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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, 2001 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.
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..................... 9
PART III
Item 10. Directors and Executive Officers of the Registrant.........10
Item 11. Executive Compensation.....................................10
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................10
Item 13. Certain Relationships and Related Transactions.............10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...................................................11
SIGNATURES................................................................12
INDEX TO EXHIBITS.........................................................13
2
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
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 Cornerstone
series. The outstanding principal balance for series 5 is $2,197,000.
During 2001, 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 7 was
repurchased on March 30, 2001 and collateral was sold for a net gain of
$97,098.
4
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......................... 6
Balance Sheets as of December 31, 2001 and 2000.................. 7
Notes to Balance Sheets.......................................... 8
All schedules are omitted because they are not required, inapplicable or the
information is included in the balance sheets or notes thereto.
5
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, 2001 and 2000.
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 auditing standards generally
accepted in the United States. 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, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 22, 2002
6
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
BALANCE SHEETS
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AS OF DECEMBER 31, 2001 AND 2000
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2001 2000
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ASSETS
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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
========== ==========
The accompanying notes are an integral part of these balance sheets.
7
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
NOTES TO BALANCE SHEETS
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DECEMBER 31, 2001 AND 2000
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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
---------------------
Cornerstone II last offered mortgage-backed securities in 1991. Series 7 was
repurchased during 2001.
8
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
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 $2,197,000 and $2,239,469 as of December
31, 2001.
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.
9
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.
10
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, 2001 and 2000
Notes to Balance Sheets
2. Financial Statement Schedules:
-----------------------------
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).
11
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
22nd day of February, 2002.
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, 2002
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/s/ Philip R. Schwab President, Chief
- ------------------------------- Executive Officer
Philip R. Schwab and Director February 22, 2002
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/s/ John Beuerlein Secretary and Director February 22, 2002
- ------------------------------- -----------------
John Beuerlein
12
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit Page
- ------ ---------------------- ----
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)........................................................*
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)........................*
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).............................*
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)...................................................*
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.................................................*
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*Incorporated by reference
13