering costs 250,055 248,555
Prepaid expenses 2,000 179
---------- ----------
Total assets $ 296,788 $ 475,180
========== ==========
Liabilities - accounts payable $ - $ 215
---------- ----------
Shareholder's equity
Common stock, par value $.01 per
share;10,000 shares authorized;
349,000 shares issued and
outstanding 3,490 3,490
Retained earnings 293,298 471,475
---------- ----------
Total shareholder's equity 296,788 474,965
---------- ----------
Total liabilities and
shareholder's equity $ 296,788 $ 475,180
========== ==========
See notes to financial statements
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statement of Operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ -----------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue
Issuance fee income $ - $ - $ - $360,418
Call option income 195,006 - 195,006 -
Interest income 1,536 4,464 5,853 7,556
-------- -------- -------- --------
Total revenue 196,542 4,464 200,859 367,974
-------- -------- -------- --------
Expenses
Deferred offering costs - - - 135,418
General and administrative 1,324 2,308 11,036 11,566
Management fees 6,000 6,000 18,000 18,000
-------- -------- -------- --------
Total expenses 7,324 8,308 29,036 164,984
-------- -------- -------- --------
Net income/(loss) $189,218 $ (3,844) $171,823 $202,990
======== ======== ======== ========
See notes to financial statements
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statement of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended
September 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Net cash flow from operating activities:
Net income $ 171,823 $ 202,990
Adjustments to reconcile net income to net
cash flow from operating activities:
Deferred offering costs - 135,418
Changes in operating assets and liabilities:
Prepaid expenses (1,821) 172
Accounts payable (215) 1,439
--------- ---------
Net cash flow provided by operating activities 169,787 340,019
Net cash used in investing activities:
Increase in deferred offering costs (1,500) (10,266)
--------- ---------
Net cash flow used in investing activities (1,500) (10,266)
Net cash used in financing activities:
Shareholder distributions (350,000) (87,598)
--------- ---------
Net cash flow used in financing activities (350,000) (87,598)
Net increase/decrease in cash (187,713) 242,155
Cash at beginning of period 226,446 110,311
--------- ---------
Cash at end of period $ 44,733 $ 352,466
========= =========
See notes to financial statements
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FUND AMERICA INVESTORS CORPORATION II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, 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 Securities 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 typically 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 described 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 Securities; (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.
On July 1, 1999, the Company had a total of $564 million registered
and unissued Securities on its Registration Statement No. 333-
33823. During the third quarter ended September 30, 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 third quarter ended September 30,
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 September 30, 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
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim reporting periods and in accordance with the instructions
to Form 10-Q. In complying to the guidelines, the accompanying
financial statements do not include all of the information and
footnotes that are required for a complete annual reporting period.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
financial position of the Company at September 30, 1999, and the
results of its operations and cash flows for the periods ended
September 30, 1999 and 1998.
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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 recognize "00" as
the year 1900 instead of 2000. This could potentially affect
computerized operations that rely on date calculations or are date
sensitive.
All operations of the Company are essentially driven by the issuance
of securities. In order to assess and determine potential Y2K issues
within the operations, the Company has separated operations into
three sections, the registration of securities, the issuance of securities,
and the administrational operations.
The preparation, filing, and follow-up of the registration and issuance
processes are typically out-sourced to third-party service providers
that specialize in these services. The Company has requested
confirmation from its third-party service providers that their systems
are Y2K compliant. The Company has received assurance of Y2K
compliance for some of its third-party service providers.
The Company in conjunction with its facilities provider, The Chotin
Group Corporation (TCG), a related party, has assessed its
administration systems, the third area of the Company's operations.
TCG provides the Company with office facilities and administrative
functions. TCG is in the second part of its final phase of its Y2K
compliance plan. All hardware systems identified as non-Y2K
compliant have been replaced. Additionally, all necessary
replacements to software systems used in the administration of the
Company's operations have been made. All hardware and software
systems will be tested prior to year-end to allow adequate time for
any potential corrections. TCG believes that its Y2K efforts are on
track to ensure compliance with the upcoming deadline.
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 affect its financial condition. The
risk, however, to the Company could potentially be a delay in its
operations of registering securities and issuing securities. Delays
may be caused by the Company's reliance on third- party service
providers who handle out-sourced operations and who are not Y2K
compliant. To 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 identified in the testing process 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 testing of systems that may be
vulnerable to problems, the Company does not have a 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 an 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 operates on relatively fixed general and administrative
costs which have not substantially deviated from comparable periods
in prior years. Typically, periodical fluctuations in net income are
directly related to activity from the issuance of Securities. Under
normal circumstances, periods reporting net income are the direct
result of issuance fees earned by the Company, and periods reporting
a net loss, no issuance fees were earned. For the three-months ended
September 30, 1999, the Company reported net income of $189,218,
however, net income was not a result of issuance activity, but rather
call option income received in the amount of $195,006 when the
bonds in Fund America Investors Corporation II, Series 1993-F were
called by the servicer. Call option income is not a usual event and
Page 7
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the Company does not anticipate to receive call option income in
future periods from other series that it has issued. The remaining
income and expense for September 30, 1999 are comparable to the
three-months ended September 30, 1998, where, the Company did
not earn any issuance fees and reported a net loss of $3,844.
In comparing the nine-month period ended September 30, 1999 to
the nine-months ended September 30, 1998, both periods had net
income of $171,823 and $202,990, respectively. However, the
income reported on September 30, 1999 was produced by the call
option income of $195,006 as described above, whereas, net income
reported on September 30, 1998 was the result of net issuance fees
earned in the amount of $225,000. Other items remained comparable
for both periods with the exception of a slight decrease in interest
earned for September 30, 1999.
Forward Looking Statements
The statements contained in this Item 2 that are not historical facts,
including, but not limited to, statements that can be identified by the
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology, are forward-
looking 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
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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: November 12, 1999 By: /s/ Helen M. Dickens
Helen M. Dickens
Vice President, Secretary/Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 44734
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46734
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 296788
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3490
<OTHER-SE> 293298
<TOTAL-LIABILITY-AND-EQUITY> 296788
<SALES> 0
<TOTAL-REVENUES> 200859
<CGS> 0
<TOTAL-COSTS> 29036
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 171823
<INCOME-TAX> 0
<INCOME-CONTINUING> 171823
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171823
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not presented, as all shares of common stock are held by a sole
shareholder.
</FN>
</TABLE>
