Item 1. Business Mortgage Securities III Trusts A, B, C, D, E and F (the "Trusts") were established under the laws of Delaware by a trust agreement. Prior to December 27, 1987, the trust agreement was among Mortgage Securities III Corporation, Weyerhaeuser Real Estate Company and Wilmington Trust Company. On December 27, 1987, Weyerhaeuser Real Estate Company dividended its beneficial interests in Mortgage Securities III Trusts A, B, C, D, E and F to Weyerhaeuser Company. The Trusts were organized to, and are engaged to raise funds through the issuance and sale of Collateralized Mortgage Obligation bonds collateralized by Government National Mortgage Association (GNMA) and Federal National Mortgage Association (FNMA) certificates. The Trusts A, B, C, D, E and F were established on April 8, 1986 and commenced business on June 30, 1986, September 30, 1986, December 30, 1986, February 27, 1987, December 22, 1987 and March 30, 1988, respectively.
Item 2.
Item 2. Properties The Trusts A, B, C, D, E and F have no physical properties.
Item 3.
Item 3. Legal Proceedings The Trusts A, B, C, D, E and F are not a party to any material pending 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 Beneficial Interest and Related Security Holder Matters
As of March 15, 1996, the Trusts' beneficial interest is owned by Mortgage Securities III Corporation and is not traded on any stock exchange or on the over-the-counter market.
Item 6.
Item 6. Selected Financial Data
Omitted pursuant to General Instruction J(2)(a) of Form 10-K.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Business activity during 1995, 1994 and 1993 consisted of the collection of principal and interest by the trustee on the GNMA and FNMA certificates and the disbursement of the required payment of interest and principal to the bondholders.
In December 1986, the Financial Accounting Standards Board issued Statement No. 91, which established a new method of accounting for nonrefundable fees and costs associated with purchasing a group of loans and the method of recognizing interest income and expense. This statement is applicable to all transactions entered into for fiscal years beginning after December 15, 1987. Retroactive application with restatement of the financial statements for all years presented was optional. Upon evaluation of this accounting statement and the current method of accounting, the Company elected to adopt Statement No. 91 prospectively for Trusts E and F. Under the new standard all discounts and hedging costs will be recognized over the contractual life of the loan as a yield adjustment. The Company elected not to adopt Statement No. 91 retroactively for Trusts A, B, C and D. Since no transactions have been entered into after the effective date of this statement, the Company will continue to use its current method, which approximates the effective interest method, for Trusts A, B, C and D.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Trusts, together with the related Notes to Financial Statements and Report of Independent Public Accountants, for the three years ended December 31, 1995, are included herein.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosures
There was no change in accountants, nor any material disagreement with accountants on any matter of accounting principles, practices or financial statement disclosures, during the year ended December 31, 1995.
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.
Statements of Operations for the Three Years Ended December 31, 1995 Trust A.
Statements of Operations for the Three Years Ended December 31, 1995 Trust B.
Statements of Operations for the Three Years Ended December 31, 1995 Trust C.
Statements of Operations for the Three Years Ended December 31, 1995 Trust D.
Statements of Operations for the Three Years Ended December 31, 1995 Trust E.
Statements of Operations for the Three Years Ended December 31, 1995 Trust F.
Balance Sheets as of December 31, 1995 and December 25, 1994 Trust A. Balance Sheets as of December 31, 1995 and December 25, 1994 Trust B. Balance Sheets as of December 31, 1995 and December 25, 1994 Trust C. Balance Sheets as of December 31, 1995 and December 25, 1994 Trust D. Balance Sheets as of December 31, 1995 and December 25, 1994 Trust E. Balance Sheets as of December 31, 1995 and December 25, 1994 Trust F.
Statements of Changes in Owner's Beneficial Interest for the Three Years Ended December 31, 1995 Trust A.
Statements of Changes in Owner's Beneficial Interest for the Three Years Ended December 31, 1995 Trust B.
Statements of Changes in Owner's Beneficial Interest for the Three Years Ended December 31, 1995 Trust C.
Statements of Changes in Owner's Beneficial Interest for the Three Years Ended December 31, 1995 Trust D.
Statements of Changes in Owner's Beneficial Interest for the Three Years Ended December 31, 1995 Trust E.
Statements of Changes in Owner's Beneficial Interest for the Three Years Ended December 31, 1995 Trust F.
Statements of Cash Flows for the Three Years Ended December 31, 1995 Trust A.
Statements of Cash Flows for the Three Years Ended December 31, 1995 Trust B.
Statements of Cash Flows for the Three Years Ended December 31, 1995 Trust C.
Statements of Cash Flows for the Three Years Ended December 31, 1995 Trust D.
Statements of Cash Flows for the Three Years Ended December 31, 1995 Trust E.
Statements of Cash Flows for the Three Years Ended December 31, 1995 Trust F.
Notes to Financial Statements for the Three Years Ended December 31, 1995
(2) Financial Statement Schedules:
Schedule IV-Indebtedness to Related Parties - Not Current Trust E
Schedule IV-Indebtedness to Related Parties - Not Current Trust F
Schedule XIII - Other Security Investments Trust A Schedule XIII - Other Security Investments Trust B Schedule XIII - Other Security Investments Trust C Schedule XIII - Other Security Investments Trust D Schedule XIII - Other Security Investments Trust E Schedule XIII - Other Security Investments Trust F
(3) Exhibits:
Certificate of Incorporation of Mortgage Securities III Corporation (incorporated by reference to 3(a) to Registration Statement on Form S-11 dated December 18, 1985).
Bylaws of Mortgage Securities III Corporation (incorporated by reference to Exhibit 3(b) to Registration Statement on Form S-11 dated December 18, 1985).
Form of Indenture dated June 1, 1986 between the Trust and Texas Commerce Bank National Association, as Trustee, relating to GNMA and FNMA Collateralized Mortgage Obligations (incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-11 dated December 18, 1985).
Form of Supplemental Indenture dated as of June 1, 1986 (incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-11 dated July 11, 1986).
(b) Exhibits are included in Item (a)(3) above.
(c) Financial Statement Schedules required by Regulation S-X are included in Item (a)(2) above.
SIGNATURE
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 19th day of January 1996.
MORTGAGE SECURITIES III TRUSTS A, B, C, D, E AND F Trusts acting through Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee
By:/s/ John M. Beeson, Jr.
Name: John M. Beeson, Jr.
Title: Vice President
Report of Independent Public Accountants
To the Beneficial Owner of Mortgage Securities III Trusts A, B, C, D, E and F
We have audited the accompanying balance sheets of Mortgage Securities III Trusts A, B, C, D, E and F (trusts established under the laws of the State of Delaware) as of December 31, 1995 and December 25, 1994, and the related statements of operations, changes in owner's beneficial interest, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedules referred to below are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedules 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 Mortgage Securities III Trusts A, B, C, D, E and F, as of December 31, 1995 and December 25, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP
Los Angeles, California January 19, 1996
Mortgage Securities III Trusts A, B, C, D, E and F Notes to Financial Statements For the Three Years Ended December 31, 1995
(Dollar amounts in thousands)
Note 1. Description of business: Mortgage Securities III Trusts A, B, C, D, E and F (the "Trusts") were established under the laws of Delaware by a trust agreement. Prior to December 27, 1987, the trust agreement was among Mortgage Securities III Corporation, Weyerhaeuser Real Estate Company and Wilmington Trust Company. On December 27, 1987, Weyerhaeuser Real Estate Company dividended its beneficial interests in Mortgage Securities III Trusts A, B, C, D, E and F to Weyerhaeuser Company which in turn contributed its beneficial interests in the Trusts to Weyerhaeuser Financial Services, Inc., a wholly-owned subsidiary of Weyerhaeuser Company. The Trusts were organized to, and are engaged to raise funds through the issuance and sale of Collateralized Mortgage Obligation bonds collateralized by Government National Mortgage Association (GNMA) and Federal National Mortgage Association (FNMA) certificates. The Trusts A, B, C, D, E and F were established on April 8, 1986 and commenced business on June 30, 1986, September 30, 1986, December 30, 1986, February 27, 1987, December 22, 1987 and March 30, 1988, respectively.
Activity during 1995, 1994 and 1993, consisted of the collection of principal and interest on the GNMA and FNMA certificates and disbursement of the required payment of principal and interest to the bondholders. Note 2. Accounting policies: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Trust A, B, C and D's GNMA and FNMA certificates are carried at par value adjusted for any unamortized premiums or discounts. These premiums and discounts are amortized using a method approximating the effective interest method over the estimated life of the underlying mortgage loans. The Bonds are carried at par value less unamortized discounts. These discounts are amortized using a method approx- imately the effective interest method over the estimated life of the Bonds. Due to prepayments on the underlying mortgage loans, revisions are made each quarter to the remaining period to maturity of the certificates and the Bonds. The amortization described above reflects these revisions.
Trust E's GNMA certificates and Trust F's GNMA and FNMA certificates are carried at par value less unamortized discounts. These discounts are amortized using an interest method which computes a constant effective yield and includes estimates of future prepayments on the certificates in the calculation of the constant effective yield. Hedging costs related to holding GNMA and FNMA certificates have been deferred and are also being amortized using the interest method and includes estimates of future prepayments on the certificates in the calculation of the constant effective yield. The Bonds are carried at par value less unamortized
discounts. These discounts are amortized using the interest method and include estimates of future prepayments on the Bonds in the calculation of the constant effective yield. Semi-annually differences between anticipated future prepayments and actual prepayments are calculated. The effective yield is then recalculated to reflect actual prepayments to date and anticipated future prepayments. The unamortized discounts and accumulated hedging amortization are adjusted (with a corresponding charge or credit to interest income/expense) to reflect the amount that would have existed had the new effective yield been applied since the purchase of certificates and/or issuance of Bonds.
In December 1986, the Financial Accounting Standards Board issued Statement No. 91, which established a new method of accounting for nonrefundable fees and costs associated with purchasing a group of loans and the method of recognizing interest income and expense. This statement must be applied prospectively to all transactions entered into for fiscal years beginning after December 15, 1987. Retroactive application with restatement of the financial statements for all years presented was optional. Upon evaluation of this accounting statement and the current method of accounting, the Company elected to adopt Statement No. 91 prospectively for Trusts E and F. Under the new standard, all discounts and hedging costs are recognized over the contractual life of the loan as a yield adjustment. The Company elected not to adopt Statement No. 91 retroactively for Trusts A, B, C and D. Since no transactions have been entered into after the effective date of this statement, the Company will continue to use its current method, which approximates the effective interest method, for Trusts A, B, C and D.
Cash and equivalents include cash held in the collection accounts and invested in short term investments with original maturities of less than three months.
Note 3. Collateralized Mortgage Obligation Bonds:
The stated maturity is the date such class will be fully paid, assuming that scheduled interest and principal payments (with no prepayments) on the certificates are timely received.
All collections on the certificates pledged as security for the Bonds will be remitted directly to a collection account (the "Collection Account") established with the Trustee and together with the reinvestment earnings thereon, will be available for application to the payment of principal and interest on the bonds on the following payment date.
Each Trust's Bonds are subject to a special redemption, in whole or in part, if , as a result of substantial payments of principal on the underlying mortgage loans and/or low reinvestment yields, the Trusts determine that the amount of cash anticipated to be on deposit in the Collection Accounts on the next payment date might be insufficient to make required payments on the Bonds. Any such redemption would not exceed the principal amount of Bonds that would otherwise be required to be paid on the next payment date. As a result, a special redemption of Bonds will not result in a payment to bondholders more than two months earlier than the payment date on which such payment would otherwise have been received. The Bonds are not otherwise subject to call at the option of the Trusts except that the Class 1, Class 2 and Class 3 Bonds may, in the case of each such class, be redeemed in whole, but not in part, at the Trusts' option on any payment date if the aggregate outstanding principal amount of the Bonds of the class to be redeemed is less than 10 percent of its aggregate initial principal amount.
Trust A, B, C, E and F's Class 4 Bonds may be redeemed in whole, but not in part, at the Trusts' option on any payment date on or after July 1, 2001, October 1, 2001, January 1, 2002, January 1, 2003 and April 1, 2003, respectively, if only the Class 4 Bonds are then outstanding (or on any earlier payment date if only the Class 4 Bonds are then outstanding and the current principal amount of Trust A, B, C, E and F's Class 4 Bonds are less than $10,560, $6,100, $10,500, $13,160 and $12,925, respectively).
Trust D's Class 1 and Class 2 Bonds may be redeemed in whole, but not in part, at the Trust's option on any payment date on or after March 1, 1997 and the Class 3 Bonds may be redeemed in whole, but not in part, at the Trust's option on any payment date on or after March 1, 2002.
Any such redemptions at the option of the Trusts shall be at a price equal to 100 percent of the unpaid principal amount of such Bonds plus such accrued interest.
Note 4. Assets pledged:
Note 5. Related parties: Trusts A, B, C and D purchased from an affiliate, Weyerhaeuser Mortgage Company, GNMA and FNMA certificates which were used to collateralize the Bonds. The purchases were at par value, plus Trust A and D's purchase premiums and less Trust B and C's purchase discounts. The purchases were financed with market-rate short-term debt from this affiliate until proceeds from the bond issuance were obtained.
Trust E purchased from an affiliate, Weyerhaeuser Mortgage Company, GNMA certificates which were used to collateralize the Bonds. Trust F purchased from an affiliate, Weyerhaeuser Mortgage Company, GNMA and FNMA certificates which were used to collateralize the Bonds. The purchases were at par value, less the purchase discounts. The purchases were financed with the proeeds received from the bond issuances and notes due to Weyerhaeuser Mortgage Company. The notes bear interest at Bank of America's prime rate and interest shall be compounded annually. The principal balances and all accrued interest shall be due on each note on January 1, 2018 ("Maturity"). The principal and accrued interest on the notes will be paid by the Trusts with the proceeds of a capital contribution from Weyerhaeuser Financial Services, Inc., to the extent that residual payments from the GNMA and FNMA certificates are insufficient to retire the debt and related interest.
The receivable from beneficial owner, Mortgage Securities III Corporation, represents cash received from GNMA and FNMA certificates in excess of bond principal and interest payments required on Class 1 bonds which has been advanced to the beneficial owner. This amount is non- interest bearing and has no fixed repayment terms.
Certain ongoing administrative and accounting functions are provided by the beneficial owner at no cost to each Trust.
Note 6. Results of operations:
All results of operations will be transferred to the beneficial owner of the Trusts. Mortgage Securities III Corporation will be responsible for all tax liabilities incurred relating to the Trusts' operations.
Note 7. Investment securities:
INDEX TO EXHIBITS
Exhibit Number Description of Exhibits Page
3(a) Certificate of Incorporation of the Mortgage Securities III Corporation (incorporated by reference to Exhibit 3(a) to Registration Statement on Form S-11 dated December 18, 1985). *
3(b) Bylaws of Mortgage Securities III Corporation (incorporated by reference to Exhibit 3(b) to Registration Statement on Form S-11 dated December 18, 1985). *
4(a) Form of Indenture dated June 1, 1986 between the Trust and Texas Commerce Bank National Association, as trustee, relating to GNMA and FNMA Collateralized Mortgage Obligations (incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-11 dated December 18, 1985). *
4(a) Form of Supplemental Indenture dated as of June 1, 1986 (incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-11 dated July 11, 1986). *
*Incorporated by reference.