10-K 1 corner2k.txt 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 year ended December 31, 2003 Commission file number 33-11459 ----------------- -------- CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC. --------------------------------------------------------------------------- (Exact name of registrant as specified in its Articles of Incorporation) DELAWARE 43-1432378 --------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 201 Progress Parkway Maryland Heights, Missouri 63043 --------------------------------------------------------------------------- (Address of 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, $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 ---- 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 Item 9a. Controls and Procedures........................................................10 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.................................11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................................................11 SIGNATURES.......................................................................................13 INDEX TO EXHIBITS................................................................................14
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 structuring and selling Mortage-Backed Securities collateralized by Federal agency mortgage-backed securities. EDJ organized the Company and currently owns all of 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 the 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 The Company has not issued Mortgage-Backed Securities since 1991. The Company's operations are directed toward maintenance of the remaining Cornerstone Mortgage-Backed securities. EDJ and the Company exercised the option to repurchase collateral for Series 5 during the twelve months ended December 31, 2003. Since the Company has surrendered control of the future economic benefit in the collateral, the underlying certificates and the associated collateral are not recorded on the Company's balance sheet. In addition, any transactions relating to selling of certificates do not impact the Company's income statement. There is no outstanding principal balance or remaining collateral value as of December 31, 2003. EDJ plans to liquidate the Company during 2004. 4 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Supplementary Financial Data Page ---- Report of Independent Auditors............................. 6 Balance Sheets as of December 31, 2003 and 2002............ 7 Notes to Balance Sheets.................................... 8 All schedules are omitted because they are either not required, or inapplicable, or the information is included in the balance sheets or notes thereto. 5 REPORT OF INDEPENDENT AUDITORS ------------------------------ To Cornerstone Mortgage Investment Group II, Inc.: In our opinion, the accompanying balance sheets present fairly, in all material respects, the financial position of Cornerstone Mortgage Investment Group II, Inc. (the "Company") at December 31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP St. Louis, Missouri March 19, 2004 6 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) CORNERSTONE MORTGAGE INVESTMENT GROUP II, INC. BALANCE SHEETS -------------- AS OF DECEMBER 31, 2003 AND 2002 --------------------------------
2003 2002 ---------- ---------- ASSETS ------ CASH $ 500 $ 500 ========== ========== STOCKHOLDER'S EQUITY -------------------- 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 ----------------------- DECEMBER 31, 2003 AND 2002 -------------------------- 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. SECURITIES TRANSACTIONS ----------------------- Cornerstone II last offered mortgage-backed securities in 1991. Series 5, the last oustanding series, was repurchased during 2003. The Company's common stock will be redeemed by EDJ during 2004. 8 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED) Since Cornerstone II has surrendered control of the future economic benefit in the collateral, the underlying certificates and the associated collateral are not recorded on Cornerstone II's balance sheets. In addition any transactions relating to selling of the Certificates do not impact Cornerstone II's income statements. Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On July 11, 2002, the Company dismissed Arthur Andersen LLP ("Arthur Andersen") as its independent accountants. The reports of Arthur Andersen on the financial statements for the two years ended December 31, 2001 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for the two years prior to and through July 11, 2002 there were no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Arthur Andersen would have caused them to make reference thereto in their report on the financial statements for such years. Prior to and through July 11, 2002, there were no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)). The Company has provided Arthur Andersen a copy of the foregoing disclosure. The Company requested that Arthur Andersen furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the foregoing statements as reported in the Company's July 11, 2002 Form 8-K. The Company was notified by Arthur Andersen that they are no longer issuing such acknowledgements. 9 The Company engaged PricewaterhouseCoopers LLP ("PwC") as its new independent accountants as of July 11, 2002. Prior to and through July 11, 2002, the Company had not consulted with PwC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Registrant's financial statements, and either a written report was provided to the Company or oral advice was provided that PwC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K. Item 9a. CONTROLS AND PROCEDURES Based upon an evaluation performed as of the end of the period covered by this report, the registrant's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective. There have been no signifciant changes in internal controls or other factors that significantly affect these controls subsequent to the date of the evaluation. 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. 10 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted pursuant to General Instruction J(2)(c) of Form 10-K. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES There were no fees paid to PricewaterhouseCoopers LLP in 2003 or 2002. PART IV Item 15. 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 Auditors Balance Sheets as of December 31, 2003 and 2002 Notes to Balance Sheets 2. Financial Statement Schedules: ----------------------------- All schedules are omitted because they are either not required, or inapplicable, or the information is included in the balance sheets 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). 11 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). Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (incorporated by reference to Exhibit 99). Reports on Form 8-K Change in certifying accountants, incorporated herein by reference to the 8-K filed July 16, 2002. 12 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 29th day of March, 2004. 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, ------------------------------------- Chief Financial Officer, John C. Heisler Chief Accounting Officer and Director March 29, 2004 -------------- /s/ Philip R. Schwab President, Chief ----------------------------------- Executive Officer Philip R. Schwab and Director March 29, 2004 -------------- /s/ John Beuerlein Secretary and Director March 29, 2004 -------------------------------------- -------------- John Beuerlein
13 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.........................................................* ---------------------- *Incorporated by reference
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