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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999 Commission file number 33-11459
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CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
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(Exact name of registrant as specified in its Articles of Incorporation)
DELAWARE 43-1432378
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 Progress Parkway
Maryland Heights, Missouri 63043
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(Address and principal executive office) (Zip Code)
Registrant's telephone number, including area code (314) 515-2000
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of filing date:
COMMON STOCK, $1.00 Par Value - 500 Shares
The Registrant meets the conditions set forth in General Instruction
J(1)(a) and (b) of Form 10-K and is therefore filing this form with the
reduced disclosure format.
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CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
TABLE OF CONTENTS
PART I Page
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Item 1. Business 3
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 4
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
Item 8. Financial Statements and Supplementary Data 5
Item 9. Change in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and
Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 12
SIGNATURES 13
INDEX TO EXHIBITS 14
2
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PART I
Item 1. BUSINESS
Cornerstone Mortgage Investment Group II, Inc. (the "Company") was
incorporated in the state of Delaware on December 22, 1986, as a wholly
owned, limited purpose subsidiary of Edward D. Jones & Co., L.P. ("EDJ"
or the "Partnership"), a Missouri limited partnership.
The Company was organized for the purpose of investing in collateral to
be purchased with the proceeds of Mortgage-Backed Securities
collateralized by such collateral. EDJ organized the Company and
currently owns all the issued and outstanding capital stock of the
Company. The Company does not intend to engage in any business or
investment activities other than issuing and selling Mortgage-Backed
Securities and acquiring, owning, holding and assigning collateral and
investing cash balances on an interim basis in high quality, short-term
securities, some or all of which may be purchased from or through EDJ.
Article 3 of the Company's Certificate of Incorporation limits the
Company's business and investment activities to the above purposes and
to any activities incidental and necessary or convenient for such
purposes. Article 7 of the Company's Certificate of Incorporation
prohibits the Company, without the consent of the trustee under any
indenture pursuant to which Mortgage-Backed Securities are issued, from
(1) dissolving or liquidating, in whole or in part; (2) merging or
consolidating with another corporation other than a corporation wholly
owned, directly or indirectly, by EDJ or (3) amending Articles 3 or 7 of
the Company's Certificate of Incorporation.
Item 2. PROPERTIES
The Company has no physical properties appropriate for description
herein.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
3
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of filing date, all outstanding shares of the Company's common stock
are owned by EDJ and are not traded on any stock exchange or in the
over-the-counter market.
Item 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cornerstone II has not issued Mortgage-Backed Securities since 1991.
Cornerstone II's operations are directed toward maintenance of
outstanding issues.
During 1999, Cornerstone II exercised the option to repurchase
collateral for series which had a current collateral principal balance
that was less than 10% of the original collateral principal balance.
Series 6 and Series 17 were repurchased on January 30, 1999, for net
gains of $145,203 and $152,094, respectively. Series 24 and Series 32
were repurchased on February 25, 1999, for net gains of $104,180 and
$48,311, respectively. Series 16, Series 20 and Series 31 were
repurchased on March 30, 1999, for net gains of $105,112, $315,832 and
$185,913, respectively. Series 28 and Series 29 were repurchased on
April 23, 1999, for net gains of $111,700 and $95,264, respectively.
Series 11, Series 19, Series 21 and Series 22 were repurchased on April
30, 1999, for net gains of $136,517, $210,748, $183,120 and $158,091,
respectively. Series 30 was repurchased on July 15, 1999, for a net
gain of $304,714. Series 9 and Series 18 were repurchased on August 30,
1999, for a net loss of $84,714 and a net gain of $70,804, respectively.
Series 4, Series 8 and Series 12 were repurchased on September 1, 1999,
for net gains of $7,688, $6,646 and $41,021, respectively. Series 27 was
repurchased on October 15, 1999, for a net gain of $103,788. Series 10
and Series 13 were repurchased on October 29, 1999, for net gains of
$120,431 and $75,141, respectively.
Year 2000 Issues
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As of February 22, 2000, the Partnership has not encountered any
significant business disruptions as a result of internal or external
Year 2000 issues. However, while no such occurrence has developed, Year
2000 issues may arise that may not become immediately apparent.
Therefore, the Partnership will continue to monitor and work to
remediate any issues that may arise. Although the Partnership expects
not to be materially impacted, such future events cannot be known with
certainty.
4
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Financial Data
Page No.
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Report of Independent Public Accountants 8
Balance Sheets as of December 31, 1999 and 1998. 9
Notes to Balance Sheets 10
All schedules are omitted because they are not required, inapplicable or
the information is included in the balance sheets or notes thereto.
5
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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To Cornerstone Mortgage Investment Group II, Inc.:
We have audited the accompanying balance sheets of Cornerstone Mortgage
Investment Group II, Inc. (a Delaware corporation and wholly owned
subsidiary of Edward D. Jones & Co., L.P.) as of December 31, 1999 and
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 balance sheets are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheets.
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 balance sheets referred to above present fairly, in
all material respects, the financial position of Cornerstone Mortgage
Investment Group II, Inc. as of December 31, 1999 and 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 22, 2000
6
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
<TABLE>
BALANCE SHEETS
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AS OF DECEMBER 31, 1999 AND 1998
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<CAPTION>
1999 1998
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ASSETS
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<S> <C> <C>
CASH $ 500 $ 500
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STOCKHOLDER'S EQUITY
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COMMON STOCK - $1.00 par value, 150,000 shares
authorized, 500 issued and outstanding $ 500 $ 500
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The accompanying notes are an integral part of this balance sheet.
</TABLE>
7
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
NOTES TO BALANCE SHEETS
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DECEMBER 31, 1999 AND 1998
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1. GENERAL
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Cornerstone Mortgage Investment Group II, Inc. ("Cornerstone II") is a
Delaware corporation and a wholly owned subsidiary of Edward D. Jones &
Co., L.P. ("EDJ"), a Missouri limited partnership. Cornerstone II was
incorporated on December 22, 1986, for the limited purpose of
structuring and selling mortgage-backed securities (the "Certificates"),
which are backed by Government National Mortgage Association (GNMA),
Federal Home Loan Mortgage Corporation (FHLMC) and Federal National
Mortgage Association (FNMA) Securities (collectively the "Collateral").
All costs related to the organization of Cornerstone II have been
absorbed by EDJ. In addition, EDJ has paid all offering expenses and
assumed all future revenues and expenses in connection with prior
security transactions. Due to the absence of revenue or expense
generating transactions, no income statement is presented. The balance
of stockholder's equity consists solely of common stock issued on
December 30, 1986; therefore, no statement of stockholder's equity is
presented. All funds were obtained from capital transactions;
therefore, no statement of cash flows is presented.
2. SECURITY TRANSACTIONS
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Cornerstone II last offered mortgage-backed securities in 1991. Series
4, Series 6, Series 8, Series 9, Series 10, Series 11, Series 12, Series
13, Series 16, Series 17, Series 18, Series 19,
8
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
Series 20, Series 21, Series 22, Series 24, Series 27, Series 28, Series
29, Series 30, Series 31 and Series 32 were repurchased during 1999.
Since Cornerstone II has surrendered control of the future economic
benefit in the collateral, these transactions have been accounted for as
sales, and both the Certificates and the Collateral have been eliminated
from Cornerstone II's balance sheet.
The outstanding principal balance and remaining collateral value
relating to series issued by Cornerstone II are $7,208,000 and
$7,268,046 as of December 31, 1999.
9
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Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There was no change of accountants or disagreement with accountants on
any matter of accounting principles or financial disclosure.
10
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
11
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a. The following documents are filed as part of this report:
1. Financial Statements:
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Report of Independent Public Accountants
Balance Sheets as of December 31, 1999 and 1998
Notes to Balance Sheets
2. Financial Statement Schedules:
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All schedules are omitted because they are not
required, inapplicable, or the information is included
in the balance sheets or notes thereto.
3. Exhibits:
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Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3(a) to
Registration Statement on Form S-11, as amended, File
No. 33-11459).
Bylaws of the Company as amended (incorporated
by reference to Exhibit 3(b) to Registration Statement
on Form S-11, as amended, File No. 33-11459).
Deposit Agreement dated as of February 20, 1987,
between the Company, as Depositor, and The Bank of New
York, as Custodian (incorporated by reference to
Exhibit 2 to the Current Report on Form 8-K filed on
March 6, 1987).
Trust Agreement dated as of February 20, 1987,
between the Company, as Depositor, and The Bank of New
York, as Successor Trustee (incorporated by reference
to Exhibit 3 to the Current Report on Form 8-K filed
on March 6, 1987).
Trust Agreement dated as of February 20, 1987,
between the Company, as Depositor, Bank of New York
as Successor Trustee (incorporated by reference to
Exhibit 4 to the Current Report on Form 8-K filed on
March 6, 1987).
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 22th day of February, 2000.
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
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(Registrant)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ John C. Heisler Chairman of the Board,
- ---------------------- Chief Financial Officer,
John C. Heisler Chief Accounting
Officer and Director February 22, 2000
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/s/ Philip R. Schwab President, Chief
- ---------------------- Executive Officer
Philip R. Schwab and Director February 22, 2000
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/s/ John Beuerlein Secretary and Director February 22, 2000
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John Beuerlein
13
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INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit Page
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3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to Registration
Statement on Form S-11, as amended, File No.
33-11459) <F*>
3.2 Bylaws of the Company as amended (incorporated by
reference to Exhibit 3(b) to Registration Statement on
Form S-11, as amended, File No. 33-11459) <F*>
4.1 Deposit Agreement dated as of February 20, 1987,
between the Company, as Depositor, and Bank of New York,
(incorporated by reference to Exhibit 2 to the Current Report
on Form, 8-K filed on March 6, 1987) <F*>
4.2 Trust Agreement dated as of February 20, 1987, between
the Company, as Depositor, and Bank of New York
as Trustee (incorporated by reference to Exhibit 3 to the
Current Report on Form 8-K filed on March 6, 1987) <F*>
4.3 Trust Agreement dated as of February 20, 1987, between
the Company, as Depositor, and Bank of New York,
as Successor Trustee (incorporated by reference to
Exhibit 4 to the Current Report on Form 8-K filed
on March 6, 1987 <F*>
[FN]
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<F*>Incorporated by reference
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Cornerstone Mortgage Investment Group II, Inc.
for the year ended December 31, 1999 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 500
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 500
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 500
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 500
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 500
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
