Item 1. Business
National Mortgage Acceptance Corporation ("NMAC"), was incorporated under the laws of the Commonwealth of Virginia on October 19, 1984, as a limited purpose finance corporation under the name "Thrift Financing Corporation". NMAC adopted its present name in 1989. NMAC maintains its principal executive offices at 823 East Main Street, 1st Floor, Richmond, Virginia 23219, and its telephone number is (804) 775-7904.
Under its Restated and Amended Articles of Incorporation, NMAC's business is limited to issuing bonds ("Bonds") principally secured by, or with interests in, "Mortgage Collateral." Mortgage Collateral may include mortgage loans and deed of trust loans secured by real estate and certificates evidencing interests in pools of such mortgage and/or deed of trust loans, which certificates may be issued or guaranteed by the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and/or private issuers. NMAC may lend the proceeds from the sale of its Bonds to participating borrowers pursuant to loan or funding agreements through which NMAC will obtain pledges of Mortgage Collateral to secure a related series of Bonds. NMAC also may use the proceeds from the sale of its Bonds to acquire Mortgage Collateral pledged to secure a series of its Bonds. NMAC's activities in connection with such transactions may include holding, transferring, assigning, pledging, financing, refinancing and otherwise dealing with mortgage loans and mortgage certificates and any activities incident to or necessary or convenient to accomplish the foregoing purposes.
Each series of NMAC's Bonds is secured by collateral consisting primarily of (1) Mortgage Collateral owned by NMAC and pledged to secure that series of Bonds, (2) funding agreements with participating borrowers, which funding agreements are secured by Mortgage Collateral, (3) a combination of such Mortgage Collateral and funding agreements, and/or (4) amounts deposited in the various funds and accounts created for such series of NMAC's Bonds and investments made with such funds. Collateral for each series of NMAC's bonds is pledged and assigned by NMAC to a trustee on behalf of the holders of the Bonds of such series and, except for certain insurance policies (or deposits partially or entirely in lieu of such insurance policies), collateral for a particular series of Bonds will not be available for payment of Bonds of any other series or for payment of any other liabilities of NMAC. Funds held by the trustee with respect to each series of Bonds are restricted so as to assure the payment of principal and interest on the Bonds of such series to the extent of such funds.
With respect to any one or more series of its Bonds, NMAC may cause an election to be filed under the Internal Revenue Code of 1986, as amended (the "Code"), to have the segregated asset pool comprising the trust estate for such series of Bonds treated as a real estate mortgage investment conduit ("REMIC") as defined in the Code (each such series, a "REMIC Series"). If a REMIC election is to be made with respect to the trust estate for a series of NMAC's Bonds, the Bonds of such REMIC Series will be treated as "regular interests" in a REMIC, as such term is defined in the Code. In connection with one or more REMIC Series, NMAC expects that it will sell all or substantially all of the "residual interest," as such term is defined in the Code, in such REMIC Series to entities engaged, directly or through their owners or affiliates, in mortgage funding, financing or origination activities.
Each series of NMAC's Bonds is to be secured by separate collateral that does not serve as security for any other series of NMAC's Bonds. The collateral pledged to the trustee securing a series of NMAC's Bonds is projected to produce cash flow sufficient, together with reinvestment income thereon at an assumed annual rate and assuming timely payment to the trustee of distributions on the Mortgage Collateral for such series, to make principal and interest payments required to be made on the outstanding Bonds of that series. With respect to any REMIC Series of NMAC's Bonds, the sale by NMAC of the "residual interest" in the trust estate for such REMIC Series will constitute a sale by NMAC of the economic benefit of the amounts remaining in the trust estate for such REMIC Series after payments of the Bonds of the related REMIC Series. Such amounts will be paid to the purchasers of the residual interest of such REMIC Series, and will not be available to creditors of NMAC or available to pay other liabilities or obligations of NMAC.
NMAC has no salaried employees and has entered into management and administrative services agreements with Craigie Incorporated ("Craigie", an affiliated company), pursuant to which Craigie provides NMAC with administrative, accounting and clerical services, office space and the use of the registered service mark "TIMCO" for NMAC's Bonds. NMAC also enters into management agreements with non-affiliates with respect to certain services to be provided by NMAC with respect to REMIC Series of its Bonds.
Information as of December 31, 1998 with respect to NMAC's outstanding bonds is included in Notes 5 and 6 of NMAC's financial statements included herein.
Item 2.
Item 2. Properties
NMAC has no material physical properties.
Item 3.
Item 3. Legal Proceedings
None.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
On March 22, 1999, a meeting of the Shareholders was held and the following persons were elected to NMAC's Board of Directors: John Thomas West, IV, George B. Pugh, Jr., John W. Wright and Merlin T. Grim.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
There is no market for NMAC common stock. All outstanding common stock of NMAC is owned by Craigie and by the service corporation subsidiaries of what were originally nine savings and loan associations and savings banks. As of December 31, 1998, four of the nine savings and loan associations and savings banks are believed to be under the management of federal banking regulators. There has been no transfer of common stock ownership and no dividends were paid with respect to NMAC common stock in 1997 or 1998.
Item 6.
Item 6. Selected Financial Data
The following data are for the years ended December 31, 1998, 1997, 1996, 1995, and 1994.
Year Ended December 31,
		 1998 1997 1996 1995 1994 Statement of Operations Data
Revenues	$1,411,916 $1,742,471 $2,164,745 $3,339,636 $4,542,830 Net Income (Loss) 	 3,641 6,473 (3,210) 12,404 (11,568) Earnings (Loss) Per Share 	 	 1.52	 	 2.70	(1.34)	5.18		(4.83) Balance Sheet Total Assets 	 $12,057,732 $14,998,274 $18,617,696 $23,533,660 $40,102,184 Receivables Pursuant to Funding Agreements 	 11,104,810 13,894,203 17,328,606	21,242,798	37,378,026 Bonds Payable* 	 11,104,810 13,894,203 17,328,606	21,242,798	37,462,181 *Does not include Series B and Series D Bonds which are REMIC Series of NMAC's Bonds. As of December 31, 1998, the outstanding Series D aggregated $24,461,901. Series B was retired during 1996. See part II, Item 7, of this Report on Form 10-K.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
NMAC was organized to facilitate the financing of long-term mortgage loans through issuance of its mortgage collateralized obligations. Such financing is facilitated by NMAC entering into funding agreements secured by Mortgage Collateral with participating borrowers and/or by NMAC acquiring Mortgage Collateral and pledging the mortgage collateralized funding agreements, directly owned Mortgage Collateral and/or a combination thereof to secure its Bonds. NMAC does not have, and is not expected to have, any significant assets other than assets pledged to secure a specific series of its Bonds. Furthermore, to the extent NMAC sells the "residual interest" in a REMIC Series of its Bonds, NMAC will have sold, and will have no further interest in, the economic benefit of the difference between the payments received on the collateral (i.e., trust estate) for such REMIC Series of its Bonds, including reinvestment earnings thereon, and the debt service on such REMIC Series of its Bonds.
Revenues for 1998, 1997, 1996, 1995, and 1994 consist primarily of (i) interest on loans receivable under funding agreements between NMAC and participating borrowers for the registrant's Series 1985-A Bonds, and Series C Bonds, and (ii) administrative fees paid to NMAC with respect to its outstanding Series 1985-A, B, C, and D Bonds. The Series B Bonds and the Series C Bonds were retired in 1996 and 1995, respectively. Future revenues are expected to be provided from interest payments on funding agreements for the Series 1985-A Bonds, and from administrative fees relating to REMIC Series of NMAC's Bonds (Series D).
Costs and expenses incurred by NMAC during each period result primarily from interest payable on its Bonds, expenses with respect to developing financing programs, and expenses incurred in connection with administering outstanding Series of its Bonds. Such costs and expenses incurred in any period, including those for any future period, depend primarily upon the amount of NMAC's Bonds issued and outstanding during any such period and the interest rate payable on such Bonds. NMAC receives, from the participating borrowers in its Series 1985-A Bonds and the residual interest holders with respect to its Series D Bonds, administration payments and fees which have been equal to, less than or in excess of the costs incurred by NMAC in administering such outstanding series of Bonds. Such fees and payments received by NMAC are expected to continue to adequately provide for the costs incurred by NMAC in administering such Bonds on a current basis, thereby not impacting upon NMAC's need for liquidity in the short or long term.
With respect to NMAC's Series B and Series D Bonds, NMAC caused an election to be made under the Code to have the trust estate for such Bonds taxed as a REMIC, in which the Series B Bonds and Series D Bonds, as the case may be, are (or were in the case of the Series B Bonds) "regular interests", as defined in the Code. Other than its ongoing fees for administration of the Series D Bond REMICs, NMAC has no future economic benefit in the segregated asset pools comprising the Series D REMICs. The "residual interest" in each of these series was sold by NMAC for cash. Accordingly, neither the collateral for these REMIC Series nor the related Bonds are recorded as assets or liabilities, respectively, of NMAC. The interest income on the collateral for, and the related interest expense on, the Series D Bonds will be recorded only within the related REMIC and will have no impact on NMAC's financial statements. As previously notes, the Series B Bonds were retired in 1996.
Interest on NMAC's outstanding Series 1985-A and Series C Bonds was the major source of cost and expenses for the years ending December 31, 1998, 1997, 1996, and 1995. Cash flow from payments of the loans receivable securing the Series 1985-A Bonds is anticipated to continue to provide cash sufficient to make all required payments on the Series 1985-A Bonds. Similarly, cash flow from the Mortgage Collateral for NMAC's Series D Bonds is anticipated to continue to provide cash sufficient to make required payments thereon. Consequently, NMAC anticipates that it will have no additional cash requirements with respect to any of its outstanding Bonds. Future net income of NMAC is expected to vary in direct relation to the issuance of one or more series of its Bonds in a given year.
With respect to future series of NMAC's Bonds secured by funding agreements, the participating borrowers will be obligated to pay costs of issuance with respect to the related series of Bonds and to pay ongoing Bond administration expenses with respect to the related series of NMAC's Bonds, including ongoing fees to NMAC for services rendered by NMAC in connection with the related series of Bonds. With respect to future REMIC Series of Bonds issued by NMAC, purchasers of the "residual interest" in each such REMIC Series will be obligated to pay administration expenses rendered under the related residual interest agreements. The purchase price of such residual interests is expected to be sufficient to pay costs of issuance of such REMIC Series with respect to outstanding and future series of NMAC's Bonds not paid from Bond proceeds. NMAC believes that payments on the collateral securing each series of its Bonds, whether now outstanding or to be issued in the future, will be sufficient to meet all required payments of principal and interest on each such series of Bonds. Furthermore, fees paid to NMAC by participating borrowers and by purchasers of the "residual interest" in a REMIC Series of NMAC's Bonds, together with NMAC's interest in any Mortgage Collateral owned by it and pledged to secure a series of Bonds are expected to be sufficient to provide for all ongoing costs and expenses. NMAC therefore anticipates that it will have no additional cash or liquidity requirements with respect to its obligations under any outstanding series of its Bonds in either the short or long term. NMAC also anticipates that the debt service requirements for any additional series of its Bonds will be satisfied by the collateral securing such series of Bonds.
To provide for administration and other management support, NMAC has entered into agreements with Craigie and others. Payments under these agreements are not expected to exceed the amounts received by NMAC as ongoing fees paid to it by participating borrowers under their funding agreements and/or purchasers of the residual interest in any REMIC Series of NMAC's Bonds.
NMAC has established a Series 1985-A Working Capital Reserve, which reserve is funded by Series 1985-A participating borrowers from amounts otherwise distributable to them under the terms of their funding agreements. The Series 1985-A Working Capital Reserve is available solely to pay any fees, charges, taxes, assessments, impositions or other expenses of NMAC, other than Bond administration expenses of NMAC, in connection with the Series 1985-A Bonds or related funding agreements. NMAC is empowered, in its sole discretion, to expend amounts on behalf of, and release amounts to, the Series 1985-A participating borrowers from this working capital reserve. The Series 1985-A Working Capital Reserve is not available to pay expenses of NMAC or claims other than with respect to the Series 1985-A Bonds, is not pledged to secure the Series 1985-A Bonds and will not be pledged to secure any other series of NMAC's Bonds. NMAC does not anticipate establishing working capital reserves with respect to future series of its Bonds.
On November 12, 1996 Craigie Incorporated purchased from the Federal Deposit Insurance Corporation ("FDIC") the stock of three of the affiliates who participated in the Series 1985-A Bonds. The affiliates were Atlantic Financing Corporation, Security Federal Financing Corporation and Mountain Financial Corporation. Effective June 30, 1998, Atlantic Financing and Security Federal were merged into Mountain Financial Corporation. In addition, the parent company of Craigie Incorporated, BB&T Corporation, purchased Life Savings Bank on March 1, 1998 which owns a fourth affiliate of NMAC named Life Capital Corporation. Life Capital was purchased by Craigie Incorporated and subsequently merged into Mountain Financial Corporation effective September 30, 1998.
As of December 31, 1998, NMAC's assets were $12,057,732, including $252,174 in unrestricted cash and marketable securities. This balance, plus interest earnings from the investment thereof, is available to pay NMAC's annual operating expenses, and, if and to the extent necessary, amounts in connection with the outstanding Bonds of NMAC.
Year 2000 Issue
The majority of NMAC's readiness depends on one significant third party, which serves as trustee for the majority of assets and liabilities of the corporation and affiliated corporations. This third party has represented their Year 2000 readiness to the corporation through formal communications. As of January 1999, this party concludes that they have established the necessary management structure and processes, built from prior merger experience, to set the course and speed to achieve Year 2000 success.
While core business systems are minimal, management has determined this cost to be minimal and current vendors provide Y2K compliant software which NMAC intends to implement in the second quarter of 1999.
Market Risk Disclosure
Interest rate fluctuations tend to have the greatest effect on the prepayment of loans receivable from affiliates (Series 1985-A Bonds). As interest rates decline there is a more likelihood of prepayment of these loan agreements with affiliates due to increased principal payments on the mortgage- backed securities collateralizing the funding agreements. When interest rates increase there is a less likelihood of prepayments of the underlying collateral. Due to the maturity of the mortgages and history of prepayments since 1985 interest rate fluctuations should have a less than significant impact on NMAC's ability to fund the outstanding Bonds Payable.
Principal value of the collateral plus cash and investments in the various debt service funds for the Series 1985-A aggregate approximately $13,656,128 and $16,797,479 compared the bonds payable of $11,104,810 and $13,894,203.
Item 8.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in Appendix A.
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 the Registrant
The persons set forth below are the directors and executive officers of NMAC as of December 31, 1998: Current Name Age Title
John Thomas West, IV 52 President, Chairman of the 					Board and 					Director George B. Pugh, Jr. 49 	Director John W. Wright 		 49 Director and Vice President Merlin T. Grim 		 43 Director Randall B. Saufley 	 37 Secretary and Treasurer
John Thomas West, IV, 52, elected President and Chief 					Operating Officer in 1997, a Director since 1984, was elected Executive Vice President in 1990, and was formerly Secretary, Treasurer and Senior Vice President since 1984, of Craigie Incorporated.
George B. Pugh, Jr., 49 a Director since 1984, has been Executive Vice President and Managing Director of Craigie Incorporated since 1980.
John W. Wright, 49, elected Executive Vice President in 1997, a Director in 1989, was elected Senior Vice President of Craigie Incorporated in 1992, and was formerly Vice President since 1984. Mr. Wright formerly served as Vice President of Investors Mortgage Insurance Company, Boston, Massachusetts.
Merlin T. Grim, 43, elected Executive Vice President in 1997, Treasurer in 1995 and was elected Senior Vice President of Craigie Incorporated in 1993.
Randall B. Saufley, 37, elected Senior Vice President in 1997, Vice President and Controller in 1995, was elected Assistant Vice President of Craigie Incorporated in 1994.
All of the foregoing directors of NMAC, were reelected at the annual meeting of the shareholders and officers at the Board of Directors meeting, held as of March 22, 1999 to serve until their successors are elected and shall qualify.
Item 11.
Item 11. Executive Compensation
NMAC has no salaried employees and does not compensate its directors.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
NMAC has two Classes of its Common Stock. NMAC's Class A and Class B Common Stock are identical except that Class A Common Stock is voting but not entitled to dividends and Class B Common Stock is non-voting but has the right to receive dividends.
The following table sets forth certain information regarding the beneficial ownership of each class of NMAC's Common Stock by each entity that owns 5% or more of such Common Stock:
Class of Stock, Amount of Name and Address Name and Address Beneficial Ownership of Affiliated of Beneficial Owner and Percent of Class(1) Financial Institution(1) Class A % Class B % Craigie Incorporated 370 50.5 333 20.0 -- Richmond, Virginia Colonial Service Corp. 40 5.5 148 8.9 Atlantic Permanent Norfolk, Virginia Federal Savings Bank, 		 F.S.B. 			 Norfolk, Virginia 		 (See Note (2)) Jefferson Funding 	40 5.5 148 8.9 Jefferson Savings and Corporation Loan Association Warrenton, Virginia Warrenton, Virginia (See Note (4)) Investors Service Corporation 				40 5.5 148 8.9 Investors Savings Bank Richmond, Virginia Richmond, Virginia (See Note (2)) Pioneer Financial Services, Inc. 				40 5.5 148 8.9 Pioneer Federal Richmond, Virginia Savings and Loan Association Hopewell, Virginia Roanoke Valley Service 40 5.5 148 8.9 CorEast Federal Corporation Savings Bank, F.S.B. Roanoke, Virginia Roanoke, Virginia (See Note (2)) Security Financial Service 				40 5.5 148 8.9 Security Federal Corporation Savings and Loan Richmond, Virginia Association Richmond,Virginia (See Note (2)) Southern Service Corporation 				40 5.5 148 8.9 Virginia Federal Richmond, Virginia Savings and Loan Association Richmond, Virginia (See Note (3))
Class of Stock, Amount of Name and Address Name and Address Beneficial Ownership of Affiliated of Beneficial Owner and Percent of Class(1) Financial Institution(1)
Class A % Class B %
Southside Service Corporation 				40 5.5 148 8.9 Virginia First Petersburg, Virginia Savings Bank, F.S.B. Petersburg, Virginia
Branch Bank & Trust 	40 5.5 148 8.9 Branch Bank & Trust Company of Virginia Company of Virginia Norfolk, Virginia Norfolk, Virginia _______________ NOTES:
(1) None of the financial institutions are affiliates of each other, and none insures or guarantees payment of principal or interest on NMAC's Bonds, any funding agreement or any Mortgage Collateral.
(2) The financial institutions are under the Management of the Federal Deposit Insurance Corporation (FDIC).
(3) In December, 1988 the Virginia Federal Savings and Loan Association was purchased by MNC Financial Corporation of Baltimore, Maryland, subsequently purchased by Crestar Bank, Richmond, Virginia.
(4) In January, 1995, Jefferson Savings & Loan Association was purchased by Crestar Bank, Richmond, Virginia.
Item 13.
Item 13. Certain Relationships and Related Transactions
During the year ended December 31, 1998, NMAC incurred general and administrative expenses in connection with the management agreements described in Item 1 with Craigie Incorporated amounting to approximately $12,600. Directors John Thomas West, IV, George B. Pugh, Jr., John W. Wright, and Merlin T. Grim of NMAC are officers of Craigie Incorporated.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1)(2) The response to this portion of Item 14 is submitted in Appendix A.
(3) See Exhibit Index immediately preceding Exhibits.
(b) No reports on Form 8-K were filed during the last quarter of the fiscal year ended December 31, 1998.
(c) See Exhibits and Exhibit Index.
Supplemental information furnished with reports filed pursuant to Section 15(d) of the Act by registrants which have not registered securities pursuant to Section 12 of the Act.
NMAC has not sent an annual report or proxy material to its security holders and does not intend to distribute such information.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, NMAC has duly caused this report to be signed on its behalf by the undersigned there and to duly authorize.
NATIONAL MORTGAGE ACCEPTANCE CORPORATION
By: _____________________________ John Thomas West, IV, Chairman of the Board of Directors
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report is cosigned below by the following persons on behalf of NMAC and in the capacities and on the dates indicated.
Date:
March 27, 1999 By: _____________________________ John Thomas West, IV President, Chairman of the Board and Director
March 27, 1999 By: _____________________________ George B. Pugh, Jr., Director
March 27, 1999 By: _____________________________ John W. Wright Vice President and Director
March 27, 1999 By: _____________________________ Merlin T. Grim, Director
March 27, 1999 By: _____________________________ Randall B. Saufley Secretary and Treasurer
APPENDIX A
Item 15(a) (1) and (2)
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Arthur Andersen LLP, Independent Auditors
Report of KPMG, LLP, Independent Auditors
Balance Sheets at December 31, 1998 and 1997
Statements of Operations and Retained Earnings for the years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.
Notes to Financial Statements
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
Independent Auditors' Report
The Board of Directors and Shareholders National Mortgage Acceptance Corporation:
We have audited the accompanying balance sheets of National Mortgage Acceptance Corporation as of December 31, 1998 and 1997, and the related statements of operations and retained earnings and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Company'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 financial position of National Mortgage Acceptance Corporation as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles.
Richmond, Virginia March 24, 1999
EXHIBIT INDEX
3.1 Restated Articles of Incorporation of Thrift Financing Corporation ("TFC") (since June 2, 1989 National Mortgage Acceptance Corporation and hereinafter referred to as "NMAC"), previously filed as Exhibit 3.1 to NMAC's, Registration Statement on Form S-11, Registration No. 2-97573, and incorporated by reference.
3.2 Articles of Amendment to NMAC's Restated Articles of Incorporation, previously filed as Exhibit 3.2 to NMAC's Registration Statement on Form S-11, Registration No. 2-97573, and incorporated by reference.
3.3 Bylaws of NMAC, previously filed as Exhibit 3.4 to NMAC's Registration Statement on Form S-11, Registration No. 2-97573, and incorporated by reference.
3.4 Articles of Amendment dated June 1, 1989 to Restated Articles of Incorporation previously filed as Exhibit 3.5 to NMAC's Post- Effective Amendment No. 1 on Form S-3 to S-11 Registration No. 33-19023 and incorporated by reference.
4.1 Indenture dated as of May 1, 1985 ("Indenture") between NMAC and Texas Commerce Bank National Association as trustee ("Trustee"), previously filed as Exhibit 4.1 to Amendment No. 1 to NMAC's Registration Statement on Form S-11, Registration No. 2-97573 and incorporated by reference.
4.2 General Supplement relating to Subsequent Series dated as of January 1, 1987, previously filed as Exhibit to NMAC's Form 8-K filed on February 10, 1985, and incorporated by reference.
4.3 Series Supplement to the Indenture, dated as of July 1, 1985, relating to Series 1985-A Bonds, previously filed as Exhibit 4 to NMAC's Form 8-K filed on July 23, 1985, and incorporated by reference.
4.4 Series Supplement to the Indenture, dated as of January 20, 1987, relating to Series B Bonds, previously filed as Exhibit 4.3 to NMAC's Form 8-K filed on February 10, 1987, and incorporated by reference.
4.5 Series Supplement to the Indenture, dated as of March 20, 1987, relating to Series C Bonds, previously filed as Exhibit 4.3 to NMAC's Form 8-K filed on April 8, 1987, and incorporated by reference.
4.6 Series Supplement to the Indenture, dated as of October 30, 1987, relating to Series D Bonds, previously filed as Exhibit 4.3 to NMAC's form 8-K filed on November 12, 1987, and incorporated by reference.
4.7 Form of Second General Supplement to Indenture relating to Subsequent Series previously filed as Exhibit 4.4 to NMAC's Post-Effective Amendment No. 1 on Form S-3 to S-11 Registration No. 33-19023 and incorporated by reference.
11.1 See Appendix A.
12.1 Statement re computation of ratios.
National Mortgage Acceptance Corporation Financial Statements as of December 31, 1998, 1997 and 1996 Together with Report of Independent Public Accountants
Report of Independent Public Accountants To National Mortgage Acceptance Corporation: We have audited the accompanying balance sheets of National Mortgage Acceptance Corporation (a Virginia corporation) as of December 31, 1998 and 1997, and the related statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The statement of operations and retained earnings and statement of cash flows of National Mortgage Acceptance Corporation for the year ended December 31, 1996, were audited by other auditors whose report dated March 21, 1997, expressed an unqualified opinion on those statements.
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 National Mortgage Acceptance Corporation as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Charlotte, North Carolina, March 23, 1999.
Independent Auditors' Report
The Board of Directors National Mortgage Acceptance Corporation:
We have audited the accompanying statements of operations and retained earnings and cash flows of National Mortgage Acceptance Corporation (the Corporation) for the year ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, National Mortgage Acceptance Corporation's results of operations and its cash flows for the year ended December31, 1996, in conformity with generally accepted accounting principles.
Richmond, Virginia March 21, 1997
National Mortgage Acceptance Corporation Balance Sheets - December 31, 1998 and 1997 Assets 				1998		1997 Cash 		 $ 	11,289	$ 1,255 Trading securities, at fair value 				240,885		245,564 Restricted cash and investments - Series 1985-A working capital reserve, at fair value (Note 4)
				59,046		56,457 Loans receivable from affiliates, estimated fair value of $12,243,053 in 1998 and $15,638,886 in 1997 (Note 3)
				11,104,810		13,894,203 Accrued interest receivable from affiliates 				624,646		781,549 Other assets 				17,056		19,246
				$12,057,732		$14,998,274 Liabilities and Shareholders' Equity
Liabilities:
Bonds payable, estimated fair value of $12,243,053 in 1998 and $15,638,886 in 1997 (Note 5)
				$11,104,810		$13,894,203 Accrued interest payable (Note 5) 				624,646		781,549 Other liabilities, principally to affiliates (Note 3) 				89,603		87,304 Income taxes payable 				219			405 Total liabilities 				11,819,278		14,763,461 Shareholders' equity:
Common stock; $1 par value-
Class A (without right to dividend) - Authorized 7,500 shares, issued and outstanding 730 shares
			730			730 Class B (nonvoting) - Authorized 7,500 shares, issued and outstanding 1,665 shares
			1,665			1,665 Paid-in capital 			182,565		182,565 Retained earnings 			53,494		49,853 Total shareholders' equity 			238,454		234,813
			$12,057,732		$14,998,274
National Mortgage Acceptance Corporation Statements of Operations and Retained Earnings For the Years Ended December 31, 1998, 1997 and 1996
				1998		1997		1996 Revenues:
Interest income on loans to affiliates 			$1,328,456		$1,656,833	$2,071,214 Other interest income 			17,987		12,172	14,686 Management fees from affiliates 			62,840		66,185	84,910 Net trading securities gains (losses) 			2,633			7,281		(6,065) Total revenues 			1,411,916		1,742,471	2,164,745 Expenses:
Interest on bonds 			1,328,456		1,656,833	2,071,214 Management fees 			62,840		66,185	84,910 Other 			16,069		12,575	11,831 Total expenses 			1,407,365		1,735,593	2,167,955 Income (loss) before income taxes 			4,551			6,878		(3,210) Income tax expense 			910			405		0 Net income (loss) 			3,641			6,473		(3,210) Retained earnings, beginning of year 			49,853		43,380	46,590 Retained earnings, end of year 		 $ 53,494	 $ 49,853 $ 43,380 Income (loss) per share - Basic and diluted 		$ 1.52		$ 2.70		$ (1.34)
National Mortgage Acceptance Corporation Statements of Cash Flows For the Years Ended December 31, 1998, 1997 and 1996
				1998			1997		1996 Cash flows for operating activities:
Net income (loss) 			$ 3,641	$ 6,473	$3,210) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-
Decrease (increase) in trading securities 				4,679			(8,853)	(1,419)) (Increase) decrease in restricted cash and investments - Working capital reserve
				(2,589)		(2,792)	774,649 Decrease in accrued interest receivable from affiliates
				156,903		193,185	220,173 Decrease in other assets 				2,190			1,505		3,012 Decrease in accrued interest payable 				(156,903)		(193,185)	(220,173) Increase (decrease) in other liabilities, principally to affiliates
				2,299			1,288		(778,389) (Decrease) increase in income taxes payable 				(186)			405			0 Net cash provided by (used in) operating activities
				10,034		(1,974)	(5,357) Cash flows provided by investing activities - Payments received on loans to affiliates
				2,789,393		3,434,403	3,914,192 Cash flows used in financing activities - Payments on bonds payable
				(2,789,393)		(3,434,403)	(3,914,192) Net increase (decrease) in cash 				10,034		(1,974)	(5,357) Cash, beginning of year 				1,255			3,229		8,586 Cash, end of year 			$ 11,289		$ 1,255	$ 3,229 Supplemental disclosures of cash flow information:
Cash paid during the year for interest 			$ 1,485,359		$1,850,018		$2,291,387 Cash paid for income taxes 				1,096			0			0
National Mortgage Acceptance Corporation Notes to Financial Statements December 31, 1998 and 1997 1. Organization: National Mortgage Acceptance Corporation (NMAC or the Company), formerly Thrift Financing Corporation, is a limited purpose finance subsidiary of Craigie Incorporated (Craigie) which owns 51% of the Class A common stock and 20% of the Class B common stock. The remaining Class A and Class B common stock is owned primarily by subsidiaries of institutions involved in the financial services industry. NMAC was organized on October 19, 1984, for the purpose of providing access to certain capital markets for qualified financial institutions and their affiliates. NMAC acts as a conduit for such institutions by the issuance of its Thrift Industry Mortgage Collateralized Obligation Bonds and other series of bonds (Bonds). The issues are structured so that collection of principal and interest from loans receivable from affiliates, including the effects of prepayments thereon, equal the amount of principal and interest due on the related bonds. NMAC generally obtains bond offering fees at the bond issuance date and administrative fees, as defined, for each offering over the period the Bonds remain outstanding. Collateralized Mortgage Obligation (CMO) Issuances When issued as a CMO, each series of Bonds is secured by the mortgage collateral and related funding agreements or promissory notes entered into by the participating thrift institutions or their finance subsidiaries. Each series of Bonds is specifically collateralized by mortgage-backed securities. Such collateral was initially pledged to NMAC, which in turn pledged the collateral to an independent trustee. As principal and interest are received by the trustee, the bonds payable and the funding agreements/notes receivable are concurrently reduced, as defined within each individual series supplement to the bond indenture and funding agreement, respectively. Principal and interest are payable semiannually or quarterly.
As of December 31, 1998 and 1997, NMAC had issued two collateralized mortgage obligations (Series 1985-A and Series C), lending the proceeds therefrom to finance subsidiaries of entities that are affiliated with certain shareholders of NMAC and Craigie. Only Series 1985-A was outstanding at December 31, 1998 and 1997. Real Estate Mortgage Investment Conduit (REMIC) Issuance For Bonds issued after January 1, 1987, and for which an election was made for "real estate mortgage investment conduit" status under the Internal Revenue Code of 1986, as amended, NMAC simultaneously issued a series of its Bonds and purchased mortgage collateral. The Collateral is segregated into an asset pool comprising the trust estate for that series of Bonds. The Bonds of such series are considered "regular interests" in such a REMIC. The trust assets serve as the sole collateral for the repayment of such series of Bonds. The REMIC also issues residual interest certificates, whereby the holder's cash investment entitles it to receive excess cash flow from the trust estate for such series of Bonds, defined as the excess of the payments of principal and interest on the collateral for that series of Bonds, and reinvestment earnings thereon, over bond principal and interest costs and related expenses. As of December 31, 1998 and 1997, NMAC had issued one series of Bonds (Series D) under the REMIC structure. 2. Summary of Significant Accounting Policies: New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. Comprehensive income is the nonshareholder related change in equity (net assets) of a company during a period from transactions and other events. The Company has no components of comprehensive income other than net income. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The statement is effective for fiscal years beginning after June 15, 1999, and cannot be applied retroactively. Management has not yet quantified the impact of adopting SFAS No. 133 and has not determined the timing of or method of adoption of the statement. However, the statement could increase volatility in earnings and other comprehensive income. Investment Securities The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (Statement No. 115), on January 1, 1994. Under Statement No. 115, the Company classifies all of its investment securities and restricted cash and investments in the Series 1985-A working capital reserve (working capital reserve securities) as trading. Trading securities are bought and held principally for the purpose of selling them in the near term. Trading securities and working capital reserve securities are recorded at fair value based on quoted market prices. Gains and losses on trading securities are included in earnings. Realized and unrealized gains and losses on working capital reserve securities are recorded as an adjustment to interest rebates payable (see Notes 3 and 4). Realized gains and losses are determined using the specific-identification method. Loans Receivable and Bonds Payable The issuance of Bonds is treated as a financing unless the transaction qualifies as a sale of assets under generally accepted accounting principles. To date, the Bonds issued under the CMO structure have been accounted for as financings, while the Bonds issued as a REMIC structure have qualified for sale treatment. No gain or loss, exclusive of bond offering fees in excess of related expenses, resulted from the sales. Due to the reduction of the loans receivable and bonds payable as a function of payments of the underlying collateral, the ultimate timing of the maturities of the respective loans and Bonds is not readily determinable. The estimated fair value of loans receivable is determined based on quoted market prices for the underlying collateral. The estimated fair value of bonds payable is determined based on quoted market prices for the Bonds. Interest Income and Expense Interest income, net of rebates (see Note 3) and interest expense are recorded as accrued. Bond Issuance Costs Costs related to the issuance of specific series of Bonds are charged to the entities participating in the offering. Ongoing costs related to registration statements and related prospectus material, prepared in anticipation of future offerings, are expensed as incurred. No such costs were incurred from 1995 through 1998. Earnings Per Share During 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128. Basic and diluted earnings per share are computed by dividing net income or loss by the weighted average number of shares of Class A and Class B common stock (2,395 for 1998, 1997 and 1996) outstanding during the period. There were no common stock equivalents for any of the periods presented. Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the asset and liability method of Statement No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of exiting assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. 3. Loans Receivable: Loans receivable on the Series 1985-A Bonds are expected to mature in varying amounts prior to the year 2016. The loan agreements, as amended, generally provide for interest to be paid at a rate equal to the lesser of the highest bond interest rate or the weighted bond interest rate plus 20 basis points per annum. The resulting effective rates of interest on the loans (equal to the lesser of 11.25% or the weighted average rate on the debt plus 20 basis points) were 11.25% in 1998, 1997 and 1996. Interest rebates payable and accumulated earnings from restricted cash and investments are included in other liabilities and aggregated $59,046 and $56,457 as of December 31, 1998 and 1997, respectively. The timing of payment of such rebates is at the discretion of the management of NMAC.
The funding agreements for Series 1985-A Bonds are collateralized by mortgage- backed securities and by certain debt service funds owned by the participating financial institution subsidiaries. Those funds and the collections on the mortgage-backed securities are held by the bond trustee until the respective semiannual payment dates, at which time they are distributed as payments on the Bonds. Excess funds (rebates) on the Series 1985-A Bonds, if any, are available for return to the participating thrift institution subsidiaries.
Loans receivable of $8,536,362 at December 31, 1998, are from Mountain Financial Corporation, a wholly owned, limited-purpose finance subsidiary of Craigie (the Finance Subsidiary). The Finance Subsidiary and four other entities were formed by certain depository institutions to facilitate the issuance of the Series 1985-A Bond through the Company. Subsequently, Craigie acquired 100% ownership of these entities through a purchase. During 1998, Craigie merged three other wholly-owned finance subsidiaries into the Finance Subsidiary (two mergers effective June 30, 1998, and the third effective September 30, 1998.) 4. Restricted Cash and Investments: Restricted cash and investments represent interest rebates which have been invested in U.S. Government agency obligations, corporate obligations, cash and cash equivalents and are restricted to repaying the interest rebates payable and the income earned on these funds. 5. Bonds Payable: Series 1985-A Bonds payable had aggregate effective rates of interest of approximately 11.25% during 1998, 1997 and 1996. The Series 1985- A Bonds are collateralized by the respective loans receivable (together with collateral thereon) and consist of the following as of December 31, 1998 and 1997:
		Interest	Stated	Principal Balance, 								 December 31 Class		Rate		Maturity Date		1998		1997 Series 1985-A - A-4	11.25% Jan. 1, 2016 $ 11,104,810 $13,894,203 The Series 1985-A Bonds require the payment of interest semiannually. The stated principal value of the collateral (FHLMC participation certificates) plus the cash and investments in the various debt service funds for the Series 1985-A aggregate approximately $13,656,128 and $16,797,479 as of December 31, 1998 and 1997, respectively. These assets are held by the trustee and, although not assets of NMAC, are pledged, together with interest income thereon, as collateral for the Bonds. 6. REMIC Issuances: NMAC has issued two REMIC series, aggregating $333,067,000 (Series B Bonds) and $300,500,000 (Series D Bonds) at issuance. Concurrent with the issuance of these bonds, NMAC sold the entire residual interest in the respective segregated asset pool comprising the trust estate. A portion of the Series B residual interest was purchased by affiliates of certain shareholders. The Series B Bonds were retired during 1996. As of December 31, 1998 and 1997, the following REMIC Series Bonds, which are not recorded as liabilities of NMAC, were outstanding:
		Interest	Stated	Principal Balance, 							 December 31 	Class		Rate	Maturity Date	1998		1997 Series D- 	D-2		6.7125% May 1, 2016	$ 0 	$ 	0 	D-4		7.125	 May 1, 2016		0		0 	D-5		6.9625 May 1, 2016		0		0 	D-6		9.75	 Nov. 1, 2017	24,461,901	32,724,983
						 $24,641,901 $32,724,983 The offering consisted of Class D-4, which were retired during 1996, D-6 Bonds (Standard Bonds) and Class D-2 and D-5 Bonds (the Floating Rate Bonds), which were also retired during 1996. The floating interest rates were based on the London interbank offered quotations for three-month Eurodollar deposits. The stated principal value of the collateral for Series D (GNMA certificates), aggregates approximately $24,860,376 and $33,250,738 as of December 31, 1998 and 1997, respectively. Such collateral, together with interest income thereon, is only available to repay the specific bond series. 7. Income Taxes: The components of income tax expense for 1998, 1997 and 1996 were as follows:
						December 31
					1998		1997		1996 Current- 	Federal		 $640	 $285	 $0 	State				270		120		0 Deferred- 	Federal			0		0		0 	State				0		0		0 Income tax expense 					$910		$405		$0 The actual income tax expense for 1998, 1997 and 1996 differs from the "expected" income tax expense (benefit) (computed by applying the statutory U.S. federal corporate income tax rate of 35% to income (loss) before income taxes) as follows:
					Years Ended December 31 					1998		1997		1996
Income tax expense (benefit) at statutory rate
					$1,593	$2,407	$(1,124) Effect of graduated income tax rates 					(910)		(1,376) 	642 State tax expense (benefit), net of federal expense (benefit)
					227		349		(163) Change in valuation allowance 					0		(975)		645 Actual income tax expense 					$ 910	$ 405	$ 0
There were no deferred taxes for the years ended December 31, 1998 and 1997.
8. Related-party Transactions: Under the terms of its management contract, Craigie provides office space and equipment and certain managerial, administrative, financial and other services to NMAC. Management fees are charged to NMAC and ultimately to the borrowers as an ongoing cost determined at the date of the bond offering. Management fees are computed as a percentage of the outstanding bonds. Management fees paid to Craigie were approximately $12,600, $24,600 and $28,000 during 1998, 1997 and 1996, respectively.
Craigie acts as co-managing underwriter for all of the bond offerings and is the counterparty to all securities transactions entered into by the Company.
NATIONAL MORTGAGE ACCEPTANCE CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
1998 1997 1996 1995	1994 Earnings: Income (Loss) before income taxes $ 4,551 6,878 (3,210) 12,404 (10,968) Fixed charges 1,328,456 1,656,833	2,071,214 3,217,819 4,419,373
		 $ 1,333,007 1,663,711	2,068,004 3,230,223 4,408,405
Fixed charges: Interest expense $ 1,328,456	 1,656,833	2,071,214 3,217,819 4,419,373
Ratio of earnings to fixed charges 1.003 1.004 0.998 1.004 0.998
EXHIBIT 12.1