-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U4FF8eaoA+kmlmj5br5gUVgUf98l4heVHOyRC6w1re94aFTZbK0raU/V3foIwyKv S+m8WVi+XeE6DuKiktH2Yg== 0000950114-98-000158.txt : 19980330 0000950114-98-000158.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950114-98-000158 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNERSTONE MORTGAGE INVESTMENT GROUP INC CENTRAL INDEX KEY: 0000790524 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 431393535 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-04001 FILM NUMBER: 98575510 BUSINESS ADDRESS: STREET 1: 201 PROGRESS PKWY CITY: MARYLAND HEIGHTS STATE: MO ZIP: 63043 BUSINESS PHONE: 3148512000 10-K 1 CORNERSTONE MORTGAGE INVESTMENT GROUP, INC. 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission file number 33-4001 ----------------- ------- CORNERSTONE MORTGAGE INVESTMENT GROUP, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its Articles of Incorporation) DELAWARE 43-1393535 - ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 201 Progress Parkway Maryland Heights, Missouri 63043 - ------------------------------------------------------------------------------- (Address and principal executive office) (Zip Code) Registrant's telephone number, including area code (314) 515-2000 --------------------- 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, $.01 Par Value - 1,000 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. 2 CORNERSTONE MORTGAGE INVESTMENT GROUP, INC. TABLE OF CONTENTS
Page ---- PART I Item 1. Business 3 Item 2. Properties 3 Item 3. Legal Proceeding 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 6 Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure 15 PART III Item 10. Directors and Executive Officers of the Registrant 16 Item 11. Executive Compensation 16 Item 12. Security Ownership of Certain Beneficial Owners and Management 16 Item 13. Certain Relationships and Related Transactions 16 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17 SIGNATURES 19 INDEX TO EXHIBITS 20
2 3 PART I Item 1. BUSINESS Cornerstone Mortgage Investment Group, Inc. (the "Company" or "Cornerstone") was incorporated in the state of Delaware on January 9, 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 Certificates to be purchased with the proceeds of Secured Mortgage Bonds collateralized by such Certificates. 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 Secured Mortgage Bonds and acquiring, owning, holding and assigning Certificates 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 Bonds 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. Due to revisions to the Internal Revenue Code, effective January 1, 1987, the Company no longer issues Bonds, but will continue in operation until such time as the Bonds previously issued are retired or mature. 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 4 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)(a) of Form 10-K. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1997 VERSUS 1996 Revenues for the year ended December 31, 1997 were $11,738, a decrease of $2,341 from the prior year. Such amount consists solely of earnings from the Company's residual interest in its three series of Secured Mortgage Bonds outstanding. Expenses in 1997 decreased by $557 to $3,628 for the year. The decrease was due to a decline in trustee fees. These fees will continue to decrease as the securities principal balances of the Secured Mortgage Bonds decrease. The result was net income of $8,110. 1996 VERSUS 1995 Revenues for the year ended December 31, 1996 were $14,079, a decrease of $4,226 from the prior year. Such amount consists solely of earnings from the Company's residual interest in its three series of Secured Mortgage Bonds outstanding. Expenses in 1996 decreased by $3,380 to $4,185 for the year. The decrease was due to a decline in trustee fees. The result was net income of $9,894. Liquidity and Capital Adequacy ------------------------------ Cornerstone currently has a deficit capital balance of $429,984, the majority of which is a result of previous years' management fees charged by EDJ to Cornerstone. Cornerstone relies on EDJ's ability to extend credit, and no circumstances currently exist which would adversely affect EDJ's ability to extend credit to Cornerstone. Management fees are no longer being charged by EDJ to Cornerstone. 4 5 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cash Flows ---------- Operating activities provided cash of $4,964 for the year ended December 31, 1997. Cornerstone's cash was derived primarily from net income of $8,110 and an increase in the payable to Edward D. Jones & Co., L.P., offset by an increase in receivables from the trustee. Cash increased $10,464 from December 31, 1995 to December 31, 1996. Cornerstone's cash was derived from net income of $9,894 in 1996 and an increase in the payable to Edward D. Jones & Co., L.P., offset by a decrease in accrued expenses. 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. 5 6 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Supplementary Financial Data
Page No. -------- Report of Independent Public Accountants 7 Balance Sheet as of December 31, 1997 and 1996 8 Statement of Operations for the Years Ended December 31, 1997, 1996 and 1995 9 Statement of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 10 Statement of Changes in Stockholder's Equity for the Years Ended December 31, 1997, 1996 and 1995 11 Notes to Financial Statements 12
All schedules are omitted because they are not required, inapplicable or the information is included in the financial statements or notes thereto. 6 7 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To Cornerstone Mortgage Investment Group, Inc.: We have audited the accompanying balance sheet of Cornerstone Mortgage Investment Group, Inc. (a Delaware corporation and wholly owned subsidiary of Edward D. Jones & Co., L.P.) as of December 31, 1997 and 1996, and the related statements of operations, cash flows and changes in stockholder's equity for each of the three years in the period ended December 31, 1997. 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 Cornerstone Mortgage Investment Group, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP St. Louis, Missouri, February 20, 1998 7 8 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) CORNERSTONE MORTGAGE INVESTMENT GROUP, INC. BALANCE SHEET ------------- AS OF DECEMBER 31, 1997 AND 1996 --------------------------------
1997 1996 --------- --------- ASSETS ------ CASH $ 48,726 $ 43,762 TRUSTEE RECEIVABLE 3,660 - --------- --------- TOTAL ASSETS $ 52,386 $ 43,762 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ LIABILITIES: PAYABLE TO EDWARD D. JONES & CO., L.P. $ 478,870 $ 478,356 ACCRUED EXPENSES 3,500 3,500 --------- --------- TOTAL LIABILITIES $ 482,370 $ 481,856 --------- --------- STOCKHOLDER'S EQUITY: COMMON STOCK - $.01 par value, 1,000 shares authorized, issued and outstanding 10 10 PAID-IN CAPITAL 300,490 300,490 RETAINED DEFICIT (730,484) (738,594) --------- --------- TOTAL STOCKHOLDER'S EQUITY (429,984) (438,094) --------- --------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 52,386 $ 43,762 ========= ========= The accompanying notes are an integral part of these financial statements.
8 9 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) CORNERSTONE MORTGAGE INVESTMENT GROUP, INC. STATEMENT OF OPERATIONS ----------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------------------------------------------------
1997 1996 1995 ------ ------- ------- REVENUES: Residual interest in certificates $11,738 $14,079 18,305 EXPENSES: Registration, filing and other fees 3,628 4,185 7,565 ------- ------- ------- INCOME BEFORE INCOME TAXES 8,110 9,894 10,740 PROVISION FOR INCOME TAXES - - - ------- ------- ------- NET INCOME $ 8,110 $ 9,894 $10,740 ======= ======= ======= The accompanying notes are an integral part of these financial statements.
9 10 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) CORNERSTONE MORTGAGE INVESTMENT GROUP, INC. STATEMENT OF CASH FLOWS ----------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------------------------------------------------
1997 1996 1995 ------- ------- ------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income $ 8,110 $ 9,894 $10,740 Adjustments to reconcile net income to net cash provided by operating activities - Increase in payable to Edward D. Jones & Co., L.P. 514 3,570 345 (Decrease) increase in accrued expenses - (3,000) 3,000 Increase in receivable from trustee (3,660) - - ------- ------- ------- Net cash provided by operating activities 4,964 10,464 14,085 CASH, beginning of year 43,762 33,298 19,213 ------- ------- ------- CASH, end of year $48,726 $43,762 $33,298 ======= ======= ======= The accompanying notes are an integral part of these financial statements.
10 11 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) CORNERSTONE MORTGAGE INVESTMENT GROUP,INC. STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY -------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------------------------------------------------
Common Paid-In Retained Stock Capital Deficit TOTAL ------ -------- --------- --------- BALANCE, DECEMBER 31, 1994 $10 $300,490 $(759,228) $(458,728) NET INCOME - - 10,740 10,740 --- -------- --------- --------- BALANCE, DECEMBER 31, 1995 $10 $300,490 $(748,488) $(447,988) NET INCOME - - 9,894 9,894 --- -------- --------- --------- BALANCE, DECEMBER 31, 1996 $10 $300,490 $(738,594) $(438,094) NET INCOME - - 8,110 8,110 --- -------- --------- --------- BALANCE, DECEMBER 31, 1997 $10 $300,490 $(730,484) $(429,984) === ======== ========= ========= The accompanying notes are an integral part of these financial statements.
11 12 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) CORNERSTONE MORTGAGE INVESTMENT GROUP, INC. NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1997, 1996 AND 1995 -------------------------------- 1. GENERAL ------- Cornerstone Mortgage Investment Group, Inc. ("Cornerstone") is a Delaware corporation and a wholly owned subsidiary of Edward D. Jones & Co., L.P. ("EDJ"), a Missouri limited partnership. Cornerstone was incorporated on January 9, 1986, for the limited purpose of issuing and selling secured mortgage bonds (the "Bonds"), which are collateralized by Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA) Certificates (collectively the "Certificates"). Due to revisions to the Internal Revenue Code, effective January 1, 1987, Cornerstone no longer issues Bonds. Cornerstone will continue operations until such time as the Bonds previously issued are retired or mature. 2. ISSUANCE OF BONDS ----------------- In 1986, Cornerstone issued an aggregate principal amount of $38,875,000 of Secured Mortgage Bonds in Series 1, Series 2 and Series 3 on a nonrecourse basis. No affiliate of Cornerstone is required to make future payments with respect to the Bonds. Therefore, these transactions have been accounted for as sales, and both the Bonds and Certificates have been eliminated from Cornerstone's balance sheet. 12 13 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) The outstanding principal balance and remaining collateral value relating to series issued by Cornerstone Mortgage Investment Group, Inc. are $5,182,000 and $5,198,698, respectively, as of December 31, 1997. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ The following is a discussion of the significant accounting policies of Cornerstone. Basis of Accounting - ------------------- Registration and offering costs are expensed as incurred. The financial statements have been prepared under the accrual basis of accounting which requires the use of certain estimates by management in determining the Partnership's assets, liabilities, revenues and expenses. Residual Interest - ----------------- Residual interest in the Certificates pledged as collateral for the Bonds is recorded as it accrues to the benefit of, and becomes available to, Cornerstone. 4. RELATED PARTIES --------------- The Certificates pledged to secure the Bonds were purchased by Cornerstone from EDJ in 1986. EDJ purchased such certificates on the open market and no profit was realized by EDJ on the sales to Cornerstone. In addition, EDJ was the sole underwriter for the Bonds. 13 14 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) 5. INCOME TAXES ------------ Cornerstone provides income taxes currently for all items included in the statement of operations. The differences in the recognition of revenues and expenses for tax and financial reporting purposes are due to the Bonds and Certificates not being eliminated from Cornerstone's financial statements for tax purposes. During 1997, 1996 and 1995, Cornerstone utilized $8,110, $9,894 and $3,652, respectively, of its net operating loss carryforward. As of December 31, 1997, the deferred tax asset of approximately $123,000 related to the remaining net operating loss carryforward was completely offset with a valuation allowance. The remaining net operating loss carryforwards expire through 2004 and 2005. 14 15 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. 15 16 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. 16 17 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: -------------------- Report of Independent Public Accountants Balance Sheet as of December 31, 1997 and 1996 Statement of Operations For the Years Ended December 31, 1997, 1996 and 1995 Statement of Cash Flows For the Years Ended December 31, 1997, 1996 and 1995 Statement of Changes in Stockholder's Equity For the Years Ended December 31, 1997, 1996 and 1995 Notes to Financial Statements 2. Financial Statement Schedules: ----------------------------- All schedules are omitted because they are not required, inapplicable, or the information is included in the financial statements 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-1, as amended, File No. 33-4001). Bylaws of the Company as amended (incorporated by reference to Exhibit 3(b) to Registration Statement on Form S-1, as amended, File No. 33-4001). Form of Management Contract between the Company and Edward D. Jones & Co. (incorporated by reference to Exhibit 10(a) to Registration Statement on Form S-1, as amended, File No. 33-4001). Indenture dated as of June 15, 1986 between the Company and The Bank of New York, as Successor Trustee, relating to Secured Mortgage Bonds (incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-1, as amended, File No. 33-4001). First Supplemental Indenture dated August 28, 1986 (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K, filed on September 19, 1986). 17 18 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Second Supplemental Indenture dated September 26, 1986 (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K, filed on October 6, 1986). Third Supplemental Indenture dated October 31, 1986 (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K, filed on November 12, 1986). b. No reports on Form 8-K were filed in the fourth quarter of 1997. c. Exhibits filed as part of this report are included in Item (14) (a)(3) above. d. Financial Statement Schedules required by Regulations S-X are included as described in Part II Item 8 above. 18 19 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 20th day of March 1998. CORNERSTONE MORTGAGE INVESTMENT GROUP, 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, - ---------------------- Chief Financial Officer, John C. Heisler Chief Accounting Officer and Director March 20, 1998 -------------- /s/ Philip R. Schwab President, Chief - ---------------------- Executive Officer Philip R. Schwab and Director March 20, 1998 -------------- /s/ John Beuerlein Secretary and Director March 20, 1998 - ---------------------- -------------- John Beuerlein
19 20 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-1, as amended, File No. 33-4001) 3.2 Bylaws of the Company as amended (incorporated by reference to Exhibit 3(b) to Registration Statement on Form S-1, as amended, File No. 33-4001) 4.1 Indenture dated as of June 15, 1986, between the Company and, as Successor Trustee, The Bank of New York, relating to Secured Mortgage Bonds (incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-1as amended, File No. 33-4001 4.2 First Supplemental Indenture dated August 28, 1986 (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K filed on September 19, 1986) 4.3 Second Supplemental Indenture dated September 26, 1986 (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K, filed on October 6, 1986) 4.4 Third Supplemental Indenture dated October 31, 1986 (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K filed on November 12, 1986) 10.1 Form of Management Contract between the Company and Edward D. Jones & Co. (incorporated by reference to Exhibit 10(a) to Registration Statement on Form S-1, as amended, File No. 33-4001) - ---------------------- Incorporated by reference
20 EX-27 2 FORM 10-K
5 This schedule contains summary financial information extracted from the financial statements of Cornerstone Mortgage Investment Group, Inc. for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. Year DEC-31-1997 JAN-01-1997 DEC-31-1997 48,726 0 3,660 0 0 52,386 0 0 52,386 482,370 0 0 0 10 (429,984) 52,386 11,738 11,738 0 0 3,628 0 0 8,110 0 8,110 0 0 0 8,110 0 0
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