ITEM 1. BUSINESS - ------- --------
Registrant, a registered face-amount certificate company under the Investment Company Act of 1940 (the "40 Act"), was formed on May 17, 1977. On August 11, 1977, First Kansas Financial, Inc. ("First Kansas") merged with and into Central National Bancshares, Inc., an Iowa multi-bank holding company, pursuant to an Agreement and Plan of Reorganization dated March 15, 1977, and amended as of April 19, 1977, and June 21, 1977, (the "Agreement").
As provided in the Agreement, First Kansas formed a wholly-owned subsidiary, FKF, Inc. ("Registrant"), to assume the obligations of First Kansas to its face-amount certificate holders. Immediately prior to consummation of the merger, First Kansas transferred to Registrant assets and certificate reserves in an amount in excess of its face-amount certificate liabilities, and Registrant assumed all liabilities of First Kansas to its face-amount certificate holders. An order of de-registration was issued on August 14, 1977, SEC release number 9905, terminating the registration of First Kansas under Section 8(f) of the 40 Act.
On April 16, 1981, Central National Bancshares, Inc. changed its name to United Central Bancshares, Inc. Subsequently, on June 24, 1985, United Central Bancshares, Inc. changed its name to First Interstate of Iowa, Inc. pursuant to a franchise agreement entered into with First Interstate Bancorp, Los Angeles, California. On April 1, 1992, First Interstate of Iowa, Inc. merged with and into Boatmen's Bancshares of Iowa, Inc. ("BBII"), a wholly-owned subsidiary of Boatmen's Bancshares, Inc. BBII is considered to be Registrant's Parent.
First Kansas was the successor in reorganization to First Home Investment Corporation of Kansas, Inc. ("FHI"), which company was in a Chapter X reorganization proceeding in the United States District Court for the District of Kansas (Case #24075-B-2) from April 24, 1973, to April 26, 1976. FHI was the original issuer of all of the face-amount certificates assumed by Registrant. No face-amount certificates have been issued by FHI or any successor of FHI since March 31, 1973.
Under the 40 Act, a company issuing face-amount certificates is required to maintain reserves at a level not less than the surrender value of outstanding certificates. While Registrant is not engaged in the issuance of face-amount certificates, it does maintain deposits of cash and investments of a kind which are qualified investments for face-amount certificate companies as defined in Section 28 of the 40 Act. The deposits are maintained at a level not less than the surrender value of the outstanding certificates. Such deposits of qualified assets are presently maintained with a Des Moines, Iowa bank and with the State of Illinois.
Registrant does not consider either financial information about industry segments or information as to lines of business to be applicable since Registrant exists for the sole purpose of performing the obligations of First Kansas to holders of face-amount certificates issued by FHI.
Registrant does not intend to issue any face-amount certificates and will be liquidated when all the currently outstanding face-amount certificates are paid.
Registrant has no materially important assets other than cash and securities.
ITEM 2.
ITEM 2. PROPERTIES - ------- ----------
Registrant's offices are located with the principal offices of BBII. Registrant does not lease any offices or property and does not own any real estate.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ------- -----------------
Registrant is not aware of any legal proceedings or actions to which Registrant is a party or to which any of the assets of Registrant are subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ---------------------------------------------------
Not applicable under the reduced disclosure rules.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY - ------- --------------------------------------------------------- HOLDER MATTERS --------------
Registrant is a wholly-owned subsidiary of BBII. There is not a principal market for the trading of the common stock of Registrant, and the information requested by this item with respect to trading of the shares and price quotations is not applicable to Registrant.
There are no restrictions that would prohibit the payment of dividends out of retained earnings. Registrant has declared and paid dividends amounting to $20,000 in 1996, $0 in 1995 and $30,000 in 1994.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - ------- -----------------------
Not applicable under the reduced disclosure rules.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND - ------- ---------------------------------------------------------------- RESULTS OF OPERATIONS ---------------------
Liquidity. The outstanding face-amount certificates of Registrant may --------- be redeemed, with certain exceptions, at the request of the certificates' holders. The redemptions of such certificates are funded by the income stream of Registrant, from conversion of assets, and if such should be required, from borrowing.
The assets of Registrant consist of securities which qualify under the Code of the District of Columbia or under such other rules of the Securities and Exchange Commission as being of a kind in which insurance companies are permitted to invest. Such assets are selected for investment to mature at such frequencies and in such amounts so as to coincide with the level of anticipated redemption requirements. Management can not, however, predict with certainty the level of redemptions, and it is possible for redemption requests to occur in amounts in excess of Registrant's immediate ability to fund such redemptions without the sale of assets (potentially at a loss dependent upon the prevailing market values and other pertinent factors).
In general, Registrant does not intend to borrow in order to fund redemption requirements, but does retain the right to do so in the event prevailing circumstances cause management to conclude such action would be prudent and in the best interests of Registrant.
Capital Resources. Registrant, other than its obligations to fund the ----------------- redemption of face-amount certificates, to pay management fees to BBII equal to one percent of the average outstanding face-amount certificate liability and to pay certain expenses incurred directly by Registrant, does not have outstanding commitments of a material nature which would adversely affect Registrant's capital resources.
Results of Operations - Earnings Analysis, 1996 vs. 1995. Net income -------------------------------------------------------- decreased $5,000 in 1996, or 35.7%, to $9,000, down from $14,000 in 1995. The decrease was primarily attributable to lower yields on the reinvested proceeds of matured or called investments and to a lower average balance of investment securities.
For 1996, the average rate earned on average qualified investment securities was 6.3%, compared to 6.5% in 1995. Interest income on investment securities was down $11,000 in 1996, or 10.9%, to $90,000, compared to $101,000 in 1995. Investment expense (consisting of management fees) increased $1,000 in 1996, or 7.7%, to $14,000, up from $13,000 in 1995.
The provision for certificate reserves was $62,000 in 1996, compared to $66,000 in 1995. The provision consists of amounts called for by the terms of the outstanding certificates plus amounts credited under the Additional Credit policy of Registrant.
Other operating income increased in 1996 by $5,000, or 166.7%, to $8,000, up from $3,000 in 1995. Other operating expenses increased $4,000 in 1996, or 57.1%, to $11,000, up from $7,000 in 1995.
On a per share basis, net income was $.04 for 1996, a 20% decrease from the $.05 earned in 1995.
Results of Operations - Earnings Analysis, 1995 vs. 1994. Net income -------------------------------------------------------- increased $3,000 in 1995, or 27.3%, to $14,000, up from $11,000 in 1994. The increase was primarily attributable to reductions in data processing expense, audit fees and the reversal of an overaccrual for additional credit expense for 1994 and 1995.
For 1995, the average rate earned on average qualified investment securities was 6.5%, compared to 6.2% in 1994. Interest income on investment securities was down $1,000 in 1995, or 1.0%, to $101,000, compared to $102,000 in 1994. Investment expense (consisting of management fees) remained constant at $13,000 for both 1995 and 1994.
The provision for certificate reserves was $66,000 in 1995, compared to $65,000 in 1994. The provision consists of amounts called for by the terms of the outstanding certificates plus amounts credited under the Additional Credit policy of Registrant.
Other operating income increased in 1995 by $3,000, to $3,000, up from $0 in 1994. Other operating expenses decreased $4,000 in 1995, or 36.4%, to $7,000, down from $11,000 in 1994.
On a per share basis, net income was $.05 for 1995, a 25% increase from the $.04 earned in 1994.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
The financial statements of Registrant for the years 1996, 1995 and 1994 are submitted herewith on pages 9 through 17.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS - ------- --------------------------------------------- ON ACCOUNTING AND FINANCIAL DISCLOSURE --------------------------------------
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT - -------- ----------------------------------------------
Not applicable under the reduced disclosure rules.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - -------- ----------------------
Not applicable under the reduced disclosure rules.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - -------- ----------------------------------------------- AND MANAGEMENT --------------
Not applicable under the reduced disclosure rules.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
Not applicable under the reduced disclosure rules.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------- ----------------------------------------------------------------
(a) (1) The following financial statements and independent auditor's report of Registrant are included in Item 8:
(a) (2) The following financial statement schedules are included in Item 14(d):
Other financial statement schedules required by Article 6 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.
(a) (3) Listing of Exhibits - The following documents are filed as ------------------- exhibits to this report or are incorporated by reference by specific reference to previous filings with the Commission:
(b) Reports on Form 8-K - Registrant did not file a report on Form ------------------- 8-K during the fourth quarter of 1996.
(c) Exhibits - The response to this portion of Item 14 is submitted -------- as a separate section of this report on page 33.
(d) Financial Statement Schedules - The financial statement schedules ----------------------------- of Registrant are submitted herewith on pages 18 through 32.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FKF, Inc.
Date: March 31, 1997 By: /s/ Thomas M. Fix ---------------------- ----------------------------------- Thomas M. Fix, President, CEO, Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicate.
Date ----
March 31, 1997 By: /s/ Thomas M. Fix - --------------------------- ----------------------------------- Thomas M. Fix, President, CEO, Treasurer and Director
March 31, 1997 By: /s/ Daniel J. Fliger - --------------------------- ----------------------------------- Daniel J. Fliger, Secretary and Director
March 31, 1997 By: /s/ Kelly Swinton - --------------------------- ----------------------------------- Kelly Swinton, Controller
Report of Independent Auditors
The Board of Directors and Shareholder FKF, Inc.
We have audited the accompanying balance sheets of FKF, Inc. as of December 31, 1996 and 1995 and the related statements of operations, changes in shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 financial position of FKF, Inc. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
St. Louis, Missouri By: /s/ Ernst & Young LLP March 25, 1997 ---------------------
See notes to financial statements 9
See notes to financial statements 10
See notes to financial statements 11
See notes to financial statements 12
NOTES TO FINANCIAL STATEMENTS
FKF, INC.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Organization: FKF, Inc., a wholly-owned subsidiary of Boatmen's Bancshares - ------------ of Iowa, Inc. ("BBII"), is a face-amount certificate investment company as defined by Section 28 of the Investment Company Act of 1940. The Company was formed for the sole purpose of assuming the liabilities of First Kansas Financial, Inc. to holders of its face-amount certificates. First Kansas Financial, Inc. was the parent company of FKF, Inc. until its merger with and into BBII, a wholly-owned subsidiary of Boatmen's Bancshares, Inc. In accordance with this corporate purpose, the Company does not accept investments in face-amount certificates.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and - ------------------------- cash equivalents include only cash as presented on the balance sheet.
Investment Securities: Debt securities are classified as held-to-maturity - --------------------- when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost adjusted for accretion of discounts and amortization of premiums compiled by the straight-line method. Such amortization, interest and dividends are included in Income on Investment Securities. Realized gains and losses, and declines in value judged to be other-than-temporary are included in securities gains (losses). The cost of securities sold are determined on a specific identification basis.
Debt securities not classified as held-to-maturity and marketable equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity.
Face-Amount Certificate Reserves: Face-amount certificate reserves are - -------------------------------- stated at the amount computed in accordance with the provisions of the respective certificates and Section 28 of the Investment Company Act of 1940.
Income Taxes: The Company's taxable income is included in the consolidated - ------------ income tax returns of Boatmen's Bancshares, Inc. The Company provides for income taxes as if separate returns are filed and remits to the parent company amounts that are currently payable.
Management Fees: Management fees are charged by BBII for services provided - --------------- to the Company. Annual fees are computed at the rate of one percent of the average outstanding balance of face-amount certificate reserves.
Use of Estimates: The preparation of financial statements in conformity with - ---------------- generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
NOTES TO FINANCIAL STATEMENTS (continued)
FKF, INC.
Net Income Per Share: Net income per share amounts are based on the weighted - -------------------- average number of common shares outstanding during the year.
NOTE B--QUALIFIED ASSETS
Under the provisions of its face-amount certificates and the Investment Company Act of 1940, the Company is required to have cash and qualified investments (as defined in Section 28(b) of the Act) with a value not less than the aggregate amount of the $250,000 capital stock requirement and the face-amount certificate reserves. At December 31, 1996, the company had qualified assets of $1,437,918 which exceeded the amount of qualified assets required under the Act of $1,381,216.
The average taxable equivalent rates of return for each type of investment security owned by the Company are as follows:
As provided by the face-amount certificates, the Company must maintain qualified assets equal to the face-amount certificate reserves at a depository as security for the performance of its obligations. At December 31, 1996, $1,410,849 of investment securities (at amortized cost) were on deposit at the Brenton Bank, N.A. and with the State of Illinois to satisfy these requirements.
The following is a summary of held-to-maturity securities and available-for-sale securities at December 31, 1996:
NOTES TO FINANCIAL STATEMENTS (continued)
FKF, INC.
The following is a summary of held-to-maturity securities and available-for-sale securities at December 31, 1995:
The amortized cost and market value of debt securities at December 31, 1996 by contractual maturity are as follows:
NOTES TO FINANCIAL STATEMENTS (continued)
FKF, INC.
NOTE C--CERTIFICATE RESERVES
At December 31, 1996, the carrying value of face-amount certificate reserves, by type of certificate, and annual rates of accumulation thereon were as follows:
Redemptions of outstanding face-amount certificates, as provided by the respective certificates, totaled $209,114 and $197,398 during the years ended December 31, 1996 and 1995, respectively.
Under the provisions of Series 20LA and 27A face-amount certificates, the Company is required to maintain a special share reserve with a depository consisting of all shares of Boatmen's Bancshares, Inc. common stock of certificate holders which have been purchased under the terms of their certificates. At December 31, 1996, 856 shares of common stock of Boatmen's Bancshares, Inc. were on deposit with Brenton Bank, N.A. Dividends paid on such shares of common stock are credited to the reserves and unapplied payments of the corresponding face-amount certificates.
NOTE D--ADDITIONAL AMOUNTS ACCRUED OR CREDITED
The income earned by the Company from the investment of funds derived solely from the assets comprising face-amount certificate reserves, after allowance for taxes, are applied: first, to the payment of the stated rate of interest set forth in the face-amount certificates; second, to the payment of annual management fees equal to one percent of the average outstanding balance of face-amount certificate reserves; third, to additional credits up to four percent of the face-amount certificate reserves; and fourth, the remainder of said income, if any, is divided equally between the Company and said face-amount certificate holders.
NOTES TO FINANCIAL STATEMENTS (continued)
FKF, INC.
NOTE E--INCOME TAXES
The reasons for the difference between income tax expense and the amount computed by applying the statutory Federal income tax rate, 35%, before income taxes were:
NOTE F--SUBSEQUENT EVENT
On January 7, 1997, Boatmen's Bancshares, Inc. (BBI) merged into NationsBank Corporation (NationsBank). Under the terms of the agreement, each outstanding share of BBI common stock was converted into the right to receive 1.305 shares of NationsBank common stock, adjusted for the 2 for 1 stock split completed by NationsBank on February 27, 1997.
Schedule V
INDEX TO EXHIBITS -----------------
The following documents are filed as exhibits to this report or are incorporated by reference by specific reference to previous filings with the Commission:
Exhibit No. - -----------
(3) Articles of Incorporation and Bylaws of Registrant are on file with the Commission as exhibits to Registrant's Form N-8B-4 Report filed on October 25, 1977, which documents are hereby incorporated by reference.
(4) Copies of or specimen copies of each of the outstanding face- amount certificates, that being Series 20, 20L, 20LA, 27 and 27A, and a copy of an order of the United States District Court for the District of Kansas, dated May 2, 1977, are on file with the Commission as exhibits to Registrant's Form N-8B-4 Report filed on October 25, 1977, which documents are hereby incorporated by reference.
(10) A copy of the Depository Agreement, dated October 23, 1962, as supplemented and assigned, is on file with the Commission as an exhibit to Registrant's Form N-8B-4 Report filed on October 25, 1977, and a copy of the Second Amendment to the Depository Agreement dated November 6, 1981, is filed as an exhibit to the 1981 Form 10-K dated March 16, 1982, which documents are hereby incorporated by reference.
(13) Registrant's Annual Report to Shareholder consists of the financial statements submitted herewith on pages 9 through 19.
(16) A copy of the letter regarding the change in certifying accountants dated March 18, 1993, is on file with the Commission as an exhibit to Registrant's Form 8-K filed on March 18, 1993, which document is hereby incorporated by reference.