ITEM 1 - BUSINESS
Bear Stearns Secured Investors Inc. (the "Company") was organized by, and is a direct wholly-owned limited purpose finance subsidiary of The Bear Stearns Companies Inc. (the "Parent"). The Company was incorporated in the State of Delaware on November 26, 1986.
The Company was formed solely for the purpose of purchasing or acquiring mortgage-backed securities, whole residential or commercial mortgage loans or participations therein, and issuing and selling one or more series of Collateralized Mortgage Obligations ("CMO's") directly or through one or more trusts established by it. In connection therewith, the Company is authorized to acquire, own, hold, and pledge the various instruments collateralizing the CMO's.
Each series of CMO's is collateralized by "fully modified pass-through" mortgage-backed certificates ("GNMA Certificates") guaranteed as to the full and timely payment of principal and interest by the Government National Mortgage Association, which guaranty is backed by the full faith and credit of the United States Government; by guaranteed mortgage pass-through certificates ("FNMA Certificates") issued and guaranteed as to the full and timely payment of principal and interest by the Federal National Mortgage Association; by mortgage participation certificates ("FHLMC Certificates") issued and guaranteed as to timely payment of interest and ultimate payment of principal by the Federal Home Loan Mortgage Corporation (GNMA, FNMA and FHLMC Certificates are hereinafter referred to collectively as the "Certificates"); or by whole residential or commercial mortgage loans or participations therein.
Distributions of principal of and interest on the Certificates pledged as collateral and, in some cases, the reinvestment income, thereon, are used to pay the debt service on the CMO's and administrative expenses. In connection with the issuance and sale of each series, it is the Company's intention to sell its beneficial interest in the residual cash flow remaining after the payment of debt service and administrative expenses, with the objective of ultimately divesting itself of all ownership interest in the underlying collateral.
The Certificates are acquired by the Company from Bear, Stearns & Co. Inc. ("Bear Stearns"), an affiliate of the Company, simultaneously with the issuance and sale of the CMO's. The Company issues each series of CMO's through Bear Stearns acting as the principal underwriter in underwritten public offerings. The net proceeds from the offering of each series of CMO's are used to purchase the Certificates collateralizing the CMO's.
In connection with the Company's activities in the origination and issuance of CMO's, the Company derives revenue in its capacity as administrator of various CMO issues during the outstanding life of the CMO transactions which it originated, pursuant to subservicing agreements with Bear Stearns.
ITEM 2
ITEM 2 - PROPERTIES
The Company owns no physical properties.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
No legal proceedings are pending.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to General Instruction J of Form 10-K, the information required by Item 4 is omitted.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the common equity of the Company. All of the issued and outstanding shares of such common equity are owned by the Parent.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
Pursuant to General Instruction J of Form 10-K, the information required by Item 6 is omitted.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company incurred net losses for the fiscal years ended June 30, 1998, 1997 and 1996 in the amounts of $379,125, $63,588 and $1,504 respectively. Net loss for the fiscal years ended June 1997 and 1996 resulted from certain administrative and operating expenses incurred during those years. A significant portion of the loss incurred during the year ended June 30, 1998 resulted from management's decision to accelerate the amortization of deferred debt issuance costs as the registered debt shelf is not expected to be utilized due to current unfavorable market conditions. The Company did not issue any CMO's during the fiscal years ended June 30, 1998, 1997 and 1996 due to unfavorable market conditions.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item and included in this report are listed in the index appearing on page.
PART II (continued)
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
Pursuant to General Instruction J of Form 10-K, the information required by Item 10 is omitted.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Pursuant to General Instruction J of Form 10-K, the information required by Item 11 is omitted.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction J of Form 10-K, the information required by Item 12 is omitted.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction J of Form 10-K, the information required by Item 13 is omitted.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Financial Statements, Financial Statement Schedules and Exhibits.
Financial Statements
The financial statements required to be filed hereunder are listed on Page hereof.
Financial Statement Schedules
The Financial Statement Schedules required to be filed hereunder are listed on Page hereof.
Exhibits
3. Articles of Incorporation and by-laws, incorporated by reference to Exhibits 3.1 and 3.2, respectively, to Registration Statement on Form S-11 (No. 33-17021).
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued)
4. Instruments defining the rights of security holders, including indentures:
(a) Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 4 to Registration Statement on Form S-11 (No. 33-10524).
3. Exhibits (continued)
(b) Series 1987-4 Supplement dated as of December 30, 1987 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(c) to Post-Effective Amendment No. 5 to Registration Statement on Form S-11 (No. 33-10524).
(c) Series 1987-5 Supplement dated as of January 27, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(d) to Post-Effective Amendment No. 6 to Registration Statement on Form S-11 (No. 33-10524).
(d) Series 1988-1 Supplement dated as of February 23, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(e) to Post-Effective Amendment No. 4 to Registration Statement on Form S-11 (No. 33-17021).
(e) Series 1988-2 Supplement dated as of March 29, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(f) to Post-Effective Amendment No. 5 to Registration Statement on Form S-11 (No. 33-17021).
(f) Series 1988-2 Supplement dated as of March 29, 1988, as amended and restated as of April 5, 1988, to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(g) to Post-Effective Amendment No. 6 to Registration Statement on Form S-11 (No. 33-17021).
(g) Series 1988-3 Supplement dated as of April 27, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(h) to Post-Effective Amendment No. 7 to Registration Statement on Form S-11 (No. 33-17021).
3. Exhibits (continued)
(h) Series 1988-4 Supplement dated as of October 27, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(i) to Post-Effective Amendment No. 8 to Registration Statement on Form S-11 (No. 33-17021).
(i) Series 1988-6 Supplement dated as of November 22, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(1) to Post-Effective Amendment No. 11 to Registration Statement on Form S-11 (No. 33-17021).
(j) Series 1988-7 Supplement dated as of November 29, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(m) to Post-Effective Amendment No. 12 to Registration Statement on Form S-11 (No. 33-17021).
(k) Series 1988-8 Supplement dated as of November 21, 1988 to the Indenture dated as of November 30, 1987 between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(k) to Post-Effective Amendment No. 10 to Registration Statement on Form S-11 (No. 33-17021).
(l) Series 1989-3 Supplement dated as of February 16, 1989, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(b) to Post-Effective Amendment No. 2 to Registration Statement on Form S-11 (No. 33-25464).
(m) Series 1991-1 Series Supplement dated as of July 29, 1991, between Bear Stearns Secured Investors Inc. and Texas Commerce Bank National Association, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(k) to Post-Effective Amendment No. 3 to Registration Statement on Form S-11 (No. 33-26824).
(n) Series 1991-2 Series Supplement dated as of December 30, 1991, between Bear Stearns Secured Investors Inc. and Texas Commerce Bank National Association, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(k) to Post-Effective Amendment No. 4 to Registration Statement on Form S-11 (No 33-26824)
3. Exhibits (continued)
(o) Series 1992-1 Series Supplement dated as of January 30, 1992, between Bear Stearns Secured Investors Inc. and Texas Commerce Bank National Association, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(k) to Post-Effective Amendment No. 5 to Registration Statement on Form S-11 (No 33-26824)
(p) Series 1992-2 Supplement dated as of July 30, 1992, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3 (a) to Post-Effective Amendment No. 6 to Registration Statement on Form S-11 (No. 33 -26824).
(q) Series 1993-1 Supplement dated as of June 18, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Inc. and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 7 to Registration Statement on Form S-11 (No. 33-26824).
(r) Series 1993-2 Supplement dated as of June 30, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Trust 1993-2 and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3 (a) to Post-Effective Amendment No. 2 to Registration Statement on Form S-11 (No. 33-48313).
(s) Series 1993-3 Supplement dated as of July 30, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Trust 1993-3 and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 3 to Registration Statement on Form S-11 (No. 33-48313).
(t) Series 1993-4 Supplement dated as of August 31, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Trust 1993-4 and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 4 to Registration Statement on Form S-11 (No. 33-48313).
(u) Series 1993-5 Supplement dated as of September 3, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Trust 1993-5 and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 5 to Registration Statement on Form S-11 (No. 33-48313).
(v) Series 1993-6 Supplement dated as of November 1, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Trust 1993-6 and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 6 to Registration Statement on Form S-11 (No. 33-48313).
3. Exhibits (continued)
(w) Series 1993-6 Supplement dated as of November 1, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Trust 1993-6 and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 7 to Registration Statement on Form S-11 (No. 33-48313).
(x) Series 1993-8 Supplement dated as of December 1, 1993, to the Indenture dated as of November 30, 1987, between Bear Stearns Secured Investors Trust 1993-8 and State Street Bank and Trust Company, incorporated by reference to Exhibit 4.3(a) to Post-Effective Amendment No. 8 to Registration Statement on Form S-11 (No. 33-48313).
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fiscal year ended June 30, 1998.
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 the 11th day of September, 1998.
Bear Stearns Secured Investors Inc. (Registrant)
By: /s/ William J. Montgoris Secretary and Treasury and Principal Financial and Accounting Officer
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 indicated on the 11th day of September, 1998.
Signatures Title
/s/ Warren J. Spector President and Chief Operating Warren J. Spector Officer; Director
/s/ William J. Montgoris Secretary and Treasurer William J. Montgoris (Principal Financial and Accounting Officer)
BEAR STEARNS SECURED INVESTORS INC.
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Independent Auditors' Report
Statements of Financial Condition as of June 30, 1998 and 1997
Statements of Operations for the fiscal years ended June 30, 1998, 1997 and 1996
Statements of Changes in Stockholder's Equity for the fiscal years ended June 30, 1998, 1997 and 1996
Statements of Cash Flows for the fiscal years ended June 30, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedules are omitted because they are inapplicable or the information is included in the financial statements or notes thereto.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder, Bear Stearns Secured Investors Inc.:
We have audited the accompanying statements of financial condition of Bear Stearns Secured Investors Inc. (the "Company") (a wholly-owned subsidiary of The Bear Stearns Companies Inc.) as of June 30, 1998 and 1997, and the related statements of operations, cash flows, and changes in stockholder's equity for each of the three years in the period ended June 30, 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, such financial statements present fairly, in all material respects, the financial position of Bear Stearns Secured Investors Inc. at June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1998 in conformity with generally accepted accounting principles.
September 9, 1998
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BEAR STEARNS SECURED INVESTORS INC. STATEMENTS OF FINANCIAL CONDITION
June 30, June 30, 1998 1997 ASSETS
Assets Cash and cash equivalents $ 1,000 $ 1,000 Receivable from affiliates 16,176,822 16,176,822 Deferred organization costs - 611,514 Other assets 686 -
Total Assets $16,178,508 $16,789,336
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liabilities Payable to Parent $16,288,602 $16,520,993 Other liabilities 165,000 164,312 Total Liabilities 16,453,602 16,685,305
Stockholder's Equity Common stock, $.01 par value; 1,000 shares authorized; 100 shares outstanding 1 1 Paid-in capital 999 999 Accumulated earnings (deficit) (276,094) 103,031 Total Stockholder's Equity (Deficit) (275,094) 104,031 Total Liabilities and Stockholder's Equity $16,178,508 $16,789,336
See notes to financial statements.
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BEAR STEARNS SECURED INVESTORS INC. STATEMENTS OF OPERATIONS
Fiscal Years Ended June 30, June 30, June 30, 1998 1997 1996
Revenues Principal transactions $ - $ - $ - Management fees - - -
Total revenues - - -
Expenses Other expenses 671,268 113,388 2,734
Total expenses 671,268 113,388 2,734
(Loss) income before provision for income taxes (671,268) (113,388) (2,734)
(Benefit) provision for income taxes (292,143) (49,800) (1,230)
Net (loss) $(379,125) $ (63,588) $ (1,504)
See notes to financial statements.
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BEAR STEARNS SECURED INVESTORS INC. STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
Common Stock Paid-in Accumulated $.01 Par Value Capital Earnings (Deficit)
Balance, June 30, 1995 $ 1 $ 999 $ 168,123
Net loss (1,504)
Balance, June 30, 1996 $ 1 $ 999 166,619
Net loss (63,588)
Balance, June 30, 1997 $ 1 $ 999 $ 103,031
Net loss (379,125)
Balance, June 30, 1998 $ 1 $ 999 $ (276,094)
See notes to financial statements.
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BEAR STEARNS SECURED INVESTORS INC. STATEMENTS OF CASH FLOWS
Fiscal Years Ended June 30, June 30, June 30, 1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (379,125) $ (63,588) $ (1,504) Decrease (increase) in: Deferred organization costs 611,514 100,000 Other assets (686) (Decreases) increases in: Payable to Parent (232,392) (36,394) 1,490 Other liabilities 689 18 14
Cash provided by operating activities - - -
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,000 1,000 1,000
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,000 $ 1,000 $ 1,000
See notes to financial statements.
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BEAR STEARNS SECURED INVESTORS INC. NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Bear Stearns Secured Investors Inc. (the "Company") a direct wholly-owned limited purpose finance subsidiary of The Bear Stearns Companies Inc. (the "Parent") was organized on November 26, 1986 as a Delaware corporation. The Company's sole purpose is to issue and sell one or more series of collateralized mortgage obligations ("CMO's") directly or through one or more trusts established by it. In connection therewith, the Company provides management and administrative services after the issuance of each CMO issued.
The Company's activities are limited to issuing CMO's that will be collateralized by mortgage-backed certificates, whole residential or commercial mortgage loans or participations therein, and, in connection therewith, acquiring, owning, holding and pledging mortgage-backed certificates, whole loans or commercial mortgage loans.
Note 2. Summary of Significant Accounting Policies
The financial statements are prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The Company's policy is to record the securitization and issuance of CMO's and the related sale of all of its remaining beneficial ownership interest in the residual cash flow attributable to each series of CMO's as a sale of assets. The resultant gain or loss reflects the net proceeds from the CMO issuance and the sale of the beneficial ownership interest less the cost of the underlying collateral and is reflected as principal transaction revenues.
The Company's policy is to sell all of its beneficial ownership interest in each CMO series issued directly or through one or more trusts established by it. Accordingly, as the Company no longer retains an economic interest in the underlying collateral, the assets and liabilities related to each CMO series are not reflected on the Company's Statement of Financial Condition.
Management fee income received for the management and administration of the various CMO issues is recognized into income when earned.
The Company is included in the consolidated federal income tax return of the Parent. Income tax expense is computed on a separate company basis.
For purposes of reporting cash flows, the Company has defined cash equivalents as liquid investments not held for sale in the ordinary course of business.
Deferred organization costs represents debt registration costs paid in advance for the issuance of CMO's. The Company's policy is to amortize these costs in portion to the face amount of CMO's issued.
During the fiscal year ended June 30, 1998, the Company wrote off the remaining debt issuance amount. Due to current market conditions, the Company does not anticipate the usage of these costs in connection with future issuances of CMO's.
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BEAR STEARNS SECURED INVESTORS INC. NOTES TO FINANCIAL STATEMENTS
Note 3. Collateralized Mortgage Obligations
During the fiscal year ended June 30, 1998, 1997 and 1996 the Company did not issue any CMO's.
Note 4. Income Taxes
The difference between the Company's effective tax rate and the statutory federal income tax rate is the effect of state and local income taxes.
Note 5. Related Party Transactions
The Company clears all of its securities transactions relating to the purchase of the underlying collateral and issuance of CMO's through an affiliate. An affiliate also acts as the principal underwriter for the Company's CMO issuances. Substantially all of the Company's operating expenses, such as office space and general and administrative expenses, are borne by an affiliate.
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