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"), 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.
Item 2. PROPERTIES
The Company has no physical properties appropriate for description herein.
Item 3.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
PART II
Item 5.
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.
Item 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 7.
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 1998 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 25 was repurchased on January 30, 1998 and series 14 and series 23 on September 30, 1998, for net gains of $31,735, $95,026 and $30,550, respectively.
Year 2000 Issues ----------------
In 1997, the Partnership began the process of identifying the software applications expected to be impacted by the Year 2000 system issue. The Partnership does not believe the costs of addressing these issues will have a material impact on the partnership financial position or on its results of operations.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Financial Data
Page No. --------
Report of Independent Public Accountants. . . . . . . .6
Balance Sheet as of December 31, 1998 and 1997. . . . .7
Notes to Balance Sheet. . . . . . . . . . . . . . . . .8
All schedules are omitted because they are not required, inapplicable or the information is included in the balance sheet or notes thereto.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------
To Cornerstone Mortgage Investment Group II, Inc.:
We have audited the accompanying balance sheet 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, 1998 and 1997. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement 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 sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. 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 sheet referred to above presents fairly, in all material respects, the financial position of Cornerstone Mortgage Investment Group II, Inc. as of December 31, 1998 and 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri, February 26, 1999
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC.
NOTES TO BALANCE SHEET ----------------------
DECEMBER 31, 1998 AND 1997 --------------------------
1. GENERAL -------
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; no securities were issued during 1998, 1997 or 1996. Series 25, Series 14 and Series 23 were repurchased during 1998.
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 Mortgage Investment Group II, Inc. are $52,234,000 and $52,689,276 as of December 31, 1998.
Item 9.
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.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction J(2)(c) of Form 10-K.
PART IV
Item 14.
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: --------------------
Report of Independent Public Accountants
Balance Sheet as of December 31, 1998 and 1997
Notes to Balance Sheet
2. Financial Statement Schedules: -----------------------------
All schedules are omitted because they are not required, inapplicable, or the information is included in the balance sheet or notes thereto.
3. Exhibits: --------
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).
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 26th day of February, 1999.
CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC. ---------------------------------------------- (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, February 26, 1999 - ------------------- Chief Financial Officer, ----------------- John C. Heisler Chief Accounting Officer and Director
/s/ Philip R. Schwab President, Chief February 26, 1999 - -------------------- Executive Officer ----------------- Philip R. Schwab and Director
/s/ John Beuerlein Secretary and Director February 26, 1999 - ------------------ ----------------- John Beuerlein
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
[FN] - ----------------------------- Incorporated by reference