<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23181
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
(Full title of Plan)
PAULA FINANCIAL
300 NORTH LAKE AVENUE, SUITE 300
PASADENA, CA 91101
(Name of issuer of the securities held pursuant to the Plan
and address of its principal executive office.)
===============================================================================
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTAL SCHEDULES AND EXHIBIT
-----------------------------------------------------------------
ITEM
- ----
Independent Auditor's Report
Statement of Net Assets Available for Plan Benefits as of December 31, 1998
Statement of Net Assets Available for Plan Benefits as of December 31, 1997
Statement of Changes in Net Assets Available for Plan Benefits for the Year
Ended December 31, 1998
Notes to Financial Statements
Item 27a - Schedule of Assets Held for Investment Purposes - December 31, 1998
Item 27b - Schedule of Loans or Fixed Income Obligations - December 31, 1998
Item 27d - Schedule of Reportable Transactions - Year Ended December 31, 1998
Signatures
Exhibit 23 - Consent of Independent Auditor
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY DATA
DECEMBER 31, 1998
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
--------------------------------------------------------
Page
----
Independent Auditor's Report...................................................1
Statement of Net Assets Available for Plan
Benefits as of December 31, 1998............................................2
Statement of Net Assets Available for Plan
Benefits as of December 31, 1997............................................4
Statement of Changes in Net Assets Available for Plan
Benefits for the year ended December 31, 1998...............................6
Notes to Financial Statements..................................................8
Schedule
--------
Item 27a - Schedule of Assets Held for
Investment Purposes - December 31, 1998....................................1
Item 27b - Schedule of Loans or Fixed Income
Obligations - December 31, 1998............................................2
Item 27d - Schedule of Reportable Transactions -
Year ended December 31, 1998...............................................3
All other supplemental schedules omitted are not applicable or are not required
based on disclosure requirements of the Employee Retirement Income Security Act
of 1974 and regulations issued by the Department of Labor.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Administrative Committee of
The PAULA Financial And Subsidiaries
401 (K) Retirement Savings Plan
I have audited the accompanying statements of net assets available for plan
benefits of PAULA Financial and Subsidiaries 401 (K) Retirement Savings Plan as
of December 31, 1998 and 1997, and the related statement of changes in net
assets available for plan benefits for the year ended December 31, 1998. These
financial statements are the responsibility of the Plan's management. My
responsibility is to express an opinion on these statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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 presentation. I believe
that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the net assets available for plan benefits of PAULA Financial
and Subsidiaries 401 (K) Retirement Savings Plan as of December 31, 1998 and
1997, and the changes in net assets for plan benefits for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
My audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of (1) assets
held for investments purposes, (2) loans or fixed income obligations, and (3)
reportable transactions are presented for the purpose of additional analysis and
are not 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
supplemental schedules have been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in my opinion, are fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ Peter T. Manahan
Certified Public Accountant
Pasadena, California
May 28, 1999
1
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Fund 1 Fund 2 Fund 3 Fund 4 Fund 5 Fund 6 Fund 7 Fund 8
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Group annuity contracts,
at contract value $3,535,837 - - - - - - -
Pooled separate accounts,
at fair value - - 874,448 - - 371,923 - 750,993
Loans to participants - - - - - - - -
---------- ------ ------- ------ ------ ------- ------ -------
3,535,837 - 874,448 - - 371,923 - 750,993
Receivables:
Employer's contribution 3,988 - 1,222 - - 503 - 1,183
Participants' contributions 9,206 - 3,161 - - 1,660 - 3,298
Accrued interest 5,890 - - - - - - -
---------- ------ ------- ------ ------ ------- ------ -------
19,084 - 4,383 - - 2,163 - 4,481
---------- ------ ------- ------ ------ ------- ------ -------
Total assets 3,554,921 - 878,831 - - 374,086 - 755,474
Liabilities - - - - - - - -
---------- ------ ------- ------ ------ ------- ------ -------
Net assets available for
Plan benefits $3,554,921 - 878,831 - - 374,086 - 755,474
---------- ------ ------- ------ ------ ------- ------ -------
---------- ------ ------- ------ ------ ------- ------ -------
</TABLE>
-CONTINUED-
2
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Fund 9 Fund 10 Fund 11 Fund 12 Fund 13 Fund 14 Fund 15 Total
------ ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Group annuity contracts,
at contract value - - - - - - - 3,535,837
Pooled separate accounts,
at fair value 415,324 549,930 27,687 77,909 323,491 275,196 - 3,666,901
Loans to participants - - - - - - 492,025 492,025
------- ------- ------- ------- ------- ------- ------- ---------
415,324 549,930 27,687 77,909 323,491 275,196 492,025 7,694,763
Receivables:
Employer's contribution 584 633 32 236 587 537 - 9,505
Participants' contribution 1,350 999 72 779 1,844 1,580 - 23,949
Accrued interest - - - - - - - 5,890
------- ------- ------- ------- ------- ------- ------- ---------
1,934 1,632 104 1,015 2,431 2,117 - 39,344
------- ------- ------- ------- ------- ------- ------- ---------
Total assets 417,258 551,562 27,791 78,924 325,922 277,313 492,025 7,734,107
Liabilities - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ---------
Net assets available for
Plan benefits 417,258 551,562 27,791 78,924 325,922 277,313 492,025 7,734,107
------- ------- ------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ------- ------- ---------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Fund 1 Fund 2 Fund 3 Fund 4 Fund 5 Fund 6 Fund 7 Fund 8
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Group annuity contracts,
at contract value $2,876,770 - - - - - - -
Pooled separate accounts,
at fair value - 82,700 926,490 113,709 299,919 567,065 371,512 498,091
Loans to participants - - - - - - - -
---------- ------ ------- ------- ------- ------- ------- -------
2,876,770 82,700 926,490 113,709 299,919 567,065 371,512 498,091
Receivables:
Employer's contribution 3,634 140 1,121 401 536 389 527 870
Participants' contributions 9,654 284 2,563 710 1,350 1,182 1,094 2,052
Accrued interest 4,376 - - - - - - -
---------- ------ ------- ------- ------- ------- ------- -------
17,664 424 3,684 1,111 1,886 1,571 1,621 2,922
---------- ------ ------- ------- ------- ------- ------- -------
Total assets 2,894,434 83,124 930,174 114,820 301,805 568,636 373,133 501,013
Liabilities - - - - - - - -
---------- ------ ------- ------- ------- ------- ------- -------
Net assets available for
Plan benefits $2,894,434 83,124 930,174 114,820 301,805 568,636 373,133 501,013
---------- ------ ------- ------- ------- ------- ------- -------
---------- ------ ------- ------- ------- ------- ------- -------
</TABLE>
-CONTINUED-
4
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Fund 9 Fund 10 Fund 11 Fund 12 Fund 13 Fund 14 Fund 15 Total
------ ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Group annuity contracts,
at contract value - - - - - - - 2,876,770
Pooled separate accounts,
at fair value 314,159 - - - - - - 3,173,645
Loans to participants - - - - - - 492,931 492,931
------- ------- ------- ------- ------- ------- ------- ---------
314,159 - - - - - 492,931 6,543,346
Receivables:
Employer's contribution 627 - - - - - - 8,245
Participants' contributions 1,349 - - - - - - 20,238
Accrued interest - - - - - - - 4,376
------- ------- ------- ------- ------- ------- ------- ---------
1,976 - - - - - - 32,859
------- ------- ------- ------- ------- ------- ------- ---------
Total assets 316,135 - - - - - 492,931 6,576,205
Liabilities - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ---------
Net assets available for
Plan benefits 316,135 - - - - - 492,931 6,576,205
------- ------- ------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ------- ------- ---------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Fund 1 Fund 2 Fund 3 Fund 4 Fund 5 Fund 6 Fund 7 Fund 8
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contributions:
Participants $ 234,140 1,432 104,991 3,852 22,337 48,096 20,394 89,917
Employer 105,016 713 37,849 2,029 7,670 14,893 9,903 29,779
Rollover 13,135 - 106,483 - 2,485 29,796 - 57,380
--------- ------- -------- -------- -------- -------- -------- --------
352,291 2,145 249,323 5,881 32,492 92,785 30,297 177,076
Investment income:
Interest 178,380 - - - - - - -
Net appreciation (depreciation)
in fair value of pooled
separate accounts - 1,246 178,594 11,448 18,716 57,417 21,976 162,949
--------- ------- -------- -------- -------- -------- -------- --------
178,380 1,246 178,594 11,448 18,716 57,417 21,976 162,949
Participant loan activity:
Repayment 116,476 454 19,438 534 3,889 9,485 6,442 17,115
Issuance (122,483) - (25,445) (167) (12,495) (1,929) (15,686) (21,292)
--------- ------- -------- -------- -------- -------- -------- --------
(6,007) 454 (6,007) 367 (8,606) 7,556 (9,244) (4,177)
Benefits and expenses:
Benefits (240,228) - (129,712) - (26,307) (196,615) (51,073) (87,082)
Administrative expenses (1,143) - (247) (1) (53) (39) (121) (224)
Net transfer in (out) 377,194 (86,969) (343,294) (132,515) (318,047) (155,654) (364,968) 5,919
--------- ------- -------- -------- -------- -------- -------- --------
135,823 (86,969) (473,253) (132,516) (344,407) (352,308) (416,162) (81,387)
--------- ------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net
assets available for Plan
benefits 660,487 (83,124) (51,343) (114,820) (301,805) (194,550) (373,133) 254,461
Net assets available for Plan
Benefits :
Beginning of year 2,894,434 83,124 930,174 114,820 301,805 568,636 373,133 501,013
--------- ------- -------- -------- -------- -------- -------- --------
End of year $3,554,921 - 878,831 - - 374,086 - 755,474
---------- ------- -------- -------- -------- -------- -------- --------
---------- ------- -------- -------- -------- -------- -------- --------
</TABLE>
-CONTINUED-
6
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Fund 9 Fund 10 Fund 11 Fund 12 Fund 13 Fund 14 Fund 15 Total
------ ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contributions:
Participants 43,185 22,972 1,706 16,156 31,746 41,283 - 682,207
Employer 16,689 11,574 593 3,861 9,709 11,264 - 261,542
Rollover 56,738 54,119 24,266 32,175 89,677 48,772 - 515,026
------- -------- ------ ------ ------- ------- -------- ---------
116,612 88,665 26,565 52,192 131,132 101,319 - 1,458,775
Investment income:
Interest and dividends - 5,211 - - - - 39,208 222,799
Net appreciation (depreciation)
in fair value of pooled
separate accounts 6,515 (252,147) 1,129 4,307 40,896 22,120 - 275,166
------- -------- ------ ------ ------- ------- -------- ---------
6,515 (246,936) 1,129 4,307 40,896 22,120 39,208 497,965
Participant loan activity:
Repayment 13,008 5,570 45 3,608 1,298 11,579 (208,941) -
Issuance (12,094) (3,151) (108) (2,868) (1,460) (3,349) 222,527 -
------- -------- ------ ------ ------- ------- -------- ---------
914 2,419 (63) 740 (162) 8,230 13,586 -
Benefits and expenses:
Benefits (47,593) - - - - - (14,492) (793,102)
Administrative expenses (83) (3,766) (1) (21) (15) (22) - (5,736)
Net transfer in (out) 24,758 711,180 161 21,706 154,071 145,666 (39,208) -
------- -------- ------ ------ ------- ------- -------- ---------
(22,918) 707,414 160 21,685 154,056 145,644 (53,700) (798,838)
------- -------- ------ ------ ------- ------- -------- ---------
Net increase (decrease) in net
assets available for Plan
benefits 101,123 551,562 27,791 78,924 325,922 277,313 (906) 1,157,902
Net assets available for Plan
Benefits :
Beginning of year 316,135 - - - - - 492,931 6,576,205
------- -------- ------ ------ ------- ------- -------- ---------
End of year 417,258 551,562 27,791 78,924 325,922 277,313 492,025 7,734,107
------- -------- ------ ------ ------- ------- -------- ---------
------- -------- ------ ------ ------- ------- -------- ---------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) PLAN DESCRIPTION
The PAULA Financial and Subsidiaries 401(K) Retirement Savings Plan (the
Plan) is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). The Plan is a voluntary defined contribution
retirement savings plan which qualifies as a salary deferral plan under
Sections 401(k) of the Internal Revenue Code and is sponsored by PAULA
Financial on behalf of itself and its various subsidiaries (the Company).
The Plan offers tax deferral, payroll deduction and several options for
investing. Plan participants should refer to the Plan agreement for more
complete information.
ELIGIBILITY
The Plan covers all regular, full-time, salaried employees of the Company
provided they have attained age 21 and have completed one year of eligible
service.
CONTRIBUTIONS
Participants in the Plan may contribute, on a tax-deferred basis, from 1%
to 17% of their compensation (as defined by the Plan), limited to the
maximum amount allowable by the Internal Revenue Code. This limitation
amount is adjusted annually for inflation and is $10,000 for 1998.
Participants may suspend contributions or change their account balances
among investment options at any time. Participants can only resume
previously suspended contributions at the beginning of each fiscal quarter.
The Company provides a matching contribution of $0.50 per $1.00 contributed
up to the first six percent of compensation contributed.
With the Plan administrator's approval, distributions from other qualified
plans can be deposited into a rollover account in the Plan.
Participants in the Plan are able to invest their deferred compensation,
Company matching contributions and rollover funds in various fund
alternatives. In 1998, certain fund options were discontinued while others
were added. The following identifies the funds:
Fund 1 - CIGNA Guaranteed Income Fund
Fund 2 - CIGNA Actively Managed Fixed Income Fund (discontinued
in 1998)
Fund 3 - Fidelity Advisor Growth Opportunities Fund
Fund 4 - Warburg Pincus International Equity Fund (discontinued
in 1998)
Fund 5 - Fidelity Puritan Fund (discontinued in 1998)
Fund 6 - Investco Total Return Fund
Fund 7 - Warburg Pincus Growth and Income Fund (discontinued in
1998)
Fund 8 - American Century Twentieth Century Ultra Fund
Fund 9 - Warburg Pincus Advisor Emerging Growth Fund
Fund 10 - PAULA Financial Common Stock (new in 1998)
Fund 11 - CIGNA Lifetime 20 (new in 1998)
8
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Fund 12 - CIGNA Lifetime 40 (new in 1998)
Fund 13 - CIGNA. Stock Market Index (new in 1998)
Fund 14 - Janus Worldwide (new in 1998)
Fund 15 holds the participant loans.
VESTING
Participants become immediately vested in both their voluntary tax-deferred
contributions and the Company matching contributions.
BENEFITS
Upon retirement, attaining age 59 1/2, termination, death, permanent
disability or proven financial hardship, participants or their
beneficiaries are entitled to receive their vested benefits.
PARTICIPANT ACCOUNT BALANCES
Separate accounts are maintained for each participant's tax-deferred
contributions, Company matching contribution balances and rollover funds.
Earnings of the various funds are allocated to the participant balances
according to the ratio that a participant's account balance in a given fund
bears to the total of all account balances in the fund.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on an accrual
basis and present the net assets available for plan benefits and changes in
those net assets.
INVESTMENTS
Investments are stated at fair value as reported by Connecticut General
Life Insurance Company (CIGNA), the carrier of Plan investments. Net
appreciation or depreciation resulting from revaluation of investments to
fair value is reflected in the statements of changes in net assets
available for Plan benefits and includes investments bought and sold, as
well as held, during the year.
9
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
ADMINISTRATIVE EXPENSES
Administrative expenses relating specifically to the Plan for maintenance,
valuation and distribution of participants' account balances, trustee fees,
and other expenses relating to outside services provided to the Plan are
paid by the Company. Additionally, general administrative expenses incurred
by the Plan, such as salary and office space costs, are absorbed by the
Company.
(3) TRUST FUND
CG Trust Company (an affiliate of CIGNA) has been retained by the Plan as
the trustee for the Plan's trust fund. The trustee is authorized to act on
the directive of the Plan Committee which consists of seven employees of
the Company. CIGNA is the carrier for the Plan's investments.
The trust fund consists of four types of assets: group annuity contracts,
pooled separate accounts, loans to participants and cash. Investments in
the above types of assets are made at the direction of the Plan
participants.
(4) FEDERAL INCOME TAXES
The Plan has received a letter of determination from the Internal Revenue
Service that the Plan and related trust are designed in accordance with
applicable sections of the Internal Revenue Code.
(5) PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right to terminate the Plan subject to the provisions of ERISA.
10
<PAGE>
SCHEDULE 1
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
EIN: 95-4640368
PLAN 002
<TABLE>
<CAPTION>
Identity of issue
borrower, lessor Current
or similar party Description Cost Value
- ----------------- ----------- ---- -----
<S> <C> <C> <C>
Group Annuity Contracts
-----------------------
Connecticut General Asset Fund
General Life Guaranteed Income Fund -
Insurance Co. Contribution period 7/1/95 to
(CIGNA) 12/31/98, annual effective interest
rate for 1998 is 5.95% $3,535,380 $3,535,380
Cash Transaction Account (GST) 457 457
---------- ----------
Total General Asset Fund 3,535,837 3,535,837
Pooled Separate Accounts
------------------------
Fidelity Advisor Growth
Opportunities Fund 593,500 874,448
Invesco Total Return Fund 295,156 371,923
American Century Twentieth Century Ultra Fund 561,949 750,993
Warburg Pincus Advisor Emerging Growth Fund 343,729 415,324
PAULA Financial Common Stock 786,435 549,930
CIGNA Lifetime 20 26,422 27,687
CIGNA Lifetime 40 73,415 77,909
CIGNA Stock Market Index 283,212 323,491
Janus Worldwide 253,946 275,196
---------- ----------
Total Pooled Separate Accounts 3,217,764 3,666,901
</TABLE>
-Continued-
<PAGE>
SCHEDULE 1 (CONTINUED)
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
ITEM 27A - SCHEDULE OF INVESTMENTS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
EIN: 95-4640368
PLAN 002
<TABLE>
<CAPTION>
Identity of issue
borrower, lessor or Current
similar party Description Cost Value
- ------------------- ----------- ---- -------
<S> <C> <C> <C>
Participant Loans
-----------------
72 Notes receivable from participants, secured by
participants' vested interests in Plan, interest
rates at December 31, 1998 range from 6.5% to 9.5%,
principal and
interest due through August 2008 492,025 492,025
---------- ----------
Total investments $7,245,626 $7,694,763
---------- ----------
---------- ----------
</TABLE>
See accompanying independent auditor's report.
<PAGE>
SCHEDULE 2
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
ITEM 27B - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
DECEMBER 31, 1998
EIN: 95-4640368
PLAN 002
<TABLE>
<CAPTION>
Detailed description of loan
including dates of making
and maturity, interest rate,
Amount received Unpaid the type and value of collateral,
Original during reporting balance any renegotiation of the loan and Amount Overdue
Identity and amount year at end of terms of the renegotiation, and
address of obligor of loan Principal Interest year other material items Principal Interest
- ------------------ -------- --------- --------- --------- ---------------------------------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Delilah Ceballos $6,400 - - $2,811 Promissory note dated 1/2/93 payable in $2,811 $547
20 Top Place ------ ------- ------- ------ 60 monthly installments of $125.22 ------ ----
Salinas, CA 93905 ------ ------- ------- ------ including interest at 6.5%. Note is ------ ----
secured by participant's vested account
which was $33,998 at 12/31/98. 1/2/96 was
the last date payment was received. A
default occurs when any payment is not
made on time. The trustee can declare the
whole amount due and payable immediately.
The trustee issued a 1996 Form 1099-R.
Abednego DelRosario $7,000 - - $3,665 Promissory note dated 2/28/93 payable in $3,665 $702
3008 Via Dolores ------ ------- ------- ------ 60 monthly installments of $137.00 including ------ ----
Baldwin Park, ------ ------- ------- ------ interest at 6.5%. Note is secured by ------ ----
CA 91706 participant's vested account which was
$29,176 at 12/31/98. 10/15/95 was the
last date payment was received. A default
occurs when any payment is not made on time.
The trustee can declare the whole amount due
and payable immediately. The trustee issued
a 1996 Form 1099-R.
</TABLE>
-Continued-
<PAGE>
SCHEDULE 2 (CONTINUED)
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
ITEM 27B - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
DECEMBER 31, 1998
EIN: 95-4640368
PLAN 002
<TABLE>
<CAPTION>
Detailed description of loan
including dates of making
and maturity, interest rate,
Amount received Unpaid the type and value of collateral,
Original during reporting balance any renegotiation of the loan and Amount Overdue
Identity and amount year at end of terms of the renegotiation, and
address of obligor of loan Principal Interest year other material items Principal Interest
- ------------------ -------- --------- --------- --------- ---------------------------------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
George Palmer $17,500 - - $11,850 Promissory note dated 6/30/94 payable in $11,850 $2,453
2928 Weald Way -------- ------- -------- ------- 60 monthly installments of $352.86 ------- ------
#1423 -------- ------- -------- ------- including interest at 7.75%. Note is ------- ------
Sacramento, secured by participant's vested account
CA 95833 which was $56,018 at 12/31/98. 4/30/96
was the last date payment was received.
A default occurs when any payment is not
made on time. The trustee can declare the
whole amount due and payable immediately.
The trustee issued a 1996 Form 1099-R.
Rita Espinoza $14,225 $965 $354 $10,264 Promissory note dated 7/29/96 payable in $10,264 $ 603
261 So. G Street -------- ------- -------- ------- 120 semi-monthly installments of $146.57 ------- ------
Oxnard, CA 83030 -------- ------- -------- ------- including interest at 8.75%. Note is secured ------- ------
by participant's vested account which was
$29,786 at 12/31/98. 4/30/98 was the last
date payment was received. A default occurs
when any payment is not made on time. The
trustee can declare the whole amount due and
payable immediately. The trustee issued a
1998 Form 1099-R.
</TABLE>
-Continued-
<PAGE>
SCHEDULE 2 (CONTINUED)
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
ITEM 27B - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
DECEMBER 31, 1998
EIN: 95-4640368
PLAN 002
<TABLE>
<CAPTION>
Detailed description of loan
including dates of making
and maturity, interest rate,
Amount received Unpaid the type and value of collateral,
Original during reporting balance any renegotiation of the loan and Amount Overdue
Identity and amount year at end of terms of the renegotiation, and
address of obligor of loan Principal Interest year other material items Principal Interest
- ------------------ -------- --------- --------- --------- ---------------------------------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ethel Hardwick $10,000 $1,120 $304 $8,636 Promissory note dated 11/7/97 payable in $8,636 $507
5034 W. 58TH PL ------- ------ ---- ------ 72 semi-monthly installments of $158.17 ------ ----
Los Angeles, ------- ------ ---- ------ including interest at 8.75%. Note is ------ ----
CA 90056 secured by participant's vested account
which was $71,914 at 12/31/98. 4/30/98
was the last date payment was received. A
default occurs when any payment is not made
on time. The trustee can declare the whole
amount due and payable immediately. The
trustee issued a 1998 Form 1099-R.
</TABLE>
See accompanying independent auditor's report.
<PAGE>
SCHEDULE 3
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1998
EIN: 95-4640368
PLAN 002
<TABLE>
<CAPTION>
Current Expenses
value of incurred
Identity asset on in connection
of party Purchase Selling Cost of transaction with Net
involved Description of asset Price price Asset date transaction Gain/loss
- --------- --------------------------- --------- -------- ------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CIGNA Guaranteed Income Fund $1,958,885 $ - $1,958,885 $1,958,885 $ - $ -
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Guaranteed Income Fund $ - $1,444,006 $1,444,006 $1,444,006 $ - $ -
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Fidelity Advisor Growth Opportunity $ 315,507 $ - $ 315,507 $ 315,507 $ - $ -
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Fidelity Advisor Growth Opportunity $ - $ 546,162 $ 407,601 $ 546,162 $ - $138,561
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Fidelity Puritan Account $ 183,949 $ - $ 183,949 $ 183,949 $ - $ -
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Fidelity Puritan Account $ - $ 502,583 $ 417,048 $ 502,583 $ - $ 85,535
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Investco Total Return $ 361,343 $ - $ 361,343 $ 361,343 $ - $ -
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Investco Total Return $ - $ 613,909 $ 487,544 $ 613,909 $ - $126,365
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Warburg Pincus Growth and Income $ 64,181 $ - $ 64,181 $ 64,181 $ - $ -
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
CIGNA Warburg Pincus Growth and Income $ - $ 457,668 $ 374,512 $ 457,668 $ - $ 83,156
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
</TABLE>
-Continued-
<PAGE>
SCHEDULE 3 (CONTINUED)
PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1998
EIN: 95-4640368
PLAN 002
<TABLE>
<CAPTION>
Current Expenses
value of incurred
Identity asset on in connection
of party Purchase Selling Cost of transaction with Net
involved Description of asset Price price Asset date transaction Gain/loss
- --------- --------------------------- --------- -------- ------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CIGNA American Century 20th Century Ultra $402,433 $ - $402,433 $402,433 $ - $ -
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
CIGNA American Century 20th Century Ultra $ - $312,495 $263,895 $312,495 $ - $ 48,600
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
CIGNA Warburg Pincus Emerging Growth $235,029 $ - $235,029 $235,029 $ - $ -
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
CIGNA Warburg Pincus Emerging Growth $ - $140,380 $125,060 $140,380 $ - $ 15,320
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
National
Financial
Svc PAULA Financial Common Stock $829,925 $ - $829,925 $829,925 $ - $ -
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
National
Financial
Svc PAULA Financial Common Stock $ - $ 26,680 $ 43,491 $ 26,680 $ - $(16,811)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
CIGNA CIGNA Stock Market Index $362,789 $ - $362,789 $362,789 $ - $ -
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
CIGNA CIGNA Stock Market Index $ - $ 80,204 $ 79,577 $ 80,204 $ - $ 627
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
CIGNA Janus Worldwide $439,947 $ - $439,947 $439,947 $ - $ -
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
CIGNA Janus Worldwide $ - $186,882 $186,002 $186,882 $ - $ 880
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
See accompanying independent auditor's report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: June 18, 1999 PAULA FINANCIAL AND SUBSIDIARIES
401(K) RETIREMENT SAVINGS PLAN
By: /s/ James A. Nicholson
----------------------
Senior Vice President and
Chief Financial Officer
2
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITOR
The Administrative Committee of the
PAULA Financial and Subsidiaries
401(K) Retirement Savings Plan:
I consent to the incorporation by reference in the registration statements (No.
333-42627 and No. 333-45517) on Form S-8 of PAULA Financial and subsidiaries of
my report dated May 28, 1999, relating to the statements of net assets available
for plan benefits of PAULA Financial and Subsidiaries 401(K) Retirement Savings
Plan as of December 31, 1998 and 1997, and the related statement of changes in
net assets available for plan benefits for the year ended December 31, 1998, and
all related schedules, which report appears in the December 31, 1998, annual
report on Form 11-K of PAULA Financial and Subsidiaries 401(K) Retirement
Savings Plan.
/s/ Peter T. Manahan
Certified Public Accountant
Pasadena, California
June 18, 1999