(ZMSI-II LOGO)
ZIEGLER MORTGAGE SECURITIES, INC. II
PROSPECTUS SUPPLEMENT DATED APRIL 8, 1997
(TO PROSPECTUS DATED MAY 17, 1995)
ZIEGLER MORTGAGE SECURITIES, INC. II
$3,152,000 7.00% MORTGAGE CERTIFICATE-BACKED BONDS
SERIES 83, DUE FEBRUARY 15, 2027
Interest on the Series 83 Bonds is payable semiannually on the 1st day of
each May and November, commencing November 1, 1997, with respect to interest
accrued through the last day of the second preceding calendar month. The Series
83 Bonds mature on February 15, 2027, subject to earlier redemption by Ziegler
Mortgage Securities, Inc. II (the "Issuer") under certain circumstances. (See
"Description of the Bonds - Mandatory Redemption of Bonds" and "Description of
the Bonds - Redemption at Option of Issuer" at page 11 of the Prospectus.) The
Series 83 Bonds may be redeemed at the option of the holder prior to maturity
under certain circumstances to the extent funds are available in the Redemption
Fund, subject to certain priorities and limitations. (See "Description of the
Bonds - Redemption at Option of Bondholders" at page 11 of the Prospectus.)
The Series 83 Bonds will be secured by certificates pledged with the Trustee
under the Indenture ("Mortgage Certificates") which are intended to provide
funds sufficient to service the required payments of principal and interest on
the Series 83 Bonds.
The Series 83 Bonds have been assigned a preliminary rating of "AAA" by
Standard & Poor's Corporation. The rating of "AAA" is the highest rating that
Standard & Poor's Corporation assigns to debt obligations and is assigned by
that rating organization to bonds for which "the capacity to pay interest and
repay principal is extremely strong." A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating organization.
There is no public market for the Series 83 Bonds, and there can be no
assurance that a secondary market for the Series 83 Bonds will develop or, if it
does develop, that it will provide Bondholders with liquidity of investment or
that it will continue for the life of the Series 83 Bonds. The underwriter, B.C.
Ziegler and Company, has made no determination as to whether, and there is no
assurance that, it will participate in or develop a secondary market for the
Series 83 Bonds.
See "Special Considerations" at page 7 of the Prospectus for certain factors
to be considered by purchasers of the Series 83 Bonds.
THE SERIES 83 BONDS REPRESENT OBLIGATIONS SOLELY OF THE ISSUER AND ARE NOT
INSURED OR GUARANTEED BY THE UNITED STATES GOVERNMENT OR ANY GOVERNMENTAL
AGENCY, BY THE ZIEGLER COMPANIES, INC., THE SHAREHOLDERS OF THE ISSUER, B.C.
ZIEGLER AND COMPANY OR BY ANY AFFILIATES THEREOF. THE ISSUER HAS NO SIGNIFICANT
ASSETS OTHER THAN THOSE PLEDGED AS SECURITY, RESPECTIVELY, FOR VARIOUS SERIES OF
ITS BONDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1)<F1> COMMISSION(2)<F2> ISSUER
---------- ------------ -----------
Per Bond ................. 100% 3% 97%
Total ................... $3,152,000 $94,560 $3,057,440
(1)<F1>Plus accrued interest from April 1, 1997 and a handling charge of $5.00
per transaction.
(2)<F2>Pursuant to the Underwriting Agreement between the Issuer and the
Underwriter with respect to the Series 83 Bonds, and subject to the terms and
conditions contained therein, B.C. Ziegler and Company has agreed to purchase
the Series 83 Bonds from the Issuer at a purchase price equal to 97% of the
principal amount thereof. The Issuer has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting" in this Prospectus Supplement.
The Series 83 Bonds are offered by the Underwriter as stated herein, subject
to receipt and acceptance by the Underwriter and subject to the right to reject
any order in whole or in part. It is expected that delivery of the Series 83
Bonds will be made on or about April 24, 1997.
(B.C. ZIEGLER AND COMPANY LOGO)
This Prospectus Supplement does not contain complete information regarding
the offering of the Series 83 Bonds and should be used only in conjunction with
the annexed Prospectus.
No person has been authorized to give any information or to make any
representations concerning this offering not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the Series 83 Bonds offered hereby, nor an offer
of the Series 83 Bonds in any state or jurisdiction in which, or to any person
to whom, such offer would be unlawful. The delivery of this Prospectus
Supplement or the Prospectus at any time does not imply that information herein
or therein is correct as of any time subsequent to its date; however, if any
material change occurs while this Prospectus Supplement or the Prospectus is
required by law to be delivered, this Prospectus Supplement or the Prospectus
will be amended or supplemented accordingly.
TABLE OF CONTENTS
Page
----
Summary of Certain Terms of the Series 83 Bonds .......... 3
Description of Security Package .......................... 4
Payment and Redemption of the Series 83 Bonds ............ 4
Use of Proceeds .......................................... 4
Pro Forma Financial Information .......................... 5
Reinvestment of Interest and Principal Payments ......... 5
Recent Developments ...................................... 5
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES OF BONDS
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SUMMARY OF CERTAIN TERMS OF THE SERIES 83 BONDS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus attached hereto, to the Indenture dated as of January 1, 1986, as
supplemented by the Series 83 Supplemental Indenture dated as of April 1, 1997,
between the Issuer and the Trustee, copies of which have been, or will be, filed
with the Securities and Exchange Commission.
Securities Offered $3,152,000 aggregate principal amount of 7.00% Mortgage
Certificate-Backed Bonds, Series 83, Due February 15, 2027 (the
"Series 83 Bonds"). The Series 83 Bonds will be fully
registered and will be issued in denominations of $1,000 or
multiples thereof.
Interest Payments.. 7.00% per annum, payable semiannually on the 1st day of each
May and November, commencing November 1, 1997, with respect to
interest accrued through the last day of the second preceding
calendar month, to holders of record on the last day of the
second preceding month.
Redemption Dates At option of Series 83 Bondholders to the extent funds are
available in the Redemption Fund - Monthly commencing June 1,
1997.
At option of Issuer:
In whole: On or after May 1, 2000, or at any time that the
aggregate principal amount of the Series 83 Bonds is less than
10% of the aggregate principal amount of the Series 83 Bonds
originally issued.
Mandatory By Issuer - Monthly commencing May 1, 1998 or such
time as the aggregate amount on deposit in the Redemption Fund
for the Series 83 Bonds is $100,000 or more.
Collateral A. GNMA and/or FNMA Certificates (the "Mortgage
Certificates"). Mortgage Certificates will be pledged to the
Trustee in an aggregate principal amount such that together
with the aggregate amount of interest payable with respect
thereto, the reinvestment income on amounts deposited in the
Principal and Interest Account (described in Subparagraph B),
at an annual rate of 2.5%, and the Interest Reserve Fund,
will be sufficient to yield at least the aggregate interest
on the Series 83 Bonds from time to time outstanding and to
pay at least the aggregate principal amount of the Series 83
Bonds by maturity. The GNMA Certificates are guaranteed as to
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. The
FNMA Certificates are guaranteed as to full and timely
payment of principal and interest by the Federal National
Mortgage Association. However, such guaranty is not backed by
the full faith and credit of the United States. The Mortgage
Certificates will be registered in the name of the Trustee as
collateral only for the Series 83 Bonds. No Interim Mortgage
Certificates will be pledged to the Trustee.
B. Principal and Interest Account. All distributions on
the Mortgage Certificates will be remitted directly to an
account (the "Principal and Interest Account") to be
established with the Trustee and, together with reinvestment
earnings thereon, will be available for application to the
payment of the principal of, and interest on, the Bonds on
the next succeeding Semiannual Payment Date or Redemption
Date. Any Funds remaining in the Principal and Interest
Account on the Semiannual Payment Date, and not required for
redemption of Bonds or the payment of interest, will be
subject to withdrawal by the Issuer, provided that with
respect to a Semiannual Payment Date next following March 15,
in each year, the Issuer satisfies the Trustee that no income
taxes are then due and owing by the Issuer.
C. Interest reserve fund. An amount of cash and/or letters
of credit equal to (i) the interest accruable on the series
83 bonds for a thirty day period to be paid with respect to
redemptions and (ii) the interest accruable on $100,000 of
principal amount of the series 83 bonds for a twelve month
period less $2,500.
DESCRIPTION OF SECURITY PACKAGE
The Security Package securing Series 83 Bonds consists of Mortgage
Certificates pledged to the Trustee pursuant to one or more assignments. Such
Mortgage Certificates will consist of GNMA Certificates, all of which will be
issued by qualified GNMA issuers, unaffiliated with the Issuer, and/or FNMA
Certificates, all of which will be backed by pools of mortgage loans sold and
serviced by qualified FNMA seller-servicers unaffiliated with the Issuer. The
aggregate principal amount of such Mortgage Certificates will be equal to or
greater than the aggregate principal amount of the Series 83 Bonds less $100,000
and the weighted average annual interest on such Mortgage Certificates will be
at least equal to 7.00%. Cash will be deposited to secure the Interest Reserve
Fund for the Series 83 Bonds, in the aggregate amount of $22,890.
PAYMENT AND REDEMPTION OF THE SERIES 83 BONDS
The Series 83 Bonds will bear annual interest at 7.00% per annum from April
1, 1997. Interest will be payable semiannually on the 1st day of each May and
November, commencing November 1, 1997, with respect to interest accrued through
the six-month period ending on the last day of the second preceding month. (See
"Description of the Bonds - Payments of Interest" in the Prospectus at page 10.)
Holders of Series 83 Bonds have the right to request the redemption of their
Bonds prior to maturity. (See "Description of the Bonds - Redemption at Option
of Bondholders" in the Prospectus at page 11.) The Issuer will redeem Series 83
Bonds with respect to which holders have requested redemption on each Redemption
Date commencing June 1, 1997, to the extent funds are available therefor in the
Series 83 Bond Redemption Fund. (See "Description of the Bonds - Redemption at
Option of Bondholders" in the Prospectus at page 11.)
Commencing May 1, 1998, or commencing at such time as the amount on deposit
in the Redemption Fund for the Series 83 Bonds reaches $100,000, whichever first
occurs, Series 83 Bonds will be redeemed by the Issuer on each Redemption Date
to the extent of funds available in the Series 83 Bond Redemption Fund, after
giving effect to redemptions at the option of Series 83 Bondholders to be made
on such Redemption Dates. (See "Description of the Bonds - Mandatory Redemption
of Bonds" in the Prospectus at page 11.) The Redemption Fund shall, as of the
date of issuance, consist of the amount by which the aggregate principal amount
of the Series 83 Bonds exceeds the aggregate principal amount of the Mortgage
Certificates securing the Series 83 Bonds.
The Issuer may redeem all, but not less than all, of the Series 83 Bonds on
or after May 1, 2000 or at any time that the aggregate principal amount of the
Series 83 Bonds outstanding is less than $315,200. (See "Description of the
Bonds - Redemption at the Option of Issuer" in the Prospectus at page 12.)
USE OF PROCEEDS
The net proceeds from the sale of the Series 83 Bonds will be used by the
Issuer to purchase the Mortgage Certificates comprising the Security Package for
the Series 83 Bonds. Mortgage Certificates will be pledged and delivered to the
Trustee, as security for the Series 83 Bonds, simultaneously with the delivery
of the Series 83 Bonds. Net proceeds is determined by subtracting the Issuer's
expenses of issuance from the gross proceeds from the sale of the Series 83
Bonds, calculated as follows:
Gross Proceeds from the Sale of Series 83 Bonds ....$3,152,000
----------
Less Estimated Expenses of Issuance ...................$94,560
----------
Estimated Net Proceeds ..............................$3,057,440
==========
PRO FORMA FINANCIAL INFORMATION
The following is certain unaudited condensed financial information of the
Issuer as of February 28, 1997 and as adjusted to give effect to the issuance of
the Series 83 Bonds, and the related acquisition of collateral, on a pro forma
basis.
ACTUAL PRO FORMA
------------ -----------
ASSETS
Assets held by Trustee $3,371,466 $3,394,356
Mortgage Certificates pledged as collateral
for prior series of bonds
(net of discount) 97,819,342 97,819,342
Mortgage Certificates pledged as
collateral for Series 83 Bonds
(net of discount) -- 3,057,440
Bond issue costs 2,732,493 2,827,053
LIABILITIES
Bonds payable (prior series) 100,708,000 100,708,000
Bonds payable (Series 83) -- 3,152,000
Due affiliates 68,409 68,409
SHAREHOLDER'S EQUITY
Common stock, $1 par value; 57,000
shares authorized; 20,000 shares
issued and outstanding $20,000 $20,000
Preferred stock, $.10 par value; 200,000 shares
authorized; 15,000 shares issued and outstanding 1,500 1,500
Additional paid-in capital 1,498,500 1,498,500
Retained earnings -- --
------------ -----------
Total shareholder's equity $1,520,000 $1,520,000
============ ===========
REINVESTMENT OF INTEREST AND PRINCIPAL PAYMENTS
Bondholders meeting certain requirements may elect to have interest and/or
principal payments from the Issuer automatically invested in shares of any of
the portfolios of Principal Preservation Portfolios, Inc. (the "Fund"), a mutual
fund sponsored by the Underwriter. For Bondholders electing this option, the
Trustee will transfer payments from the Issuer on the payment date to the Fund
for the purchase of shares in the Fund at the then current net asset value,
without sales charge. For further information concerning this option, and a Fund
Prospectus, which should be read carefully prior to making any decision whether
to elect this option, contact your Ziegler sales representative or the
Underwriter at 215 North Main Street, West Bend, WI 53095; telephone 414/334-
5521.
RECENT DEVELOPMENTS
Effective March 31, 1997, Eugene H. Rudnicki retired as President of the
Issuer and Senior Vice President of the Underwriter.
It is anticipated that David A. Schlosser will replace Mr. Rudnicki as
President and as a Director of the Issuer on April 21, 1997. Mr. Schlosser, age
41, recently succeeded Mr. Rudnicki as Senior Vice President of the Underwriter.
From May 1986 until April 1, 1997, Mr. Schlosser served as Vice President of the
Underwriter.
PROSPECTUS
(ZMSI-II LOGO)
ZIEGLER MORTGAGE SECURITIES, INC. II
MORTGAGE CERTIFICATE-BACKED BONDS
(ISSUABLE IN SERIES)
ZIEGLER MORTGAGE SECURITIES, INC. II
The Bonds in an aggregate principal amount up to $400,000,000 have been or
will be issued from time to time in series by Ziegler Mortgage Securities, Inc.
II, a Wisconsin corporation (the "Issuer"), of which Bonds in the aggregate
principal amount of $341,005,000 have been offered or issued prior to the date
hereof. The Issuer intends to offer an additional $58,995,000 in aggregate
principal amount of Bonds, in one or more series, pursuant to this Prospectus.
Each series of Bonds will be at all times secured by an assignment by the Issuer
of its interests in one or more separate security packages consisting of GNMA
Certificates (the "GNMA Certificates") guaranteed by the Government National
Mortgage Association ("GNMA") and/or Guaranteed Mortgage Pass-Through
Certificates (the "FNMA Certificates") issued by the Federal National Mortgage
Association ("FNMA") (collectively the "Mortgage Certificates''). The full and
timely payment of the principal of and interest on the GNMA Certificates is
guaranteed by GNMA, which guaranty is backed by the full faith and credit of the
United States. FNMA guarantees the payment of principal and interest on the FNMA
Certificates issued by it as set forth herein. (See "The Security Package.")
Various series may bear interest at different rates and have different payment
dates.
Certain of the Bonds will be redeemed prior to maturity and the Issuer may
redeem all of the Bonds of any series on or after the third anniversary of the
original issuance thereof or on or after any time that the outstanding principal
amount of Bonds of such series is less than 10% of the principal amount of Bonds
of such series originally issued. (See "Description of the Bonds - Redemption at
Option of Bondholders," "Description of the Bonds - Mandatory Redemption of
Bonds" and "Description of the Bonds - Redemption at Option of Issuer.")
No sales of Bonds may be consummated without delivery of a Prospectus
Supplement describing the specific terms of such Bonds and the method of
offering thereof. Offers and sales of the Bonds of each series will be made as
described in the Prospectus Supplement for such series.
Standard & Poor's Corporation has assigned a preliminary rating of "AAA" to
the Bonds. The rating of "AAA" is the highest rating that Standard & Poor's
Corporation assigns to debt obligations, and is assigned by that rating
organization to bonds for which the "capacity to pay interest and repay
principal is extremely strong." A security rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at any
time by the assigning rating organization.
ALTHOUGH THE PAYMENT OF THE PRINCIPAL OF, AND INTEREST ON, THE MORTGAGE
CERTIFICATES SECURING EACH SERIES OF BONDS IS GUARANTEED BY GNMA OR FNMA, AS THE
CASE MAY BE, THE BONDS THEMSELVES REPRESENT AN OBLIGATION SOLELY OF THE ISSUER,
AND ARE NOT INSURED OR GUARANTEED BY GNMA OR FNMA OR ANY OTHER GOVERNMENTAL
AGENCY, B.C. ZIEGLER AND COMPANY, THE ZIEGLER COMPANIES, INC., OR THE
SHAREHOLDERS OF THE ISSUER. THE ISSUER HAS NO SIGNIFICANT ASSETS OTHER THAN
THOSE PLEDGED AS SECURITY FOR THE BONDS. (SEE "SPECIAL CONSIDERATIONS.")
THERE IS CURRENTLY NO MARKET FOR THE BONDS AND THERE CAN BE NO ASSURANCE THAT
A MARKET WILL DEVELOP. THE UNDERWRITER, B.C. ZIEGLER AND COMPANY HAS MADE NO
DETERMINATION WHETHER, AND THERE IS NO ASSURANCE THAT, IT WILL PARTICIPATE IN OR
DEVELOP A SECONDARY MARKET FOR THE BONDS.
SEE "SPECIAL CONSIDERATIONS" HEREIN FOR INFORMATION AS TO FACTORS OF
IMPORTANCE TO INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Bonds unless accompanied by a Prospectus Supplement.
(B.C. Ziegler Logo)
The date of this Prospectus is May 17, 1995.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus or any Prospectus
Supplement and, if given or made, such information or representations must not
be relied upon. This Prospectus does not constitute an offer to sell or
solicitation of an offer to buy any securities other than the Bonds offered
hereby nor an offer of the Bonds to any person in any state or jurisdiction in
which, or to any person to whom, such offer would be unlawful. The delivery of
this Prospectus or any Prospectus Supplement at any time does not imply that
information herein or therein is correct as of any time subsequent to its date;
however, if any material change occurs while this Prospectus or any Prospectus
Supplement is required by law to be delivered, this Prospectus or the Prospectus
Supplement will be amended or supplemented accordingly.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE 3
PROSPECTUS SUMMARY 4
SPECIAL CONSIDERATIONS 7
Delay of Interest 7
Limited Liquidity 7
Limited Assets 7
No Guaranties 7
Sale of Collateral Upon Default; Interest
Rate Fluctuations 7
Duration of Investment 7
Compensation of Underwriter and Issuer 8
FNMA Guaranty 8
ZIEGLER MORTGAGE SECURITIES, INC. II --
THE ISSUER 8
USE OF PROCEEDS 9
DESCRIPTION OF THE BONDS 9
General 9
Bond Rating 10
Payments of Interest 10
Redemption Fund 10
Redemption Price for Bonds 10
Redemption at Option of Bondholders 11
Procedure for Presentation 11
Mandatory Redemption of Bonds 11
Redemption at Option of Issuer 12
No Listing of Bonds 12
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES 12
THE SECURITY PACKAGE 12
General 12
GNMA Certificates 12
GNMA 13
FNMA Certificates 14
FNMA 14
Valuation of Mortgage Certificates 15
The Underlying Mortgage Loans; Prepayment
Considerations 15
THE INDENTURE 16
Events of Default 16
Statement as to Compliance 17
Modification of Indenture 17
Satisfaction and Discharge of the Indenture 17
The Trustee 17
MANAGEMENT 18
Directors and Executive Officers 18
The Manager 18
The Management Agreement 18
Management Fee 18
Expenses 19
Limits of Manager's Responsibility 19
PLAN OF DISTRIBUTION 19
ZCI 20
EXPERTS 20
REINVESTMENT OF INTEREST AND
PRINCIPAL PAYMENTS 20
ADDITIONAL INFORMATION 20
AVAILABLE INFORMATION
The Issuer is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Company under the Exchange Act can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material also may be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549, at prescribed rates.
The Issuer has filed with the Commission a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Bonds offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement which may be inspected and copied in the manner and at
the sources described above. Any statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety be such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Issuer with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. The Issuer's Annual Report on Form 10-K for the year ended December 31,
1994.
2. The Issuer's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
All documents filed by the Issuer pursuant to the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of the offering of the
Bonds offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein be reference shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus or
in any subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Issuer will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
that have been or may be incorporated herein be reference (other than exhibits
thereto, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). Requests should be directed
to Zeigler Mortgage Securities, Inc. II, 215 N. Main Street, West Bend,
Wisconsin 53095, Attention: Lynn R. Van Horn, Treasurer (telephone (414) 334-
5521).
PROSPECTUS SUMMARY
The following is a summary of certain material contained in this Prospectus.
The summary is intended merely to highlight certain information, and there is
information in this Prospectus that is not included in the summary. Prospective
investors are therefore urged to review the entire Prospectus carefully.
Security Offered $58,995,000 principal amount of Mortgage Certificate-
Backed Bonds issuable in series. (See "Description of
the Bonds.")
Standard & Poor's Rating A preliminary rating of "AAA" subject to confirmation
of such rating with respect to each series of Bonds
issued. (See "Bond Rating.")
Issuer Ziegler Mortgage Securities, Inc. II (the "Issuer")
is owned jointly by The Ziegler Companies, Inc.
("ZCI"), West Bend, Wisconsin and James G. Pouros, a
resident of West Bend, Wisconsin. B.C. Ziegler and
Company which will act as the underwriter for the
Bonds and the Manager of the Issuer is a wholly-owned
subsidiary of ZCI. The Issuer does not have, nor is it
expected in the future to have, any significant assets
other than the assets pledged as security for specific
series of securities issued by it.
Interest Payments Interest on the Bonds will be payable on such dates as
shall be specified in the Prospectus Supplement for
each series. (See "Description of the Bonds - Payments
of Interest.")
Redemption Fund The Redemption Fund for each series of Bonds will
consist of all payments on the underlying Mortgage
Certificates, including principal prepayments on such
Mortgage Certificates resulting from principal
prepayments with respect to, and proceeds on
liquidation of, the underlying mortgage loans,
remaining after deducting amounts paid or payable in
respect of interest on such Mortgage Certificates and
redemptions on the Bonds of such series or
representing a repayment of principal to the extent
that the aggregate principal amount of such Mortgage
Certificates exceeds the aggregate principal amount of
the Bonds of the series. A portion of the funds
deposited in the Redemption Fund for a series may be
allocated to redemptions at the option of Bondholders,
including redemptions on behalf of deceased
Bondholders. Remaining funds available in the
Redemption Fund (net of such funds allocated to
redemptions at the option of Bondholders) will be
allocated to mandatory redemption of such series. (See
"Description of the Bonds - Mandatory Redemption of
Bonds.")
Bondholders' Option
to Redeem Monthly redemptions of Bonds of each series presented
by the holders for redemption prior to maturity will
be made commencing in the third month following the
original issuance of such series to the extent that
funds are available in the Redemption Fund for that
series in the order of receipt of such Bonds by the
Trustee, subject to the following: (i) Bonds presented
on behalf of deceased holders will be redeemed by the
Issuer prior to redemption of Bonds of other holders
up to an aggregate limitation of $10,000; (ii)
thereafter, Bonds presented by holders other than
deceased holders will be redeemed up to an aggregate
limitation of $10,000; (iii) thereafter, Bonds
presented on behalf of deceased holders in excess of
the $10,000 limitation will be redeemed; and (iv)
thereafter, Bonds presented by holders other than
deceased holders in excess of the $10,000 limitation
will be redeemed.
There is no assurance that the Redemption Fund will be
sufficient to redeem all Bonds presented for
redemption and a holder of Bonds may not be able to
have his Bonds redeemed prior to maturity. (See
"Description of the Bonds - Redemption at Option of
Bondholders.")
Mandatory Redemption
of Bonds Commencing in the twelfth month following the original
issuance of a series of Bonds or commencing at such
time as the aggregate balance in the Redemption Fund
for such series of Bonds reaches $100,000, whichever
first occurs, redemptions of Bonds of such series will
be made monthly to the extent of certain funds
available in the Redemption Fund for such series
following redemptions of Bonds of such series at the
option of the holders thereof. (See "Description of
Bonds - Mandatory Redemption of Bonds.")
Issuer's Option
to Redeem The Bonds of any series may be redeemed in whole by
the Issuer, if at any time the aggregate principal
amount of the outstanding Bonds of a series is less
than 10% of the aggregate principal amount of the
Bonds of such series originally issued. The Bonds of
any series may also be redeemed in whole by the
Issuer, without premium, after the third anniversary
of the original issuance thereof. (See "Description of
the Bonds - Redemption at Option of Issuer.")
Special Considerations The Issuer has no significant assets other than the
Security Packages and, in the event of a default, it
is unlikely that the Issuer will have assets other
than the Security Packages available to satisfy
Bondholder claims. (See "Special Considerations.") The
Security Package for each series of Bonds will serve
as collateral only for that series of Bonds.
Security Package There will be a separate Security Package securing
each series of Bonds, consisting of:
(a) Assignment to the Trustee of Mortgage
Certificates in an aggregate principal amount equal to
or greater than the aggregate principal amount of the
Bonds of such series less $100,000, and the aggregate
amount of interest payable with respect thereto, the
investment income on such interest, and the amount held
by the Trustee in an interest reserve fund shall be
equal to or greater than the aggregate amount of
interest payable on the Bonds of such series. (See "The
Security Package - General" and "The Security Package -
Valuation of Mortgage Certificates.") The Mortgage
Certificates consist of (i) GNMA Certificates (the
"GNMA Certificates'') guaranteed by the Government
National Mortgage Association ("GNMA"), (ii) Guaranteed
Mortgage Pass-Through Certificates (the "FNMA
Certificates") issued by the Federal National Mortgage
Association ("FNMA"), or (iii) a combination of the
GNMA Certificates and FNMA Certificates, together with
payments thereon, which will be pledged to the Trustee
under the Indenture. Each GNMA Certificate will
evidence an undivided interest in a pool of mortgage
loans secured by single-family and multifamily
residences. Such mortgage loans either will be insured
by the Federal Housing Administration ("FHA Loans") or
partially guaranteed by the U.S. Veterans
Administration ("VA Loans"). The full and timely
payment of principal of and interest on the GNMA
Certificates is guaranteed by GNMA, a wholly-owned
corporate instrumentality of the United States, which
guaranty is backed by the full faith and credit of the
United States. Each FNMA Certificate will represent an
undivided interest in a pool of mortgage loans formed
by FNMA. Each such pool will consist of either fixed
rate level installment conventional mortgage loans or
fixed rate level installment mortgage loans that are
insured by the Federal Housing Administration ("FHA")
or partially guaranteed by the Veterans Administration
("VA"). FNMA guarantees that it will distribute to the
holder of each FNMA Certificate amounts representing
scheduled principal and interest (adjusted to the
applicable pass-through rate) on the underlying
mortgage loans, whether or not received, and the full
principal amount of any foreclosed or otherwise finally
liquidated underlying mortgage loan, whether or not
such principal amount is actually recovered. See "The
Security Package." All payments on such Mortgage
Certificates will be made to the Trustee and will be
applied to the payment of interest on, to redemptions
of, and to principal payments at maturity of, the Bonds
with any excess amounts being distributed periodically
to the Issuer.
(b) The Interest Reserve Fund for such series of
Bonds, consisting of an amount in cash or secured by a
letter of credit equal to (i) 811/43% of an amount
equal to a percentage of the outstanding principal
amount of the Bonds of such series, which percentage is
equal to the stated annual interest rate on such series
of Bonds plus (ii) a percentage of $100,000 equal to
the stated annual interest rate on such series of Bonds
less 2-1/2%.
(c) The Redemption Fund for such series of Bonds.
Trustee M&I First National Bank, West Bend, Wisconsin (the
"Trustee").
The foregoing summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus, and by reference to
detailed information with respect to each series of Bonds contained in the
Supplement to this Prospectus to be prepared in connection with each such
series.
SPECIAL CONSIDERATIONS
Investors should consider, among other things, the following factors in
connection with the purchase of the Bonds.
DELAY OF INTEREST
Interest on each Bond, other than interest paid upon maturity or redemption,
will be paid semiannually, but such interest accrued on each Bond during each
six-month period covered by an interest payment will not be payable until the
first day of the second month following the end of such period. Interest on
principal outstanding at maturity will be paid through the last day prior to
maturity.
LIMITED LIQUIDITY
There is currently no market for the Bonds and there can be no assurance that
a secondary market will develop or, if it does develop, that it will provide
Bondholders with liquidity of investment or will continue for the life of the
Bonds of such series. B.C. Ziegler and Company, as underwriter, has made no
determination as to whether, and there is no assurance that, it will participate
in or develop a secondary market for the Bonds. The Issuer does not intend to
apply for the listing of Bonds of any series on any exchange or on the NASDAQ
National Market. The market value of the Bonds will fluctuate with changes in
prevailing rates of interest. Consequently, sale of Bonds by a Bondholder in any
market which may develop may be at a discount from their face amount or purchase
price. The Bonds of each series, however, under certain circumstances are
subject to redemption at the option of Bondholders and to mandatory redemption.
(See "Description of the Bonds - Redemption at Option of Bondholders" and
"Description of the Bonds - Mandatory Redemption of Bonds.")
LIMITED ASSETS
The Issuer does not have, nor is it expected in the future to have, any
significant assets other than the Security Packages and, in the event of a
default, it is unlikely that assets other than the Security Packages will be
available to satisfy Bondholder claims. The Security Package securing a series
of Bonds will be held by the Trustee as security only for the Bonds of such
series.
NO GUARANTIES
Although payment or collection of principal of, and interest on, any Mortgage
Certificates pledged to secure each series of Bonds is guaranteed by GNMA or
FNMA, as the case may be, the Bonds represent obligations solely of the Issuer
and are not guaranteed by GNMA or FNMA, The Ziegler Companies, Inc., B.C.
Ziegler and Company, Mr. Pouros, or any other affiliate of the Issuer or any
other person or entity.
SALE OF COLLATERAL UPON DEFAULT; INTEREST RATE FLUCTUATIONS
In the event that the Security Package for a series of Bonds is liquidated by
the Trustee upon an Event of Default (See "The Indenture - Events of Default"),
there is no assurance that the interest rates on the Mortgage Certificates
securing a series of Bonds or the securities in which the related Redemption
Fund may be invested will be equal to the market interest rates for such
certificates or securities at the time of liquidation. Consequently, the
Mortgage Certificates or such securities could be liquidated at a discount from
par value, in which case the proceeds of liquidation of such Mortgage
Certificates and securities may be less than the outstanding principal balance
of the Bonds of that series plus accrued interest. In such event, the Issuer
will be unable to pay in full the principal and interest on the Bonds of that
series out of the proceeds of the Security Package and the Issuer is likely to
have no other assets from which Bondholders could seek payment of their Bonds.
However, without the consent of the holders of all of the outstanding Bonds of a
series, the Trustee is prohibited from liquidating the Security Package for that
series unless the proceeds on liquidation would be sufficient to pay the
principal amount of and accrued interest on the outstanding Bonds of that
series. (Indenture, Section 6.04)
DURATION OF INVESTMENT
Principal on the Mortgage Certificates securing Bonds of any series may be
paid at any time because of, among other things, principal prepayments with
respect to, and proceeds on liquidation of the underlying mortgage loans backing
the Mortgage Certificates, as well as regular installments of principal. Any
principal so paid ceases to bear interest at the end of the month in which
payment is made. Such principal, to the extent not otherwise distributable to
the Issuer will be used to redeem Bonds of such series. (See "Description of the
Bonds - Mandatory Redemption of Bonds" and "Description of the Bonds -
Redemption at Option of Bondholders.") Prepayments on the underlying mortgage
loans will be influenced by a number of economic, geographic, social and other
factors, none of which is predictable. These factors include housing needs
arising from rates of population growth and family formations, unemployment, job
transfers, divorce rates, fluctuating interest rates, inflation rates and
general economic conditions.
No assurance can be given as to the rate of prepayments of the mortgage loans
underlying the Mortgage Certificates pledged as security for each series of
Bonds, and therefore no assurance can be given as to the amount and timing of
redemptions of Bonds of any Series or the time that any particular Bond will
remain outstanding.
The Bonds of a series are subject to redemption in whole at the option of the
Issuer on any Redemption Date after the third anniversary of the original
issuance of such Bonds. In electing to make such a redemption the Issuer may
take into account, among other factors, the extent to which the interest rates
on such Mortgage Certificates may be higher than prevailing market rates and
whether the Issuer could sell the Mortgage Certificates at a premium. The Issuer
makes no representation and there can be no assurance as to whether the Bonds of
a series will be redeemed under such circumstances.
COMPENSATION OF UNDERWRITER AND ISSUER
B.C. Ziegler and Company (the "Underwriter") is a wholly-owned subsidiary of
The Ziegler Companies, Inc. ("ZCI") which also owns 50% of the issued and
outstanding common stock of the Issuer. The Prospectus Supplement will set forth
the proceeds to the Issuer, the price to the public and the underwriting
discount with respect to each offering of a Series of Bonds. The Underwriter
also serves as Manager of the Issuer, for which it will receive a semiannual
management fee on each semiannual Payment Date equal to .375% of the aggregate
outstanding principal amount of the Bonds. The Issuer will be compensated, in
part, by the use of funds received as payments on the Mortgage Certificates
which make up the Security Package, since interest on the Mortgage Certificates
will be received monthly, but interest on the Bonds will be paid semiannually on
the 1st day of the second calendar month following the end of each six-month
period covered by such interest payment.
FNMA GUARANTY
The full and timely payment of principal and interest on the FNMA
Certificates will be guaranteed by FNMA. This guaranty will be backed by the
credit of FNMA, a federally chartered, privately owned corporation. The full
faith and credit of the United States, will not, however, guarantee any payments
on the FNMA Certificates. Although the Secretary of the Treasury of the United
States has discretionary authority to lend FNMA up to $2.25 billion outstanding
at any time, neither the United States nor any agency thereof is obligated to
finance FNMA's operations or to assist FNMA in any other manner.
According to its most recent Annual Report Fannie Mae earned net income of
$2.132 billion in 1994, $1.873 billion in 1993 and $1.623 billion in 1992.
The Issuer did not participate in the preparation of the Annual Report and
accordingly makes no representations as to the accuracy or completeness of the
information contained therein. A copy of the FNMA Annual Report may be obtained
by sending a written request to Director of Investor Relations, 3900 Wisconsin
Avenue, N.W., Washington, D.C. 20016 (202-752-7115).
ZIEGLER MORTGAGE SECURITIES, INC. II - THE ISSUER
The Issuer was incorporated in the state of Wisconsin on November 12, 1985 as
a limited purpose finance company. The Issuer is currently owned by ZCI, and Mr.
James G. Pouros. The Issuer was organized to facilitate the financing of
mortgage loans and does not intend to engage in any business activities other
than those described in this Prospectus. Organizational expenses of the Issuer
were paid by the Underwriter. The Issuer's principal office is located at 215
North Main Street, West Bend, Wisconsin 53095. Its telephone number is (414)
334-5521.
Of the 20,000 issued and outstanding shares of common stock of the Issuer,
10,000 shares are owned by ZCI and 10,000 shares are owned by Mr. Pouros. ZCI is
also the parent of the Underwriter which is acting as underwriter for the Bonds
and Manager of the Issuer. ZCI and Mr. Pouros have represented that neither of
them intends to cause the Issuer to file a voluntary petition in bankruptcy
until at least 91 days after payment in full of all Bonds. During 1988, the
Issuer issued 24,000 shares of its nonvoting, redeemable preferred stock to B.C.
Ziegler and Company in connection with the cancellation of $2.4 million owed to
B.C. Ziegler and Company. This preferred stock pays a non-cumulative dividend of
$9.00 per share, annually, contingent upon approval of Issuer's Board of
Directors. No dividends were declared or paid in 1991, 1992 or 1993. The Issuer
may redeem any or all of the preferred stock at any time, at a redemption price
of $100 per share. In 1992 and 1994, the Issuer redeemed 4,000 share as
preferred stock for $400,000 and 5,000 shares of preferred stock for $500,000,
respectively. Additional shares of preferred stock may be issued from time to
time in consideration for the cancellation of additional amounts which may be
owed to the Underwriter.
The Issuer was organized to facilitate the financing of long-term residential
mortgage loans secured by single-family and multifamily residential properties
and is not permitted and does not intend to engage in any business or investment
activities other than those described in its Articles of Incorporation. Article
3 of the Issuer's Articles of Incorporation provides that the purposes for which
the Issuer is formed are (i) to issue bonds secured by promissory notes secured
by first liens on real estate, "fully modified pass-through" mortgage backed
certificates guaranteed as to timely payment of principal and interest by GNMA,
Guaranteed Mortgage Pass-Through Certificates issued by FNMA and to the extent
any such mortgage collateral represents an interest in or is secured by mortgage
loans, such mortgage loans, (ii) to acquire, own, hold, transfer, convey,
assign, pledge, mortgage, finance, refinance and otherwise deal with such
mortgage collateral, (iii) to make a loan of the proceeds of the sale of bonds
for use in connection with the funding or acquisition of such mortgage
collateral, and (iv) to engage in any activities incidental and necessary for
such purposes. Except as described in this Prospectus or a Prospectus Supplement
relating to a particular series of Bonds, the Issuer does not intend to engage
in any transactions with its directors, officers or principal shareholders, to
issue senior securities, to borrow money except for the issuance of series of
Bonds, to make loans, to invest in the securities of other issuers for the
purpose of exercising control, to underwrite securities of other issuers, to
engage in the purchase and sale of investments, to offer securities in exchange
for property, to repurchase its own securities or to make annual reports or
other reports to Bondholders.
USE OF PROCEEDS
The net proceeds of the sale of each series of Bonds will be used by the
Issuer to pay the expenses of the issuance of such series and to purchase
Mortgage Certificates to secure such series or to repay indebtedness incurred in
connection with such purchases. Such Mortgage Certificates will be assigned and
delivered to the Trustee, on behalf of the holders of such series of Bonds. The
price which the Issuer pays for such Mortgage Certificates (excluding accrued
interest) securing any series will not exceed the aggregate price (excluding
accrued interest) to the public of the series of Bonds.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds offered hereby will be issued in an aggregate principal amount up
to $58,995,000, and will be issued pursuant to an Indenture dated as of January
1, 1986 (the "Indenture"), between the Issuer and the Trustee, as supplemented
by one or more supplemental indentures. Copies of the Indenture and each
supplemental indenture thereto have been, or will be, filed as exhibits to the
registration statement of which this Prospectus forms a part, or as exhibits to
the Issuer's filings under the Securities Exchange Act of 1934 (the "Exchange
Act"). Bonds in the aggregate principal amount of $341,005,000 have been offered
or issued prior to the date hereof in various series pursuant to the Indenture
and various supplemental indentures. The following summaries describe certain
provisions common to each series of Bonds. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Indenture and the supplemental indenture thereto for
each particular series and the Prospectus Supplement to be prepared with respect
to each such series.
The Bonds are issuable in series and are unlimited in aggregate principal
amount. Various series may bear interest at different rates and have different
interest payment dates. (See "Mandatory Redemption of Bonds" and "Redemption at
Option of Bondholders.") The Bonds will be issued in fully registered form only
in initial denominations of $1,000 or multiples thereof. (Indenture, Sections
3.01 and 3.02) The Bonds of each series will be secured by a separate security
package (the "Security Package"), which, during the period they secure such
series of Bonds, will not serve as security for any other series of Bonds. (See
"The Security Package.")
Payments of interest on, and monthly redemptions of the Bonds may be made at
the corporate trust office of the Trustee. However, the Issuer intends to make
payments of interest and redemptions of the Bonds by checks mailed to
Bondholders. (Indenture, Sections 3.07, 11.02, 12.01 and 12.02)
The Bonds may be transferred or exchanged at the corporate trust office of
the Trustee without the payment of any service charge, other than any transfer
tax or other governmental charge payable in connection therewith. (Indenture,
Section 3.05)
BOND RATING
Standard & Poor's Corporation ("Standard & Poor's") has assigned a
preliminary rating of "AAA" to the Bonds. The "AAA" rating by Standard & Poor's
is the highest of ten ratings that Standard & Poor's assigns and indicates that,
in the judgment of Standard & Poor's, the Bonds have an extremely strong
capacity to pay interest and to repay principal.
The preliminary rating assigned by Standard & Poor's will be finalized only
after a review of the security package securing each series of Bonds for
conformity with the terms and conditions established under the Indenture.
Standard & Poor's has indicated that if, in their judgment, a security package
conforms to the requirements of the Indenture, the preliminary aspect of the
rating will be eliminated with respect to the series of Bonds to which such
security package relates.
A Standard & Poor's rating is not a recommendation to buy, sell or hold the
Bonds and is subject to revision or withdrawal at any time by the rating
organization. An investor may obtain further details with respect to this rating
from Standard & Poor's.
PAYMENTS OF INTEREST
The Bonds of each series will bear interest, payable semiannually on the
dates and at the rates specified in the Prospectus Supplement for that series.
Interest on the Bonds accrued through the last day of the second month preceding
the applicable interest payment date will be payable to the persons in whose
names the Bonds are registered in the Bond Register at the close of business on
the last day of the second month preceding the month in which the interest
payment date occurs. Interest on the outstanding principal of the Bonds at
maturity will be paid through the last day immediately preceding maturity.
REDEMPTION FUND
The Redemption Fund for each series of Bonds will consist of all payments on
the underlying Mortgage Certificates including principal prepayments of such
Mortgage Certificates resulting from principal prepayments with respect to, and
proceeds on liquidation of the underlying mortgage loans, remaining after
deducting amounts paid or payable in respect of interest on such Mortgage
Certificates or representing a repayment of principal to the extent that the
aggregate principal amount of such Mortgage Certificates exceeds the aggregate
principal amount of the Bonds of the series. The Redemption Fund will also
include an amount equal to the amount by which the aggregate principal amount of
the Bonds of such series initially exceeds the value of such Mortgage
Certificates as of the date of assignment of such Mortgage Certificates to the
Trustee. A portion of the funds deposited in the Redemption Fund for a series
may be allocated to redemptions at the option of Bondholders, including
redemptions on behalf of deceased Bondholders. Funds available in the Redemption
Fund (net of such funds allocated to redemptions at the option of Bondholders)
will be allocated to mandatory redemption of such series. (See "Mandatory
Redemption of Bonds.")
REDEMPTION PRICE FOR BONDS
The redemption price for Bonds is 100% of the unpaid principal amount
thereof. In addition, interest accrued through the day immediately preceding the
applicable redemption date will be paid on the redeemed Bonds. Partial
redemptions of a Bond will not be made except in multiples of $1,000 in
principal amount.
REDEMPTION AT OPTION OF BONDHOLDERS1<F3>
On the 1st day of each month commencing with the second calendar month
following the month in which the Bonds of any series are originally issued, the
Issuer will make redemptions of Bonds of that series presented for redemption in
the order of priority described below but only to the extent funds are available
in the Redemption Fund for that series determined as of a specified date.
Subject to this limitation, on each such redemption date and with respect to
each series (i) first up to $10,000 principal amount of Bonds presented by the
personal representative, surviving joint tenant or tenant by the entirety of
deceased holders will be redeemed in the order of their receipt by the Trustee,
(ii) then, up to $10,000 principal amount of Bonds presented by others will be
redeemed in the order of their receipt by the Trustee, (iii) then Bonds
presented on behalf of deceased holders in excess of $10,000 principal amount
will be redeemed in order of receipt by the Trustee and (iv) Bonds presented by
holders other than deceased holders in excess of the $10,000 limitation will be
redeemed in the order of their receipt by the Trustee.
PROCEDURE FOR PRESENTATION
Bonds may be presented for redemption by delivery to the Trustee of: (i) the
Bonds to be redeemed, (ii) a written request for redemption in form satisfactory
to the Trustee and signed by the holder or duly authorized representative (with
appropriate evidence of authority) and (iii) in the case of a request on behalf
of a deceased Bondholder, appropriate evidence of death and authority and any
requisite tax waivers. Only Bonds presented prior to the last day of the second
month preceding that in which a redemption date occurs will be eligible for
redemption on such date. All bonds presented for redemption will be held by the
Trustee until the Issuer is able to redeem them, unless withdrawn by written
request actually received by the Trustee on or before the last day of the second
month preceding that in which they would otherwise have been redeemed. Bonds
presented for redemption will continue to bear interest through the last day
preceding the date on which such Bonds are redeemed. The Trustee may establish
such procedures as it may deem fair and equitable in order to determine the
order of receipt of Bonds received by it on the same day and any such
determination shall be conclusive. (Indenture, Sections 12.02, 12.03 and 12.04)
No redemptions will be made if the Bonds have been declared due and payable
prior to maturity by reason of an event of default.
MANDATORY REDEMPTION OF BONDS
Commencing in the thirteenth month following the original issuance of a series
of Bonds or commencing at such time as the aggregate balance in the Redemption
Fund for such series of Bonds reaches $100,000 (which such Redemption Fund shall
include, as of the date of assignment to the Trustee of Mortgage Certificates,
the amount, if any, by which the aggregate value of such Mortgage Certificates
is less than the aggregate principal amount of such series of Bonds), whichever
first occurs, Bonds of such series will be redeemed on the 1st day of each month
to the extent of funds available in the Redemption Fund for that series as of a
specified date in the month preceding such redemption date, after giving effect
to redemptions at the option of Bondholders to be made on such date, provided
that prior to such twelfth month such redemptions may be made at the option of
the Bondholders as described above. The Bonds called for redemption will be
selected by lot by the Trustee as provided in the Indenture. See "Redemption at
Option of Bondholders.'' The Issuer will establish and maintain with the Trustee
for each series of Bonds during the period prior to the commencement of
mandatory redemption an interest reserve fund in cash or secured by an
appropriate letter of credit in an amount equal to (i) 81/3% of an amount equal
to a percentage of the outstanding aggregate principal amount of such series of
Bonds, which percentage is equal to the stated annual interest rate on such
series of Bonds, plus (ii) an amount equal to a percentage of $100,000 equal to
the stated annual interest rate on such series of Bonds less 3%. Such interest
reserve fund will be used by the Trustee to pay interest on Bonds of a series at
maturity or upon redemption for the 30 days immediately preceding the maturity
date or Redemption Date of such Bonds and to make interest payments on the Bonds
of such series during such period if the income realized from the investment of
prepayments on the pledged Mortgage Certificates is less than the interest due
on a corresponding amount of the Bonds of such series prior to the redemption
thereof. Following commencement of mandatory redemption of the Bonds of each
series, the remaining balance for such series described in clause (ii) above
shall be paid to the Issuer.
1<F3>For this purpose, a Bond held by tenants by the entirety, joint tenants or
tenants in common is considered to be held by a single holder.
REDEMPTION AT OPTION OF ISSUER
In addition to the optional redemptions during the eleven months following
the original issuance of any series of Bonds as described above, the Issuer may
redeem all, but not less than all of the outstanding Bonds of any series at any
time when the aggregate principal amount of the Bonds of such series is less
than 10% of aggregate principal amount of the Bonds of such series originally
issued. (Indenture, Section 12.05) The Issuer may also at its option redeem all,
but not less than all, of the Bonds of any series, without premium, after the
third anniversary of the original issuance thereof. (Indenture, Section 12.05)
NO LISTING OF BONDS
The Issuer does not intend to apply for the listing of the Bonds on any
exchange or on the Nasdaq National Market.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the anticipated Federal
income tax consequences of the purchase, ownership and disposition of the Bonds,
and is based upon laws, regulations, rulings and decisions now in effect, all of
which are subject to change. This discussion is limited to investors who will
hold the Bonds as "capital assets" (generally property held for investment)
within the meaning of section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"), and does not purport to deal with Federal income tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors in
determining the Federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of Bonds.
The Issuer has been advised by its counsel that, although there are no
regulations, published rulings or judicial decisions involving the
characterization for Federal income tax purposes of securities with provisions
substantially the same as the Bonds, in its opinion the Bonds will be treated
for Federal income tax purposes as indebtedness of the Issuer and not as an
ownership interest in the Security Package, or an equity interest in the Issuer
or in a separate association taxable as a corporation and interest paid or
accrued on the Bonds will be treated as ordinary income to the Bondholder and
principal payments on the Bonds will be treated as a return of capital to the
extent of the Bondholder's basis therein.
THE SECURITY PACKAGE
GENERAL
Each series of Bonds shall be secured by Mortgage Certificates in an
aggregate principal amount equal to or greater than the aggregate principal
amount of the Bonds of such series less $100,000 plus a cash deposit equal to
any excess of the aggregate principal amount of the Bonds of such series over
the aggregate principal amount of such Mortgage Certificates, and the aggregate
amount of interest payable with respect thereto, the investment income on such
interest, and any amount held by the Trustee in an interest reserve fund for
such series shall be equal to or greater than the aggregate amount of interest
payable on the Bonds of such series. (See "Valuation of Mortgage
Certificates.'') The Mortgage Certificates will consist of (i) GNMA
Certificates, (ii) FNMA Certificates, or (iii) a combination of GNMA and FNMA
Certificates as more fully described below, which may be originally issued or
purchased on the open market and which will be pledged to the Trustee. The
Security Package for each series of Bonds will serve as collateral only for that
series of Bonds.
GNMA CERTIFICATES
The GNMA Certificates are fully "modified pass-through" mortgage-backed
certificates issued by various Servicers. The full and timely payment of
principal of, and interest on, the GNMA Certificates is guaranteed by GNMA,
which obligation is supported by the full faith and credit of the United States.
(See "GNMA"). The GNMA Certificates are backed by a pool of FHA Loans or VA
Loans, and provide for the payment to the registered holder of the GNMA
Certificates, of monthly payments of principal and interest, plus pass-through
payments to such holder of prepayments of principal and liquidation proceeds of
the mortgage loans.
All of the GNMA Certificates securing each series of Bonds will have
maturities of not more than 35 years.
The Issuer expects that interest and principal payments on the FHA Loans and
VA Loans backing each GNMA Certificate will be the source of funds for payments
due on the GNMA Certificates. To the extent GNMA Certificates secure a series of
Bonds, the Issuer anticipates that payments on the GNMA Certificates will be the
source of funds for payments of interest and principal due on the Bonds of that
series. Each GNMA issuer is required to advance its own funds in order to make
timely payment of all amounts due on the GNMA Certificates purchased from it
even if the payments received by such GNMA issuer on the FHA Loans or VA Loans
backing such GNMA Certificates are less than the amounts due on the GNMA
Certificates. If the GNMA issuer is unable to make payments on the GNMA
Certificates as they become due, it must promptly notify GNMA and request GNMA
to make such payments and, upon such notification and request, GNMA will make
such payments directly to the registered holder of the GNMA Certificates. In the
event no payment is made by the GNMA issuer and the GNMA issuer fails to so
notify GNMA and to request GNMA to make such payment, the holder of the GNMA
Certificate has recourse only against GNMA to obtain such payments.
Regular monthly installment payments on a GNMA Certificate consist of
interest due as specified on the GNMA Certificate plus the scheduled principal
payment on the FHA Loans and VA Loans backing such GNMA Certificate due on the
first day of the month in which the scheduled monthly installment on the GNMA
Certificate is due. Such regular monthly installments on the GNMA Certificate
will be paid to the registered holder thereof by the 15th day of each month.
Principal payments on a GNMA Certificate will be adjusted to reflect any
principal prepayments on the FHA Loans or VA Loans backing such GNMA Certificate
or any other early recovery of principal on such FHA Loans or VA Loans that have
been passed through to the Trustee as the registered holder of the GNMA
Certificate.
The interest rate on each GNMA Certificate included in a Security Package
securing a series of Bonds will be determined in accordance with GNMA
regulations. The interest rate on each certificate will depend upon the mix of
VA Loans and FHA Loans backing the GNMA Certificate and further will depend upon
the mix of loans secured by single-family residences, the acquisition of which
are financed in a single transaction.
GNMA
GNMA is a wholly-owned corporate instrumentality of the United States within
the Department of Housing and Urban Development. Section 306(g) of Title III of
the National Housing Act of 1934, as amended (the "Housing Act"), authorizes
GNMA to guarantee the timely payment of the principal of, and interest on,
certificates which are based on and backed by a pool of loans insured by the FHA
under the Housing Act, or Title V of the Housing Act of 1949 or guaranteed by
the VA under the Servicemen's Readjustment Act of 1944, as amended, or Chapter
37 of Title 38, United States Code.
Section 306(g) of the Housing Act provides that "the full faith and credit of
the United States is pledged to the payment of all amounts which may be required
to be paid under any guaranty under this subsection.'' An opinion, dated
December 9, 1969, of an Assistant Attorney General of the United States, states
that such guarantees under Section 306(g) of mortgage-backed certificates of the
type to be assigned to the Trustee as security for the Bonds are authorized to
be made by GNMA and "would constitute general obligations of the United States
backed by its full faith and credit."
GNMA will have approved the issuance of GNMA Certificates in accordance with
one or more guaranty agreements (the "Guaranty Agreement") between GNMA and each
of the GNMA issuers. The standard Guaranty Agreement provides that in the event
of default by the GNMA issuer, including (i) the failure by the GNMA issuer to
make a payment of principal or interest on the GNMA Certificates or the advance
by GNMA of funds for such purpose, (ii) insolvency of the GNMA issuer, or (iii)
default by the GNMA issuer under any other Guaranty Agreement between the GNMA
issuer and GNMA, GNMA shall have the right, by letter to the GNMA issuer, to
effect the complete extinguishment of the GNMA issuer's interest in the pool of
FHA Loans or VA Loans backing the GNMA Certificates and the VA Loans or FHA
Loans shall become the absolute property of GNMA, subject only to the
unsatisfied rights of the holders of the GNMA Certificates. In such event, the
Guaranty Agreement provides that on and after the time GNMA directs such a
letter of extinguishment to the GNMA issuer, GNMA shall be the successor in all
respects to the GNMA issuer in its capacity under the Guaranty Agreement, and
shall be subject to all responsibilities, duties and liabilities theretofore
placed on the GNMA issuer by the terms and provisions of the Guaranty Agreement,
provided that at any time GNMA may enter into an agreement with any other
eligible issuer of GNMA Certificates under which the latter undertakes and
agrees to assume all or any part of such responsibilities, duties and
liabilities placed on the GNMA issuer, and provided that no such agreement shall
detract from the responsibilities, duties and liabilities of GNMA as guarantor
of the GNMA Certificates or otherwise adversely affect the rights of the holders
thereof to principal and interest payments on the GNMA Certificates.
FNMA CERTIFICATES
Each FNMA Certificate represents a fractional undivided interest in a pool of
mortgage loans formed by FNMA with original terms to maturity of between 15 and
30 years. Each pool consists of mortgage loans of one of the following types:
(i) fixed rate level installment conventional mortgage loans, (ii) fixed rate
level installment mortgage loans that are insured by FHA or guaranteed by VA, or
(iii) fixed rate conventional growing equity mortgage loans that provide for
scheduled annual increased payments, with the full amount of the increase
applied to principal. The FNMA Certificates securing the Bonds will consist of
types (i) and (ii). Each mortgage will be secured by a first lien on one to four
family owner-occupied residential property.
The Issuer expects that interest and principal payments on the mortgage loans
backing each FNMA Certificate will be the source of funds for payments due on
the FNMA Certificates. To the extent FNMA Certificates secure a series of Bonds,
the Issuer expects that payments on the FNMA Certificates will be the source of
funds for payments of interest and principal due on the Bonds of that series.
FNMA guarantees to each registered holder of a FNMA Certificate that it will
distribute amounts representing scheduled principal and interest (at the rate
provided for by such FNMA Certificate) on the mortgage loans in the pool
represented by such FNMA Certificate, whether or not received, and the full
principal amount of any foreclosed or other finally liquidated mortgage loan,
whether or not such principal amount is actually received. The obligations of
FNMA under its guarantees are obligations solely of FNMA and are not backed by,
nor entitled to, the full faith and credit of the United States. If FNMA were
unable to satisfy such obligations, distributions to holders of FNMA
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, delinquencies and defaults would
affect monthly distributions to holders of FNMA Certificates and could adversely
affect the payments on the Bonds.
Distributions of principal and interest on each FNMA Certificate will be made
by FNMA on the 25th day of each month to the persons in whose name the FNMA
Certificate is registered as of the close of business on the last day of the
preceding month. Distributions will be made by check mailed to the address of
the holder of record.
Regular monthly installment payments on each FNMA Certificate will be
comprised of interest due as specified in such FNMA Certificate plus the
scheduled principal payments on the mortgage loans underlying such FNMA
Certificate due during the period beginning on the second day of the month prior
to the month in which the scheduled monthly installment on the FNMA Certificate
is due and ending on the first day of such month in which the scheduled monthly
installment on the FNMA Certificate is due. Such regular monthly installments on
each FNMA Certificate will be distributed to the holder of record on the 25th
day of each month. Any principal prepayments on the mortgage loans underlying
any FNMA Certificate or any other early recovery of principal on such mortgage
loans will be passed through to the holder of record of such FNMA Certificate on
the 25th day of the second month next following such prepayment or recovery and
a portion of such amounts will be used to redeem Bonds on the next succeeding
Redemption Date.
FNMA
FNMA is a federally chartered and privately owned corporation organized and
existing under the Federal National Mortgage Association Charter Act (12 U.S.C.
Section1716 et seq.) (the "Charter Act"). It is the nation's largest supplier of
residential mortgage funds, with a portfolio of $220.5 billion of mortgage loans
as of December 31, 1994. FNMA was originally established in 1938 as a United
States government agency to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder-owned and privately managed
corporation by legislation enacted in 1968. The Secretary of Housing and Urban
Development exercises general regulatory power over FNMA.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from capital-surplus to
capital-short areas.
Section 304(d) of the Charter Act authorizes FNMA to set aside any mortgages
held by it and, upon approval of the Secretary of the Treasury, to issue and
sell securities based upon the mortgages set aside.
VALUATION OF MORTGAGE CERTIFICATES
Each Mortgage Certificate securing a series of Bonds which bears interest at
an annual rate equal to or exceeding the rate of interest borne by the Bonds of
such series will be valued at its unpaid principal amount. Each Mortgage
Certificate bearing interest at a lesser rate will be valued at a fraction of
its unpaid principal amount, the numerator of which fraction shall be the
interest borne by such Mortgage Certificate and the denominator of which shall
be the interest rate borne by the Bonds of the series which it secures.2<F4>
(Indenture, Section 1.10)
THE UNDERLYING MORTGAGE LOANS; PREPAYMENT CONSIDERATIONS
The mortgage loans backing the Mortgage Certificates will consist of FHA
Loans, VA Loans, and conventional residential mortgages. The rate of prepayment
of the mortgage loans backing the Mortgage Certificates will affect the
availability of funds for redemption of the Bonds of a series. Prepayments on
the underlying mortgage loans may result from fluctuations in interest rates,
enforcement of due on sale clauses and other factors. Thus, while some of the
underlying mortgage loans will probably remain outstanding until scheduled
maturity, this will not always be the case with the result that a substantial
portion of such Mortgage Certificates may be prepaid before maturity, since
prepayments on the mortgage loans backing a pledged Mortgage Certificate will be
passed through as a prepayment to the Trustee as the registered holder of such
Mortgage Certificate.
Publications of the Actuarial Division of the Department of Housing and Urban
Development relating to FHA- insured single-family mortgage loans at various
interest rates with scheduled maturities of 26 to 30 years, all of which permit
assumption by the new buyer if the home is sold (as do VA Loans), indicate that,
while some of such mortgage loans remain outstanding until scheduled maturity, a
pool of 30-year insured single-family mortgage loans will include a substantial
number of individual mortgage loans which will prepay in whole or in part.
Prepayments, in whole or in part, on the mortgage loans backing a pledged
Mortgage Certificate will be passed through to the Trustee as a prepayment on
such Mortgage Certificate, and all or a portion of such prepayment will be
applied to redeem Bonds. Accordingly, if the prepayment experience on the
mortgage loans backing the Mortgage Certificates securing a series of Bonds
conforms to the general experience described above, a substantial portion of the
Mortgage Certificates will be prepaid prior to their scheduled maturity, in turn
increasing the rate at which Bonds of such series will be redeemed.
2<F4>Any interest payments on a Mortgage Certificate in excess of the aggregate
interest payments due on that amount of the Bonds of such series which such
Mortgage Certificate secures will be paid to the Issuer semiannually. Any
payments of principal on such Mortgage Certificate representing amounts in
excess of the aggregate principal amount of the Bonds of the series secured by
such Mortgage Certificate will be paid to the Issuer annually. Prior to any of
the above payments to the Issuer, the Issuer must satisfy the Trustee that all
state and federal income taxes then due and payable by the Issuer have been
paid. At any time after one year from the date on which the Bonds of a series
are originally issued, the Trustee shall at the request of the Issuer release
from the lien of the Indenture and deliver to the Issuer an amount of Mortgage
Certificates securing such series equal to any excess of the aggregate value
of the Mortgage Certificates securing the Bonds of such series over the
outstanding principal amount of the Bonds of such series. The amounts paid to
the Issuer as provided above and the amount of any proceeds received by the
Issuer with respect to the Mortgage Certificates released from the lien of the
Indenture will be used by the Issuer to pay underwriting and management fees
and other expenses and any excess may be distributed to its shareholders.
There is no assurance that prepayments on the mortgage loans backing the
Mortgage Certificates for any series of Bonds will conform to such FHA
prepayment experience. Based upon published information, the rate of prepayments
on 30-year single-family loans has fluctuated significantly in recent years.
Principal prepayments on mortgage loans may be influenced by a variety of
economic, geographic, social and other factors. The Issuer believes that in a
fluctuating interest rate environment the predominant factor affecting the
prepayment rate on a large, geographically diverse group of mortgages
underwritten on a consistent basis is the difference between the interest rates
on the mortgages (giving consideration to the cost of any secondary financing)
and prevailing mortgage rates. During periods when interest rates generally are
higher than the interest rate paid on a series of Bonds, greater numbers of
holders may be expected to request redemption of their Bonds in order to take
advantage of the higher interest rates obtainable elsewhere. There may, however,
be a concurrent reduction in the rate of prepayments on the mortgage loans
backing the Mortgage Certificates and, consequently, of the Mortgage
Certificates. Other factors affecting prepayment of mortgages include the
inclusion of enforceable "due-on-sale" provisions in many conventional mortgage
loans, changes in mortgagors' housing needs, job transfers and unemployment.
Further, there are substantial differences between the composition of the
mortgage portfolio on which the prepayment statistics of the FHA were based and
the composition of the mortgage portfolio underlying the Mortgage Certificates
securing a series of Bonds. The FHA statistics are based on mortgage loans which
(i) are insured by the FHA or partially guaranteed by the VA, (ii) are assumable
by a purchaser of the underlying property, (iii) are secured by properties
located throughout the United States, (iv) have scheduled maturities of 30
years, (v) are secured by single-family residences and (vi) bear rates of
interest which are generally lower than the rates at which mortgage loans have
been originated during recent years. By contrast, the mortgage loans underlying
the Mortgage Certificates may have different payment terms, may have shorter or
longer scheduled maturities, may be secured by residences for one to four
families or, with respect to GNMA Certificates, may be secured by residences for
a greater number of families, may be located in a narrower geographic region and
may bear interest rates which may vary significantly from the mortgage loans
upon which the FHA statistics were based. With regard to the FNMA Certificates,
the underlying mortgage loans are uninsured by any government agency or
instrumentality and may contain "due-on-sale" clauses which provide that in the
event of the sale of all or some of the underlying property the full unpaid
principal balance of the mortgage loan is due and payable at the option of the
holder. In such an event and if acceleration is permitted under applicable law,
FNMA requires the servicer of the mortgage loan to accelerate the maturity of
the mortgage loan upon sale or transfer of the property securing the mortgage.
The existence of enforceable "due-on-sale" clauses in mortgage loans may
increase the prepayment rate of such mortgage loans. No comparable statistics
are available with respect to prepayment experience relating to such other types
of mortgage loans. In addition, there is no assurance that the economic and
other factors existing during the period when the FHA statistics were compiled
are applicable today or will be applicable in the future.
In general, amortization of the principal of mortgage loans will be minimal
in the early years of the loans and will increase during the later years. As a
result, payments on Mortgage Certificates in the early years of the terms of
such Mortgage Certificates will consist of very small amounts of principal
amortization and, in the absence of prepayments of the underlying mortgage loans
or the payment of proceeds on the liquidation or purchase of such mortgage
loans, the Redemption Fund will be smaller during the early years of the terms
of the Bonds and larger during the later years.
THE INDENTURE
EVENTS OF DEFAULT
An Event of Default with respect to any series of Bonds is defined in the
Indenture as: default for 30 days in the payment of interest on any Bond of such
series; default in the payment of principal of any Bond of such series; failure
to effect any redemption of Bonds of such series required by the Indenture; and
default in the performance of any other covenant in the Indenture and the
continuation of such default for a period of 60 days after notice to the Issuer
by the Trustee or to the Issuer and the Trustee by the holders of at least 25%
of the Bonds then outstanding; or certain events of bankruptcy, insolvency,
receivership or reorganization of the Issuer. In case an Event of Default with
respect to any series of Bonds should occur and be continuing, the Trustee or
the holders of at least 25% in principal amount of the Bonds of such series then
outstanding may declare the principal of the Bonds of such series to be due and
payable. Such declaration may under certain circumstances be rescinded by the
holders of a majority in principal amount of the Bonds of such series then
outstanding. (Indenture, Sections 6.01 and 6.02)
Without the consent of the holders of all of the outstanding Bonds of a
series, the Trustee is prohibited from liquidating the Security Package for that
series unless the proceeds on liquidation would be sufficient to pay the
principal amount of and accrued interest on the outstanding Bonds of that
series. In addition, if, following an Event of Default, the Bonds of any series
have been declared to be due and payable, the Trustee may, in its discretion,
refrain from liquidating the Security Package for such series if such Security
Package is continuing to provide sufficient funds for the payment of principal
of, and interest on, the Bonds of such series as such principal and interest
would have come due if there had not been such a declaration. (Indenture,
Sections 6.04 and 6.05)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
shall be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Bondholders, unless such
Bondholders shall have offered to the Trustee reasonable security or indemnity.
(Indenture, Section 7.03) Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the outstanding Bonds of a series shall have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; and the holders of a majority in principal amount of the outstanding
Bonds of a series may, in certain cases, waive any default except a default in
payment of principal of, or interest on, the Bonds of such series. (Indenture,
Sections 6.14 and 6.15)
STATEMENT AS TO COMPLIANCE
The Issuer will be required to file annually with the Trustee a written
statement as to fulfillment of its obligations under the Indenture. (Indenture,
Section 11.08) Failure to file such a statement, or filing of a false and/or
misleading statement would constitute an Event of Default if not corrected
during a period of 60 days after notice to the Issuer by the Trustee or notice
to the Issuer and the Trustee by the holders of at least 25% in principal amount
of outstanding Bonds.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than a majority in principal
amount of the Bonds outstanding under the Indenture or of the outstanding Bonds
of a series, the Trustee and the Issuer may execute a supplemental indenture to
add provisions to, or change in any manner or eliminate any provisions of, the
Indenture with respect to all of the Bonds or of Bonds of that series, as the
case may be, or modify in any manner the rights of the holders of all of the
Bonds or of Bonds of that series, as the case may be, provided that, without the
consent of the holder of each outstanding Bond affected, no such supplemental
indenture shall (a) change the maturity of the principal of, or interest on, any
Bond, or reduce the principal amount thereof or the rate of interest thereon,
(b) adversely affect the rights of Bondholders with respect to prepayments of
principal or redemption of Bonds, (c) reduce the percentage of Bondholders whose
consent is required for the authorization of any supplemental indenture or for
any waiver of compliance with certain provisions of the Indenture or certain
defaults thereunder or their consequences or (d) modify any of the provisions of
the Indenture with respect to supplemental indentures with the consent of
Bondholders, except to increase the percentage of Bondholders whose consent is
required for any such action or to provide that other provisions of the
Indenture cannot be modified or waived without the consent of the holders of
each outstanding Bond affected thereby. (Indenture, Section 10.02)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged upon the cancellation of all of the Bonds
or, with certain limitations, upon deposit with the Trustee of funds sufficient
for the payment or redemption thereof. (Indenture, Section 5.01)
THE TRUSTEE
M&I First National Bank, 321 North Main Street, West Bend, Wisconsin 53095,
will be the Trustee for the Bonds. M&I First National Bank performs general
banking services for the Issuer and its affiliates, including making loans to
The Ziegler Company, Inc. and certain of its subsidiaries, including the Issuer.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Issuer are as follows:
Eugene H. Rudnicki . President and Director (since December, 1985)(1)<F5>
James G. Pouros ..... Director (since December, 1992)(2)<F6>
Jeffrey C. Vredenbregt Vice President (since December, 1992)(3)<F7>
Lynn R. Van Horn ... Treasurer (since December, 1985) and Secretary
(since May, 1985)(4)<F8>
(1)<F5>Mr. Rudnicki, age 60, has also been since 1980, Senior Vice President -
Acquisitions of B.C. Ziegler and Company. Previously Mr. Rudnicki was a Vice
President of B.C. Ziegler and Company.
(2)<F6>Mr. Pouros, age 50, has also been since 1979, a member of the law firm of
O'Meara, Eckert, Pouros & Gonring.
(3)<F7>Mr. Vredenbregt, age 41, has also been since 1993, Vice President of B.C.
Ziegler and Company, and has been Assistant Treasurer and Controller of B.C.
Ziegler and Company since May 18, 1987.
(4)<F8>Mr. Van Horn, age 42, has also been Senior Vice President - Finance of
B.C. Ziegler and Company since 1990. From 1985 to 1990 Mr.Van Horn was Vice
President - Finance of B.C. Ziegler and Company.
THE MANAGER
The Manager is B.C. Ziegler and Company, a wholly-owned subsidiary of ZCI.
ZCI owns fifty percent of the Issuer's outstanding common stock.
THE MANAGEMENT AGREEMENT
The Issuer and B.C. Ziegler and Company are parties to a Management
Agreement, for management and administrative services with respect to the
operations of the Issuer. Although the term of the Management Agreement expired
on January 1, 1995, a one year automatic extension was agreed upon. Successive
extensions, each for one year only, will be made automatically unless any party
shall deliver a written notice of termination to the other party at least 60
days prior to the end of the renewal period. If such a termination notice shall
be so delivered, the Issuer will be required promptly to negotiate and enter
into acceptable arrangements with a successor manager on such terms as are then
commercially reasonable, but until a successor manager assumes the duties of the
Manager, the Manager will continue to serve as such under the Management
Agreement as in effect on the date of the termination notice. The Management
Agreement is nonassignable except by consent of the Issuer and the Manager. The
Management Agreement, or any extension thereof, may be terminated by the Issuer,
on 60 days' written notice, by a majority of the directors of the Issuer or by
vote of the holders of a majority of the outstanding shares of common stock of
the Issuer. No notice of termination has been delivered by either party. Except
as stated above, the Manager shall not have the right to terminate the
Management Agreement during any period in which there are any Bonds outstanding
under the Indenture.
The Manager will at all times be subject to the supervision of the Board of
Directors of the Issuer and will have only such functions and authority as the
Issuer may delegate to it as the Issuer's agent. It is anticipated that the
Manager will be responsible for the accountings required under the Indenture;
will direct the Trustee as to the investment in Eligible Investments of amounts
at any time held by the Trustee; will be responsible for the day-to-day
operations of the Issuer; will serve as the Issuer's consultant in connection
with policy decisions to be made by the Board of Directors; and will perform
such other activities relating to the assets of the Issuer as may be
appropriate. The Manager will provide the executive and administrative
personnel, office space and services required in rendering such services to the
Issuer. The Management Agreement provides that directors, officers, employees,
agents or affiliates of the Manager may serve as directors, officers, employees,
agents, nominees and signatories for the Issuer.
MANAGEMENT FEE
The Management Agreement provides that after payment of the Underwriting Fee
and expenses of the Issuer with respect to a series of Bonds, the Manager is
entitled to receive a semiannual management fee (the "Management Fee") equal to
.375% of the aggregate outstanding principal amount of Bonds on the last day of
the month preceding each Semiannual Payment Date (the date on which semiannual
interest payments are made) for the Bonds. The Management Fee is payable on each
Semiannual Payment Date only if funds are available therefor.
EXPENSES
Pursuant to the Management Agreement, the Manager pays employment expenses of
its personnel; rent and other office expenses (except those relating to a
separate office, if any, maintained by the Issuer); and travel and miscellaneous
administrative expenses of the Manager. The Issuer will be required to pay all
of its expenses, namely: (a) the cost of borrowed money, (b) all taxes
applicable to the Issuer, (c) legal, audit, accounting, underwriting, brokerage,
listing, registration and other fees, printing, engraving and other expenses and
taxes incurred in connection with the issuance, distribution, transfer and
registration of the Issuer's securities (except as otherwise agreed with respect
to legal and registration expenses relating to any series of Bonds), (d) fees
and expenses paid to the Trustee or to any advisers, consultants, managers,
including the Manager, and other agents employed directly by the Issuer, (e)
expenses relating to the acquisition of the Security Packages, including but not
limited to legal fees and other expenses of professional services, (f) the
expenses of modifying or dissolving the Issuer, (g) all insurance costs incurred
in connection with the Issuer, (h) expenses relating to payments of dividends or
interest or distributions in cash or any other form made or caused to be made by
the Board of Directors to holders of securities of the Issuer, (i) expenses
relating to communications to holders of securities of the Issuer and of
complying with the reporting and other requirements of governmental bodies or
agencies, including the cost of printing and mailing certificates for securities
and notices and reports to holders of the Issuer's securities, (j) transfer
agent's and registrar's fees and charges, (k) expenses paid to directors and
officers of the Issuer and the cost of officer and director liability insurance,
(l) legal, accounting and auditing fees and expenses, and (m) expenses relating
to any office or office facilities maintained by the Issuer separate from the
office of the Manager.
LIMITS OF MANAGER'S RESPONSIBILITY
Pursuant to the Management Agreement, the Manager will not assume
responsibility other than to render the services called for thereunder in good
faith and will not be responsible for any action of the Issuer in following or
declining to follow any advice or recommendations of the Manager, but the
Manager shall nevertheless remain responsible for its own actions as stated
above. The Manager, its directors, officers, shareholders and employees will not
be liable to the Issuer, the Issuer's shareholders or others, except by reason
of negligence. The Issuer has agreed to indemnify the Manager and its affiliates
with respect to all expenses, losses, damages, liabilities, demands, charges and
claims of any nature in respect of acts or omissions performed or omitted by the
Manager in good faith and in accordance with the standard set forth in the
Management Agreement.
The foregoing description of the Management Agreement does not purport to be
complete but contains a summary of the material provisions thereof. Reference is
made to a copy of the Management Agreement filed as an exhibit to the
Registration Statement and the foregoing summary is qualified in its entirety by
such reference.
PLAN OF DISTRIBUTION
The Issuer will sell the Bonds offered hereby through B.C. Ziegler and
Company (the "Underwriter"). The Underwriter also acts as Manager for the Issuer
and is a wholly-owned subsidiary of ZCI which owns 50% of the issued and
outstanding common stock of the Issuer. The Underwriter owns 15,000 shares of
the Issuer's preferred stock. (See "Ziegler Mortgage Securities, Inc. II - The
Issuer").
The Prospectus Supplement with respect to each Series of Bonds will set forth
the terms of the offering of such Series of Bonds including the proceeds to, and
their intended use by, the Issuer, and either the initial public offering price,
the discount to the Underwriter and any discounts or concessions allowed or
reallowed to certain dealers, or the method by which the price at which the
Underwriter will sell the Bonds will be determined.
The Underwriter will be obligated to purchase all of the Bonds of the Series
described in the Prospectus Supplement with respect to such Series if any of
such Bonds are purchased. The Bonds may be acquired by the Underwriter for its
own account and may be resold from time to time in one or more transactions,
including negotiated transactions at a final public offering price or at varying
prices determined at the time of sale.
The place and time of delivery for each Series of Bonds in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
ZCI
ZCI is a holding company which, in addition to owning one-half of the common
stock of the Issuer, owns five subsidiary companies, four of which are engaged
in financially oriented businesses. One of these subsidiaries is B.C. Ziegler
and Company which is acting as a Manager for the Issuer and is the Underwriter
for the Bonds.
EXPERTS
The Issuer's Form 10-K incorporated by reference in this Prospectus and in
the Registration Statement has been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in giving
said report.
REINVESTMENT OF INTEREST AND PRINCIPAL PAYMENTS
Bondholders meeting certain requirements may elect to have interest and/or
principal payments from the Issuer automatically invested in shares of any of
the portfolios of Principal Preservation Portfolios, Inc. (the "Fund"), a mutual
fund sponsored by the Underwriter. For Bondholders electing this option, the
Trustee will transfer payments from the Issuer on the payment date to the Fund
for the purchase of shares in the Fund at the then current net asset value,
without sales charge. For further information concerning this option, and a Fund
Prospectus, which should be read carefully prior to making any decision whether
to elect this option, contact your Ziegler sales representative or the
Underwriter at 215 North Main Street, West Bend, WI 53095; telephone 414/334-
5521.
ADDITIONAL INFORMATION
Copies of the Registration Statement of which this Prospectus forms a part
and the exhibits thereto are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., may be obtained at rates prescribed by
the Commission upon request to the Commission and may be inspected, without
charge, at the offices of the Commission.
