Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-92454
ZIEGLER MORTGAGE SECURITIES, INC. II
(Exact name of registrant as specified in its charter)
Wisconsin 39-1539696
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 North Main Street, West Bend, Wisconsin 53095
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (262) 334-5521
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES (X) NO ( )
Aggregate market value of voting stock held by non-affiliates of the
registrant: None
Number of shares outstanding of registrant's classes of common stock, as of
January 31, 2000:
Class Shares Outstanding
Common Stock, 20,000
$1.00 Par Value
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
FORM 10-K
ZIEGLER MORTGAGE SECURITIES, INC. II
PART I
Item 1 - Business
Ziegler Mortgage Securities, Inc. II (the "Company") is a limited
purpose finance company which is owned equally by The Ziegler Companies, Inc.
and Mr. James G. Pouros. The Company was organized to facilitate the
financing of mortgage loans and does not intend to engage in any other
business activities at this time.
The Company issues bonds from time to time in series, each of which
will be secured by a separate security package consisting of GNMA
Certificates (the "GNMA Certificates") issued 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 Company 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.
The full and timely payment of the principal of and interest on the
GNMA Certificates is guaranteed by GNMA. The GNMA 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, but the FNMA
guaranty is not backed by the full faith and credit of the United States.
B. C. Ziegler and Company, which acts as the underwriter for the bonds,
is a wholly-owned subsidiary of The Ziegler Companies, Inc., owner of 50% of
the outstanding common stock of the Company. B. C. Ziegler and Company
provides management and administrative services to the Company for which,
pursuant to a management agreement with the Company, it is entitled to
receive a semiannual management fee not to exceed .375% of the aggregate
outstanding principal amount of bonds on the last day of the month preceding
each semiannual payment date.
As of December 31, 1999, the Company has issued eighty-three series of
bonds totaling $343,329,000 and acquired one series of bonds totaling
approximately $1,961,000 in a 1994 merger, of which $33,475,000 still are
outstanding.
There are no paid employees of the Company.
Item 2 - Properties
The Company owns no real estate and leases no office space.
Item 3 - Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 4 - Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5 - Market for the Company's Common Stock and Related Security Holder
Matters
There is no market for the common stock of the Company. The Ziegler
Companies, Inc. and Mr. James G. Pouros each own 50% of the issued and
outstanding shares of the Company.
Item 6 - Selected Financial Data
1999 1998 1997
Total Revenues $ 2,855,633 $ 5,340,233 $ 8,771,002
Net Income $ - $ - $ -
Earnings Per Share of Common Stock $ - $ - $ -
Cash Dividends Per Share Declared $ - $ - $ -
Total Assets $35,908,506 $45,195,864 $99,289,905
Long-term Obligations $33,475,000 $42,584,000 $94,940,000
Stockholders' Equity at Year End $ 1,520,000 $ 1,520,000 $ 1,520,000
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Comparison of Years 1999, 1998 and 1997
During 1999 and 1998, the Company did not issue any additional series of
Mortgage Certificate-Backed Bonds (the "Bonds"). During 1997, the Company
issued one series of Bonds totaling $3,152,000. Unfavorable spreads between
the interest yields on the Mortgage Certificates and the Bonds have kept the
Company from issuing additional series in 1999 and 1998. Total revenues,
consisting mostly of interest income, for 1999, 1998 and 1997 totaled
approximately $2,856,000, $5,340,000 and $8,771,000, respectively. Revenues
decreased in 1999 and 1998 primarily due to the sale of Mortgage Certificates
as explained in Note 5 of the Notes to Financial Statements. Paydowns on the
Mortgage Certificates contributed to the decreases in each of the three years.
Total bonds redeemed in 1999, 1998 and 1997 were $9,109,000,
$52,356,000 and $9,241,000, respectively. These redemptions occurred as the
result of Mortgage Certificate sales and liquidations totaling $6,165,000,
$51,489,000 and $13,091,000 in 1999, 1998 and 1997, respectively. Revenues
decreased in 1999 and 1998 primarily due to the sale of Mortgage Certificates
as explained in Note 5 of the Notes to Financial Statements. Paydowns on the
Mortgage Certificates contributed to the decreases in each of the three
years. These Mortgage Certificate sales and liquidations and subsequent bond
redemptions result in gains on sale of mortgage certificates and offsetting
increases in amortization of bond issue costs in the Statements of
Operations.
In accordance with a written management agreement, management fees of
the Company were limited to the amount which prevents the Company from
incurring a loss. It is anticipated that the Company will continue to
operate at close to a breakeven level in future years.
<PAGE>
Liquidity and Capital Resources
The Company has no fixed assets nor any commitments outstanding to
purchase or lease any fixed assets.
Each series of bonds is structured in a manner such that funds received
from the related Mortgage Certificates are sufficient to fund all interest
and principal payments on the bonds, and all other expenses of the Company.
This can be seen in the Statements of Cash Flows. For 1999, there was a net
increase in cash and cash equivalents totaling approximately $37,000. Net
income was zero because of the management fee paid to B. C. Ziegler and
Company. The primary net cash receipt from investing activities totaled
$6,165,000 which resulted from the sale and redemption of Mortgage
Certificates during the period. The primary net disbursement from financing
activities totaled $9,109,000 and arose from cash disbursed to redeem
outstanding Bonds from previous series during the period.
The Company has 15,000 shares of $9.00 non-cumulative, non-voting
preferred stock outstanding. No dividends were declared or paid in 1999,
1998 or 1997. The Company may redeem any or all of the preferred stock at
any time, at a redemption price of $100 per share.
Item 7a - Quantitative and Qualitative Disclosure about Market Risk
Market risk arises from exposure to changes in interest rates, exchange
rates, commodity prices and other relevant market rate or price risk which
impact an instrument's financial value. The Company would be exposed to
market risk from changes in interest rates except that the structured nature
of the Company's activities minimizes this risk. The cash flows from
payments on the Mortgage Certificates are used to retire the principal of the
Mortgage Certificate-Backed Bonds Payable (see Notes 3 and 4 of the Notes to
Financial Statements).
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates, which include
mortgage certificates and bonds payable. The table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
Principal payments on the Mortgage Certificates will occur as the result of
amortization on the underlying mortgages. However, the amount of
amortization is difficult to predict and is not estimated in the table. Any
cash flows received from principal payments will be used to redeem Mortgage
Certificate-Backed Bonds Payable. Fair value is derived in accordance with
the accounting procedures described in Notes 2 and 4 of the Notes to
Financial Statements
<TABLE>
<CAPTION>
Expected Maturity Dates
(In US dollars)
ASSETS 2000-2004 Thereafter Total Fair Value
<S> <C> <C> <C> <C>
Mortgage Certificates (1) $ - $33,483,198 $33,483,198 $32,612,794
Weighted average
interest rate 7.20%
LIABILITIES
Mortgage Certificate-
Backed Bonds Payable - 33,475,000 33,475,000 32,933,000
Weighted average
interest rate 6.74%
(1) Assumes no prepayments of Mortgage Certificates.
Item 8 - Financial Statements and Supplementary Data
The financial statements of the Company, together with the related
Notes to Financial Statements and Report of Independent Public Accountants,
are contained in Item 14, included herein.
Item 9 - Disagreements with Accountants on Accounting and Financial
Disclosure
There were no reports on Form 8-K reporting a change of accountants or
a disagreement with accountants on any matter of accounting principles or
practices on financial statement disclosure filed during the fiscal year
1999.
<PAGE>
PART III
Item 10 - Directors and Executive Officers of the Company
Position
Held
Position Held Since
Thomas S. Ross President and Director (1) 6/97
James G. Pouros Director (2) 12/92
Jeffrey C. Vredenbregt Treasurer (3) 3/00
(1) Mr. Ross, age 46, since 1987, Vice President of B. C. Ziegler and
Company.
(2) Mr. Pouros, age 55, has also been since 1979, a member of the law
firm of O'Meara, Eckert, Pouros & Gonring.
(3) Mr. Vredenbregt, age 46, has also been, since 1993, Vice
President of B. C. Ziegler and Company, and has been Controller
since 1987 and Treasurer since 1996 of B. C. Ziegler and Company.
Item 11 - Executive Compensation
Since B. C. Ziegler and Company provides management and administrative
services to the Company pursuant to a management agreement with the Company,
the Company has no salaried employees. Directors, including those who are
employees of B. C. Ziegler and Company receive annual compensation of $5,000
apiece.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The Ziegler Companies, Inc., 215 North Main Street, West Bend,
Wisconsin 53095, and Mr. James G. Pouros, 530 N. Silverbrook, #217, West
Bend, Wisconsin 53095, each own 10,000 shares of common stock of the Company,
50% of the 20,000 outstanding shares of common stock of the Company, and each
of these owners has sole voting and dispositive powers. The Ziegler
Companies, Inc. owns 15,000 shares of preferred stock of the Company, 100% of
the 15,000 outstanding shares of preferred stock of the Company. The
preferred stock is non-voting.
Item 13 - Certain Relationships and Related Transactions
B. C. Ziegler and Company, a wholly-owned subsidiary of The Ziegler
Companies, Inc., has a management agreement with the Company. The management
agreement provides that the manager is entitled to receive a semiannual
management fee not to exceed .375% of the aggregate outstanding principal
amount of Bonds issued by the Company on the last day of the month preceding
such semiannual payment date. The management fee is payable on each
semiannual payment date. As soon as possible after the end of each fiscal
year of the Company, the Company is required to advise the manager of its
preliminary calculation of its net income or loss for such fiscal year. In
the event such preliminary calculation indicates a loss, the amount of the
management fee for any such fiscal year shall be retroactively reduced to
such amount (not less than zero) as will prevent the Company from suffering
a loss (as determined by application of generally accepted accounting
principles) for such fiscal year. Any such reduction in the management fee
shall be applied to reduce any balance due, and, to the extent it exceeds any
balance due, shall be promptly refunded to the Company. The manager earned
management fees of approximately $108,000 in 1999, $118,000 in 1998 and
$336,000 in 1997.
B. C. Ziegler and Company also acts as underwriter for the bonds issued
by the Company. In its capacity as underwriter, B. C. Ziegler and Company
receives a fee for its services equal to a percentage of the bonds offered by
the Company.
As of December 31, 1999 and 1998, the Company was indebted to B. C.
Ziegler and Company in the amount of approximately $5,200 and $500,
respectively, for accrued management fees.
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents List
(1) Financial Statements
Report of Independent Public Accountants.
Balance Sheets as of December 31, 1999 and 1998.
Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997.
Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997.
Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997.
Notes to Financial Statements, dated as of December 31,
1999 and 1998.
(2) Financial Statement Schedules
None
(3) Exhibits
(3) Articles of Incorporation, as amended, and Bylaws of
the Company, as amended, (incorporated by reference
to Exhibits 3(a) and 3(b) to Registration Statement
on Form S-11, Commission file number 33-21324)
(4) (A) Indenture dated January 1, 1986 between the
Company and M&I First National Bank, as
Trustee, relating to Mortgage
Certificate-Backed Bonds (incorporated by
reference to Exhibit 4(a) to Registration
Statement on Form S-11, Commission file number
33-1726).
(Q) Sixty-Second Supplemental Indenture dated as
of February 1, 1992 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed February
26, 1992, Commission file number 33-28290).
(R) Sixty-Third Supplemental Indenture dated as of
May 1, 1992 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed June 2, 1992,
Commission file number 33-28290).
(S) Sixty-Fourth Supplemental Indenture dated as
of June 1, 1992 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed June 18, 1992,
Commission file number 33-28290).
(T) Sixty-Fifth Supplemental Indenture dated as of
January 1, 1993 incorporated by reference to
Exhibit (4.1) to Form 8-K filed February 1,
1993, Commission file number 33-28290).
(U) Sixty-Sixth Supplemental Indenture dated as of
January 1, 1993 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed February 1,
1993, Commission file number 33-28290).
(V) Sixty-Eighth Supplemental Indenture dated as
of April 1, 1993 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed April 23,
1993, Commission file number 33-28290).
(W) Sixty-Ninth Supplemental Indenture dated as of
May 1, 1993 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed May 27, 1993,
Commission file number 33-28290).
(X) Seventieth Supplemental Indenture dated as of
March 1, 1994 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed April 4, 1994,
Commission file number 33-28290).
(Y) Seventy-First Supplemental Indenture dated as
of April 1, 1994 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed May 2, 1994,
Commission file number 33-28290).
(AA) Seventy-Third Supplemental Indenture dated as
of April 1, 1994 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed May 6, 1994,
Commission file number 33-28290).
(AB) Seventy-Fourth Supplemental Indenture dated as
of May 1, 1994 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed June 1, 1994,
Commission file number 33-28290).
(AC) Seventy-Fifth Supplemental Indenture dated as
of June 1, 1994 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed July 5, 1994,
Commission file number 33-28290).
(AD) Seventy-Sixth Supplemental Indenture dated as
of September 1, 1994 (incorporated by
reference to Exhibit (4.1) to Form 8-K filed
September 30, 1994, Commission file number
33-28290).
(AF) Seventy-Eighth Supplemental Indenture dated as
of April 1, 1995 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed May 1, 1995,
Commission file number 33-28290).
(AG) Seventy-Ninth Supplemental Indenture dated as
of June 1, 1995 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed June 30, 1995,
Commission file number 33-28290).
(AI) Eighty First Supplemental Indenture dated as
of April 1, 1996 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed April 26,
1996, Commission file number 33-28290).
(AJ) Eighty Second Supplemental Indenture dated as
of June 1, 1996 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed June 26, 1996,
Commission file number 33-28290).
(AK) Eighty Third Supplemental Indenture dated as
of April 1, 1997 (incorporated by reference to
Exhibit (4.1) to Form 8-K filed May 21, 1997,
Commission file number 33-28290)
(All references to Supplemental Indentures relating
to Bonds which have been redeemed in whole have been
deleted.)
(10) Form of Underwriting Agreement dated as of May 17,
1995 between the Company and B. C. Ziegler and
Company (incorporated by reference to Exhibit 1 to
Registration Statement on Form S-3, Commission file
number 33-92454).
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
(c) Exhibits Required by Item 601 of Regulation S-K
Included in Item (a)(3) above.
(d) Financial Statement Schedules Required by Regulation S-X
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 28th
day of March, 2000.
ZIEGLER MORTGAGE SECURITIES, INC. II
By: /s/ Thomas S. Ross
Thomas S. Ross
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
/s/ Thomas S. Ross President and Director March 28, 2000
Thomas S. Ross (Chief Executive Officer)
/s/ James G. Pouros Director March 28, 2000
James G. Pouros
/s/ Jeffrey C. Vredenbregt Treasurer March 28, 2000
Jeffrey C. Vredenbregt
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The following financial statements are referenced in Items 8 and 14:
Page
Report of Independent Public Accountants 13
Balance Sheets as of December 31, 1999 and 1998 14
Statements of Operations For the Years Ended
December 31, 1999, 1998 and 1997 15
Statements of Changes in Stockholders' Equity For the
Years Ended December 31, 1999, 1998 and 1997 16
Statements of Cash Flows For the Years Ended
December 31, 1999, 1998, and 1997 17
Notes to Financial Statements, dated as of
December 31, 1999 and 1998 18
Exhibit 23 Consent of Arthur Andersen LLP 23
Exhibit 27 Financial Data Schedule 24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Ziegler Mortgage Securities, Inc. II:
We have audited the accompanying balance sheets of ZIEGLER MORTGAGE
SECURITIES, INC. II (a Wisconsin corporation) as of December 31, 1999 and
1998, and the related statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ziegler Mortgage
Securities, Inc. II as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 2000.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ZIEGLER MORTGAGE SECURITIES, INC. II
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
1999 1998
ASSETS
<S> <C> <C> >
Cash $ 37,410 $ 49,974
Money market investments, at cost,
which approximates market 1,012,367 963,077
Total cash and cash equivalents 1,049,777 1,013,051
Cash and investments held by trustee, at cost,
which approximates market 1,180,085 4,292,159
Accrued interest receivable 205,411 243,281
Mortgage Certificates, held by trustee (net of
purchase discount of $870,404 and $1,061,640,
respectively), at amortized cost 32,612,794 38,586,973
Deferred issuance costs 860,439 1,060,400
Total assets $35,908,506 $45,195,864
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest payable $ 890,303 $ 1,073,417
Mortgage Certificate-Backed Bonds payable 33,475,000 42,584,000
Payable to B. C. Ziegler and Company 5,203 447
Other liabilities 18,000 18,000
Total liabilities 34,388,506 43,675,864
Stockholders' Equity:
Preferred Stock, $.10 par value, non-voting,
$9.00 non-cumulative dividend,
$100 redemption price;
200,000 shares authorized, 15,000 shares issued
and outstanding 1,500,000 1,500,000
Common stock, $1 par value,
56,000 shares authorized,
20,000 shares issued and outstanding 20,000 20,000
Retained earnings - -
Total stockholders' equity 1,520,000 1,520,000
Total liabilities and stockholders' equity $35,908,506 $45,195,864
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
<PAGE>
ZIEGLER MORTGAGE SECURITIES, INC. II
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
Revenues:
<S> <C> <C> <C>
Interest income $2,699,935 $3,991,905 $8,342,979
Gain on sale of Mortgage Certificates 155,698 1,348,328 428,023
Total revenues 2,855,633 5,340,233 8,771,002
Expenses:
Interest expense 2,469,747 3,696,015 7,875,114
Amortization of deferred issuance costs 199,961 1,360,660 432,363
Management fee 107,930 118,223 335,985
General and administrative 77,995 165,335 127,540
Total expenses 2,855,633 5,340,233 8,771,002
Income before income taxes - - -
Provision for income taxes - - -
Net income $ - $ - $ -
The accompanying notes to financial statements are
an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ZIEGLER MORTGAGE SECURITIES, INC. II
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Stock Preferred Stock Total
Number Number Stock-
of of Retained holders'
Shares Amount Shares Amount Earnings Equity
Balance at
<C> <C> <C> <C> <C> <C> <C>
December 31, 1996 20,000 $20,000 15,000 $1,500,000 $ - $1,520,000
Net income - - - - - -
Balance at
December 31, 1997 20,000 20,000 15,000 1,500,000 - 1,520,000
Net income - - - - - -
Balance at
December 31, 1998 20,000 $20,000 15,000 $1,500,000 $ - $1,520,000
Net income - - - - - -
Balance at
December 31, 1999 20,000 $20,000 15,000 $1,500,000 $ - $1,520,000
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
ZIEGLER MORTGAGE SECURITIES, INC. II
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ - $ - $ -
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Gain on sale of Mortgage Certificates (155,698) (1,348,328) (428,023)
Discount accretion on
Mortgage Certificates (35,538) (51,925) (99,035)
Amortization of deferred issuance costs 199,961 1,360,660 432,363
Change in assets and liabilities:
Decrease (Increase) in -
Funds held by trustee 3,112,074 2,636,360 (3,581,175)
Accrued interest receivable 37,870 393,576 70,396
Increase (Decrease) in -
Payable to B. C. Ziegler and Company 4,756 (19,576) 9,078
Accrued interest payable (183,114) (1,718,465) (156,663)
Net cash provided by (used in)
operating activities 2,980,311 1,252,302 (3,753,059)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale and redemption of
Mortgage Certificates 6,165,415 51,488,964 13,091,443
Purchase of Mortgage Certificates - - (3,057,558)
Net cash provided by investing
activities 6,165,415 51,488,964 10,033,885
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Mortgage
Certificate-Backed Bonds $ - $ - $ 3,057,440
Principal payments on
Mortgage Certificate-Backed Bonds (9,109,000) (52,356,000) (9,241,000)
Net cash used in financing activities (9,109,000) (52,356,000) (6,183,560)
NET INCREASE IN CASH AND CASH EQUIVALENTS 36,726 385,266 97,266
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,013,051 627,785 530,519
CASH AND CASH EQUIVALENTS AT
END OF YEAR $1,049,777 $ 1,013,051 $ 627,785
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the year $2,653,000 $ 5,414,000 $ 8,032,000
The accompanying notes to financial statements are
an integral part of these statements,
</TABLE>
<PAGE>
ZIEGLER MORTGAGE SECURITIES, INC. II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) Organization -
Ziegler Mortgage Securities, Inc. II (the "Company") is a limited
purpose finance company. The Company was organized to facilitate the
financing of mortgage loans. The common stock of the Company is owned
equally by The Ziegler Companies, Inc. and James G. Pouros.
(2) Summary of Significant Accounting Policies -
Mortgage Certificates (see Note 3) are carried at par value less
unamortized purchase discount. The purchase discount on the Mortgage
Certificates is amortized over the life of the related outstanding
Mortgage Certificate- Backed Bonds (the "Bonds") using the bonds
outstanding method which approximates the effective interest rate
method. The fair values of the Mortgage Certificates at December 31,
1999 and 1998 approximated carrying value given the nature of the
mortgage obligations underlying the securities and the risk of
prepayment.
Deferred bond issuance costs consist of underwriting discounts and
other expenses of issuance and distribution. Such costs are amortized
over the life of the outstanding Bonds using the bonds outstanding
method which approximates the effective interest rate method.
Cash and investments held by trustee consist of cash and investments in
money market funds. These balances are held by the trustee in
accordance with the related bond indentures.
Cash equivalents are defined as unrestricted short-term investments
maturing within three months of the date of purchase.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
(3) Mortgage Certificates -
The Mortgage Certificates consist of GNMA Certificates (comprising 88%
of the portfolio as of December 31, 1999) guaranteed by the Government
National Mortgage Association ("GNMA") and Guaranteed Mortgage
Pass-Through Certificates (comprising 12% of the portfolio) issued by
the Federal National Mortgage Association ("FNMA") (collectively the
"Mortgage Certificates"). The full and timely payment of the principal
and interest on the GNMA Certificates is guaranteed by GNMA. The GNMA
guaranty is backed by the full faith and credit of the United States
government. FNMA guarantees the payment of principal and interest on
the FNMA Certificates but the FNMA guaranty is not backed by the full
faith and credit of the United States government.
Principal and interest payments received from the Mortgage Certificates
are controlled by the trustee. These funds are utilized to meet the
semiannual interest payments on the Bonds, to reduce the outstanding
principal balance of the Bonds and to pay certain operating expenses of
the Company.
(4) Mortgage Certificate-Backed Bonds Payable -
Bonds outstanding at December 31, 1999, consist of the following:
<TABLE>
<CAPTION>
Outstanding
Principal
Original Amounts
Date of Stated Principal at
Series Rate Bonds Maturity Amounts 12/31/99
<C> <C> <C> <C> <C> <C>
62 7.25% 2/1/92 4/15/22 $ 2,925,000 $ 438,000
63 7.60% 5/1/92 5/15/22 3,400,000 527,000
64 7.40% 6/1/92 6/15/22 3,300,000 576,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,871,000
66 7.00% 1/1/93 1/15/28 3,000,000 2,845,000
68 6.25% 4/1/93 5/01/23 3,000,000 1,506,000
69 6.00% 5/1/93 5/01/23 3,022,000 925,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,229,000
71 7.00% 4/1/94 9/20/23 3,015,000 1,219,000
73 7.00% 4/1/94 4/15/24 3,130,000 1,945,000
74 7.10% 5/1/94 2/15/24 3,145,000 2,956,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,084,000
79 6.75% 6/1/95 6/15/22 2,622,000 2,460,000
81 7.00% 4/1/96 5/15/28 3,237,000 3,145,000
82 7.25% 6/1/96 9/15/30 2,987,000 2,922,000
83 7.00% 4/1/97 2/15/27 3,152,000 2,101,000
49,644,000 32,749,000
American Mortgage Securities, Inc.
Mortgage Certificate-Backed Bonds
5 7.35% 3/1/92 3/01/22 3,000,000 726,000
$52,644,000 $33,475,000
</TABLE>
The stated maturities are the dates on which Bonds will be fully paid
assuming no prepayments are received on the Mortgage Certificates which
serve as collateral for the Bonds and no Bonds are called. The stated
maturities of the Bonds will be shortened by prepayments on the
Mortgage Certificates and by any Bond calls.
The Bonds can be redeemed each month without premium under the
following circumstances:
The Company must call the Bonds, to the extent funds are
available, commencing in the twelfth month following the original
issuance of each series or commencing at such time as the
aggregate balance in the redemption fund, as defined in the
prospectus, for each series that reaches $100,000; whichever
occurs first.
The Bonds of any series may be redeemed in whole by the Company
after the third anniversary of the original issuance and,
commencing with Series 16 bonds, at any time as the outstanding
principal amount of such series is less than 10% of the aggregate
principal amount of such series originally issued.
Bondholders can present their Bonds for redemption each month
commencing with the second calendar month following the month in
which each series is originally issued. The Company will redeem
such Bonds to the extent funds are available.
The market values in the secondary bond market of the Bonds outstanding
as of December 31, 1999 and 1998, approximated $32,933,000 and
$42,172,000, respectively, based on current market rates offered on
notes with similar terms and maturities.
(5) Related Parties -
B. C. Ziegler and Company, a wholly-owned subsidiary of The Ziegler
Companies, Inc. which owns 50% of the Company's outstanding stock, is
the sole underwriter for the Bonds issued by the Company. In its
capacity as underwriter, B. C. Ziegler and Company received a fee for
its services equal to a percent of the Bonds offered by the Company.
B. C. Ziegler and Company provided management and administrative
services to the Company for which, pursuant to a management agreement
with the Company, they were entitled to receive a management fee not to
exceed .375% of the aggregate outstanding principal amount of bonds
issued by the Company at the last day of the month preceding each
semiannual payment date. Any calculated management fee is
retroactively reduced to such amount (not less than zero) as will
prevent the Company from suffering a loss for each fiscal year.
The Company sold approximately $39,578,000 of Mortgage Certificates to
B. C. Ziegler and Company in February, 1998, and $5,017,000 of Mortgage
Certificates to The Ziegler Companies, Inc. in October, 1998, both of
which are related companies. The Mortgage Certificates were sold at
par which approximated market value. The proceeds from the Mortgage
Certificates were used to call Bonds which were outstanding. Because
of the high correlation between the purchase discount on the Mortgage
Certificates and the deferred issuance costs, the sale of the Mortgage
Certificates and subsequent replacement of the Bonds at par value did
not result in any significant impact to net income.
As of December 31, 1999 and 1998, the Company owed B. C. Ziegler and
Company $5,203 and $447, respectively, for accrued management fees.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page
<S> <C> <C>
3 Articles of Incorporation, as amended, and
Bylaws of the Company, as amended, (incor-
porated by reference to Exhibits 3(a) and 3(b)
to Registration Statement on Form S-11,
Commission file number 33-21324) *
4 (A) Indenture dated January 1, 1986 between the
Company and M&I First National Bank, as
Trustee, relating to Mortgage Certificate-
Backed Bonds (incorporated by reference to
Exhibit 4(a) to Registration Statement on
Form S-11, Commission file number 33-1726) *
4 (Q) Sixty-Second Supplemental Indenture dated as
of February 1, 1992 (incorporated by
reference to Exhibit (4.1) to Form 8-K
filed February 26, 1992, Commission file
number 33-28290) *
4 (R) Sixty-Third Supplemental Indenture dated as
of May 1, 1992 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed June 2,
1992, Commission file number 33-28290) *
4 (S) Sixty-Fourth Supplemental Indenture dated as
of June 1, 1992 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed June 18,
1992, Commission file number 33-28290) *
4 (T) Sixty-Fifth Supplemental Indenture dated as
of January 1, 1993 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed February 1,
1993, Commission file number 33-28290) *
4 (U) Sixty-Sixth Supplemental Indenture dated as
of January 1, 1993 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed February 1,
1993, Commission file number 33-28290) *
4(V) Sixty-Eighth Supplemental Indenture dated as
of April 1, 1993 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed April 23,
1993, Commission file number 33-28290) *
4(W) Sixty-Ninth Supplemental Indenture dated as
of May 1, 1993 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed May 27,
1993, Commission file number 33-28290) *
4(X) Seventieth Supplemental Indenture dated as
of March 1, 1994 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed April 4,
1994, Commission file number 33-28290) *
4(Y) Seventy-First Supplemental Indenture dated as
of April 1, 1994 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed May 2,
1994, Commission file number 33-28290) *
Exhibit
Number Description of Exhibit Page
4(AA) Seventy-Third Supplemental Indenture dated as
of April 1, 1994 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed May 6,
1994, Commission file number 33-28290) *
4(AB) Seventy-Fourth Supplemental Indenture dated as
of May 1, 1994 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed June 1,
1994, Commission file number 33-28290) *
4(AC) Seventy-Fifth Supplemental Indenture dated as
of June 1, 1994 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed July 5,
1994, Commission file number 33-28290) *
4(AD) Seventy-Sixth Supplemental Indenture dated as
of September 1, 1994 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed September 30,
1994, Commission file number 33-28290) *
4(AF) Seventy-Eighth Supplemental Indenture dated as
of April 1, 1995 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed May 1,
1995, Commission file number 33-28290) *
4(AG) Seventy-Ninth Supplemental Indenture dated as
of June 1, 1995 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed June 30,
1995, Commission file number 33-28290) *
4(AI) Eighty-First Supplemental Indenture dated as
of April 1, 1996 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed April 21,
1996, Commission file number 33-28290) *
4(AJ) Eighty-Second Supplemental Indenture dated as
of June 1, 1996 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed June 26,
1996, Commission file number 33-28290) *
4(AK) Eighty-Third Supplemental Indenture dated as
of April 1, 1997 (incorporated by reference
to Exhibit (4.1) to Form 8-K filed May 21,
1997, Commission file number 33-28290) *
10 Underwriting Agreement dated as of May 17,
1995 between the Company and B. C. Ziegler
and Company (incorporation by reference to
Exhibit 1 to Registration Statement on Form
S-3, Commission file number 33-92454) *
23 Consent of Arthur Andersen LLP 27
27 Financial Data Schedule 28
</TABLE>
*Incorporated by reference
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K into the Company's previously filed
Registration Statement File No. 33-92454 on Form S-3.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 27, 2000
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ZMSI-II
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,049,777
<SECURITIES> 32,612,794
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,908,506
<CURRENT-LIABILITIES> 0
<BONDS> 33,475,000
0
1,500,000
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,908,506
<SALES> 0
<TOTAL-REVENUES> 2,855,633
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 385,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,469,747
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
