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, 1996
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
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 exhibit are filed with, and
included in, this Report:
A. Financial statements for the Plan consisting of:
1. Report of Independent Auditors
2. Statements of Assets Available for Benefits as of December 31, 1996 and
1995
3. Statements of Changes in Assets Available for Benefits for the years
ended December 31, 1996 and 1995
4. Notes to Financial Statements
5. Schedule of Assets held for Investment Purposes
6. Schedule of Reportable Transactions
B. Exhibit:
23. Consent of Ernst & Young LLP
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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 27, 1997 By /s/ Greg Ghilardi
---------------------------------
Greg Ghilardi
Vice President-Human Resources
Source One Mortgage Services
Corporation
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[ERNST & YOUNG LETTERHEAD]
Report of Independent Auditors
The Board of Directors
Source One Mortgage Services Corporation
We have audited the accompanying statements 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 1995 and the
related statements of changes in assets available for benefits for the years
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 audits.
We conducted our audits 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 audits provide 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 1995, and the changes in its assets available for
benefits for the years 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, 1996, 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 our audits of the financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
financial statements taken as a whole.
/s/ Ernst & Young LLP
April 11, 1997
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Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Statement of Assets Available for Benefits
December 31, 1996
GLOBAL CORPORATE
INSTITUTIONAL ALLOCATION BOND CAPITAL
FUND FUND FUND FUND
------------- ---------- --------- -------
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
====================================================================================================================================
FUND
AMERICAN
AIM AIM ENTERPRISES
CONSTELLATION VALUE HOLDINGS, INC.
FUND FUND COMMON STOCK COMBINED
------------- --------- -------------- ------------
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
====================================================================================================================================
See accompanying notes.
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Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Statement of Assets Available for Benefits
December 31, 1995
ASSETS
Investments, at fair value (Note 4):
Fund American Enterprises Holdings, Inc.
common stock $5,022,492
Collective funds 26,023
----------
Total investments 5,048,515
Company contribution receivable (Note 3) 998,175
Accrued income 131
----------
Total assets 6,046,821
LIABILITIES
Due to bank 2,762
----------
Net assets available for benefits $6,044,059
==========
See accompanying notes.
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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
GLOBAL CORPORATE
INSTITUTIONAL ALLOCATION BOND CAPITAL
FUND FUND FUND FUND
------------- ----------- ---------- ---------
Additions to assets attributed to:
Investment income:
Net realized and unrealized
appreciation (depreciation) in fair
value of investments $ - $ (4,010) $ (132) $(1,677)
Interest income - - - -
Dividend 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
=========== ========== ========= ========
FUND
AMERICAN
AIM AIM ENTERPRISES
CONSTELLATION VALUE HOLDINGS, INC.
FUND FUND COMMON STOCK COMBINED
------------- ----------- -------------- -----------
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
Interest income - - 5,896 5,896
Dividend income 3,301 2,940 59,594 72,271
-------- -------- ---------- ----------
(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
========= ========= =========== ==========
See accompanying notes.
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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, 1995
Additions to assets attributed to:
Investment income:
Net realized and unrealized appreciation
in fair value of stock $ 105,549
Interest income 2,506
Stock dividend income--Fund American Enterprises
Holdings, Inc. 13,969
-----------
122,024
Stock contributions from Source One
Mortgage Services Corporation (Note 3) 998,175
-----------
Total additions 1,120,199
Deductions from net assets attributed to
benefits paid to participants 732,317
-----------
Net increase 387,882
Assets available for benefits at beginning of year 5,656,177
-----------
Assets available for benefits at end of year $6,044,059
===========
See accompanying notes.
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Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Notes to Financial Statements
December 31, 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 owned by the Plan 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.
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 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. 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.
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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:
PERCENTAGE
YEARS OF SERVICE VESTING
----------------- ----------
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
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.
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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.
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 an amount
determined at the discretion of the Company's Board of Directors, not exceeding
certain limits imposed by the Internal Revenue Code (IRC). For the Plan years
December 31, 1996 and 1995, the Board voted to contribute FAEH stock having a
value equal to $1,628,817 and $998,175, respectively (approximately 5% and 3%
of the sum of the individual participant's creditable compensation for the Plan
years ended December 31, 1996 and 1995, respectively).
4. INVESTMENTS
During 1996 and 1995, 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:
NET
UNREALIZED
APPRECIATION FAIR
(DEPRECIATION) VALUE
IN FAIR VALUE AT END
DURING YEAR OF YEAR
----------------- ------------
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
================ ============
Year ended December 31, 1995:
Collective funds $ - $ 26,023
Common stock 105,549 5,022,492
---------------- ------------
$ 105,549 $5,048,515
================ ============
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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:
1996 1995
---------- ----------
Common stock:
Fund American Enterprises Holdings, Inc. $7,171,499 $5,022,492
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.
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Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Schedule of Assets Held for Investment Purposes
December 31, 1996
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
- ---------------------------- ----------------------------------- ------------ ------------
Merrill Lynch Trust Company Institutional Fund
14,900 units $ 14,900 $ 14,900
Merrill Lynch Trust Company Global Allocation Fund
6,434 units 97,564 93,554
Merrill Lynch Trust Company Corporate Bond Fund
1,213 units 13,866 13,734
Merrill Lynch Trust Company Capital Fund
2,057 units 65,494 63,817
AIM Family of Funds AIM Constellation Fund
5,646 units 147,230 142,606
AIM Family of Funds AIM Value Fund
3,027 units 90,232 88,238
Fund American Enterprises
Holdings, Inc. Common Stock
74,898 shares 6,119,823 7,171,499
------------ ------------
$6,549,109 $7,588,348
============ ============
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Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Schedule of Reportable Transactions
Year ended December 31, 1996
CURRENT
EXPENSE VALUE OF
DESCRIPTION OF ASSET (INCLUDING INCURRED COST ASSET ON NET
INTEREST RATE AND MATURITY IN PURCHASE SELLING LEASE WITH OF TRANSACTION GAIN
IDENTITY OF PARTY INVOLVED CASE OF A LOAN) PRICE PRICE RENTAL TRANSACTION ASSET DATE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
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:
Comerica Bank 998,175 units of Short-Term
Investment Fund $ 1.00 $998,175 $998,175 $-
499,088 units of Short-Term
Investment Fund 1.00 499,088 499,088 -
499,088 units of Short-Term
Investment Fund $1.00 499,088 499,088 -
499,486 units of Short-Term
Investment Fund 1.00 499,486 499,486 -
Fund American
Enterprises
Holdings, Inc. 6,567 shares of Common Stock 76.00 499,486 499,486 -
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Source One Mortgage Services Corporation
Employee Stock Ownership and 401(k) Savings Plan
Schedule of Reportable Transactions (continued)
CURRENT
EXPENSE VALUE OF
DESCRIPTION OF ASSET (INCLUDING INCURRED COST ASSET ON NET
INTEREST RATE AND MATURITY IN PURCHASE SELLING LEASE WITH OF TRANSACTION GAIN
IDENTITY OF PARTY INVOLVED CASE OF A LOAN) PRICE PRICE RENTAL TRANSACTION ASSET DATE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
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:
Comerica Bank Short-Term Investment Fund:
26 purchases $1,943,174 $1,943,174 $ -
20 sales 1,969,197 1,969,197 -
Fund American Enterprises Common Stock:
Holdings, Inc. 6 purchases 897,987 897,987 -
15 sales 358,345 368,316 21,628
There were no category ii) or iv) reportable transactions.
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Exhibit 23
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 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, 1996.
/s/ Ernst & Young LLP
Detroit, Michigan
June 27, 1997
