-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B0hQlvpNtGk6LSMoq85bbEYhnW83DTgYI8RBzWJaXsmWHT//aWgLSYJsWMKUMbIE KQsDbsG6zQxyb9FzdKnsdw== 0000784013-00-000001.txt : 20000411 0000784013-00-000001.hdr.sgml : 20000411 ACCESSION NUMBER: 0000784013-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZIEGLER MORTGAGE SECURITIES INC II CENTRAL INDEX KEY: 0000784013 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 391539696 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-01726 FILM NUMBER: 582566 BUSINESS ADDRESS: STREET 1: 215 N MAIN ST CITY: WEST BEND STATE: WI ZIP: 53095 BUSINESS PHONE: 4143345521 MAIL ADDRESS: STREET 1: 215 NORTH MAIN STREET CITY: WEST BEND STATE: WI ZIP: 53095 10-K 1 1999 10-K FOR ZIEGLER MORTGAGE SECURITIES INC II 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 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 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. 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
Expected Maturity Dates (In US dollars) ASSETS 2000-2004 Thereafter Total Fair Value 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. 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. 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 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 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.
ZIEGLER MORTGAGE SECURITIES, INC. II BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 1999 1998 ASSETS > 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
The accompanying notes to financial statements are an integral part of these balance sheets. ZIEGLER MORTGAGE SECURITIES, INC. II STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 Revenues: 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.
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 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.
ZIEGLER MORTGAGE SECURITIES, INC. II STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 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,
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:
Outstanding Principal Original Amounts Date of Stated Principal at Series Rate Bonds Maturity Amounts 12/31/99 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
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
Exhibit Number Description of Exhibit Page 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
*Incorporated by reference 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 EXHIBIT 27 FINANCIAL DATA SCHEDULE EX-27 2 FDS FOR FISCAL 1999
5 This schedule contains summary financial information extracted from ZMSI-II financial statements and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1999 DEC-31-1999 1,049,777 32,612,794 0 0 0 0 0 0 35,908,506 0 33,475,000 0 1,500,000 20,000 0 35,908,506 0 2,855,633 0 0 385,886 0 2,469,747 0 0 0 0 0 0 0 0 0
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