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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. 2)
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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
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_______________NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP______________
(Name of Registrant as Specified in Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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<S> <C> <C>
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of
Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Units of Depositary Receipts Representing Assigned Limited Partner Interests
2) Aggregate number of securities to which transaction applies:
8,168,457.7
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
$3.69 (aggregate amount to be distributed to security holders, assuming a
sale of the partnership's holdings for the estimated fair market value,
$30,169,500)
4) Proposed maximum aggregate value of transaction:
$30,169,500 (aggregate amount to be distributed to security holders, assuming
a sale for the estimated fair market value, the partnership's holdings at
$30,169,500)
5) Total fee paid:
$6,033.18
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
51 Madison Avenue, Suite 1710
New York, New York 10010
Telephone Number: 1-800-278-4117
June 1, 1996
To the Unitholders of
NYLIFE Government Mortgage Plus Limited Partnership:
Enclosed is a copy of the definitive consent solicitation statement (the
"Definitive Solicitation Statement") relating to the solicitation of written
consents of the unitholders (the "Unitholders") of NYLIFE Government Mortgage
Plus Limited Partnership, a Massachusetts limited partnership (the
"Partnership"), to dissolve, terminate and wind up the Partnership.
Due to the importance of the actions for which your consent is solicited,
you should carefully read the Definitive Solicitation Statement in its entirety.
A consent form is enclosed.
Regardless of the number of units of depositary receipts of the Partnership
("Units") you hold, it is important that your Units be voted. After you have
received and read the Definitive Solicitation Statement, we urge you to fill in,
date, sign and mail the enclosed consent form promptly.
Sincerely,
NYLIFE REALTY INC.,
GENERAL PARTNER
YOUR VOTE IS IMPORTANT, PLEASE SIGN AND RETURN THE ENCLOSED
CONSENT FORM PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE>
DEFINITIVE SOLICITATION STATEMENT
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
51 Madison Avenue, Suite 1710
New York, NY 10010
Telephone Number: 1-800-278-4117
SOLICITATION OF CONSENTS TO DISSOLVE, TERMINATE
AND WIND UP THE PARTNERSHIP
To the Unitholders of NYLIFE Government Mortgage Plus Limited Partnership:
NYLIFE Government Mortgage Plus Limited Partnership, a Massachusetts limited
partnership (the "Partnership"), is soliciting consents of holders (the
"Unitholders") of record of units of depositary receipts ("Units") representing
assigned limited partner interests in the Partnership held by NYLIFE Depositary
Corporation (the "Corporate Limited Partner") to dissolve, terminate and wind up
the Partnership (the "Proposal"). If the Proposal is approved by the requisite
consent of Unitholders, the Partnership will be dissolved, terminated and wound
up in accordance with the terms of the Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement"). Under the
Partnership Agreement, adoption of the Proposal requires the consent of holders
of record of more than 50% of the outstanding Units (a "majority in interest").
NYLIFE Realty Inc. (the "General Partner"), the sole general partner of the
Partnership, is not making any recommendation as to whether or not a Unitholder
should vote in favor of the Proposal. Each Unitholder must make his, her or its
own decision with respect to the Proposal.
The approximate date on which this Definitive Solicitation Statement is
first being mailed to Unitholders is June 1, 1996. This Definitive Solicitation
Statement modifies and supersedes the Preliminary Solicitation Statement for the
Partnership dated March 29, 1996. Each Unitholder received, with the Preliminary
Solicitation Statement, a Statement of Eligibility which contained a schedule
showing total distributions received by such Unitholder through March 29, 1996
and an estimate of the payment to be received by such Unitholder under the
Settlement. Upon request, the General Partner will provide a copy of the
Statement of Eligibility to a Unitholder at no charge. Only Unitholders of
record at the close of business on May 14, 1996 (the "Record Date") will be
entitled to submit consent forms with respect to the Proposal. The consent
solicitation for the Partnership will expire at 5:00 p.m., New York time, on
July 1, 1996, unless extended by the General Partner (as extended from time to
time, the "Expiration Date"). However, the Proposal will be deemed adopted and
effective on the date (the "Approval Date") when the Partnership has received
executed consent forms consenting to the Proposal from the holders of a majority
in interest of the Units outstanding on the Record Date.
Unitholders may revoke any previously submitted consent with respect to the
Proposal by delivering written notice of revocation to the Partnership prior to
the earlier of the Approval Date or the Expiration Date. Any duly executed
consent form on which a consent or indication of withholding of consent is not
indicated (except broker non-votes expressly indicating a lack of discretionary
authority to consent) will be deemed a consent to the Proposal. An abstention
from voting on the Proposal will effectively count as withholding consent with
respect to the Proposal.
This Definitive Solicitation Statement is dated May 28, 1996.
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TABLE OF CONTENTS
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PAGE
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SUMMARY...................................................................................... 1
The Partnership............................................................................ 1
The Proposal and Its Potential Effects..................................................... 1
The Proposal............................................................................. 1
Effect of Approval of the Proposal and the Settlement.................................... 2
Required Consent......................................................................... 3
Effect on Partnership and Unitholders If the Proposal Is Not Approved...................... 3
Summary of Potential Payments to Unitholders If Settlement Is Approved..................... 4
No Dissenters' Rights...................................................................... 4
Considerations with Respect to the Proposal................................................ 4
Material Advantages and Disadvantages of the Proposal to the Partners...................... 5
Determination of Liquidation Advance....................................................... 5
Litigation and Proposed Settlement......................................................... 6
The Lawsuit.............................................................................. 6
Denial of Claims......................................................................... 6
Terms of Proposed Settlement Payments.................................................... 6
Release.................................................................................. 6
Conditions to Settlement................................................................. 6
Class Notice and Final Order............................................................. 7
Federal Income Tax Consequences............................................................ 7
Interests of General Partner and Affiliates................................................ 8
Solicitation Costs......................................................................... 8
THE PROPOSAL AND CONSIDERATIONS WITH RESPECT TO THE PROPOSAL................................. 9
The Proposal............................................................................... 9
General.................................................................................. 9
Liquidation Procedures................................................................... 9
Sale of the Partnership's Assets......................................................... 9
Provision for Liabilities................................................................ 9
Liquidating Distributions................................................................ 10
Allocation of Profits and Losses......................................................... 10
Effect of Approval of the Proposal and the Settlement...................................... 11
Cash Payments to Settling Unitholders.................................................... 11
Effect of Settlement on Liquidating Distributions........................................ 13
Consent of Unitholders to the Proposal..................................................... 14
Effect on Partnership and Unitholders If the Proposal Is Not Approved...................... 14
Summary of Potential Payments to Unitholders If Settlement Is Approved..................... 15
No Dissenters' Rights...................................................................... 15
Board Determination........................................................................ 15
Considerations with Respect to the Proposal................................................ 16
Material Advantages and Disadvantages of the Proposal to the Partners...................... 16
Disadvantages to Unitholders............................................................. 16
Advantages to Unitholders................................................................ 17
Advantages to General Partner............................................................ 17
Estimated Financial Effects of Immediate Liquidation Versus Continued Operation of the
Partnership............................................................................... 17
LITIGATION AND PROPOSED SETTLEMENT........................................................... 17
The Lawsuit and the Class Members.......................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Denial of Claims........................................................................... 18
Payment Under the Settlement Agreement to the Unitholders.................................. 18
The Hearing Order and the Settlement Hearing............................................... 19
Potential Termination of the Settlement Agreement.......................................... 19
Potential Termination of the Settlement Agreement with Respect to the Partnership.......... 19
Release.................................................................................... 20
Final Approval and Final Order and Judgment................................................ 20
REGULATORY APPROVALS......................................................................... 20
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP............................................... 20
General.................................................................................... 20
General Partner and Management............................................................. 21
Rights and Powers of Unitholders........................................................... 21
Term and Dissolution of the Partnership.................................................... 22
The Mortgages.............................................................................. 22
Cross Creek.............................................................................. 22
Participating Insured Mortgage......................................................... 23
Participating Guaranteed Loan.......................................................... 23
Participation Payments................................................................. 24
Property Description................................................................... 25
The Highlands............................................................................ 25
Participating Insured Mortgage......................................................... 25
Participating Guaranteed Loan.......................................................... 25
Sale of the Highlands.................................................................. 25
Recent Developments.................................................................... 26
Signature Place.......................................................................... 27
Participating Insured Mortgage......................................................... 27
Participating Guaranteed Loan.......................................................... 28
Participation Payments................................................................. 28
Property Description................................................................... 29
Guarantee of PGLs.......................................................................... 29
Competition................................................................................ 29
Legal Proceedings.......................................................................... 29
SELECTED FINANCIAL DATA...................................................................... 30
PRO FORMA FINANCIAL DATA..................................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 32
Liquidity and Capital Resources............................................................ 32
Results of Operations...................................................................... 33
March 31, 1996 Compared to March 31, 1995................................................ 33
1995 Compared to 1994.................................................................... 33
1994 Compared to 1993.................................................................... 34
1993 Compared to 1992.................................................................... 34
FEDERAL INCOME TAX CONSEQUENCES.............................................................. 34
General...................................................................................... 34
Cash Payment................................................................................. 34
Liquidation Advance........................................................................ 34
Refund..................................................................................... 34
Enhancement................................................................................ 35
</TABLE>
ii
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<S> <C>
Special Rules for Tax-Exempt Unitholders................................................... 35
Winding Up and Liquidation of Partnership.................................................... 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 36
INTERESTS OF CERTAIN PERSONS IN TRANSACTION.................................................. 36
MARKET FOR UNITS AND RELATED MATTERS......................................................... 37
VOTING PROCEDURES............................................................................ 37
ADDITIONAL INFORMATION....................................................................... 38
INCORPORATION BY REFERENCE................................................................... 39
INDEX TO FINANCIAL STATEMENTS................................................................ F-1
APPENDIX A -- NUMERICAL EXAMPLES OF ALTERNATIVE PAYMENTS TO PARTNERS IF SETTLEMENT IS
APPROVED.................................................................................... A-1
</TABLE>
iii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS INTENDED TO ASSIST UNITHOLDERS IN REVIEWING THE
MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS SOLICITATION STATEMENT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DETAILED INFORMATION.
THE PARTNERSHIP
The Partnership is a Massachusetts limited partnership that was formed in
1988 solely for the purposes of investing in (a) federally insured or coinsured
mortgages on multi-family residential properties or residential care facilities
directly, or through the purchase of mortgage-backed securities ("MBSs")
guaranteed as to principal and Basic Interest (as defined in the Partnership
Agreement) by the Government National Mortgage Association ("GNMA"), (b)
participations in the revenue stream above a specified base level and/or in the
residual value, if any, of the underlying property generally secured by a
subordinated mortgage ("Participation Interests"), and (c) a limited amount of
uninsured loans to the equity investors ("Individual Investors") in the entities
that own such underlying properties, which loans also provide indirectly for
additional Partnership participation in the revenue stream above a specified
base level and/or in the residual value of the underlying property
("Participating Guaranteed Loans" or "PGLs"). Although the Participation
Interests are not guaranteed or insured by any government agency and the PGLs
are not secured by any real estate mortgage, for ease of reference, the MBSs and
the Participation Interests are collectively referred to herein as the
"Participating Insured Mortgages" or "PIMs" and the PIMs and the PGLs are
collectively referred to herein as the "Mortgages".
The Partnership's initial public offering of Units began on May 26, 1989 and
concluded on September 30, 1991 (the "Public Offering"). As of such date, the
Partnership had raised gross proceeds of $81,684,577. After the return of
$42,312,611 of uninvested gross proceeds (the "Uninvested Gross Proceeds") to
investors in 1992, the Partnership had 8,168,457.7 Units outstanding with a
capital value of $39,371,966 or $4.82 per Unit. The Partnership has returned
cash distributions of $21,005,808, or 53.35%, of the $39,371,966 invested by the
Unitholders through December 31, 1995. The General Partner has received $378,322
in cash distributions through December 31, 1995.
Since the formation of the Partnership, the Partnership has invested in
three PIMs consisting of (i) MBSs collateralized by three federally co-insured
mortgages on multi-family residential properties pursuant to the coinsurance
program of Section 221(d)(4) of the National Housing Act and (ii) Participation
Interests evidenced by additional interest agreements and secured by
subordinated mortgages on such properties. Each MBS is guaranteed as to
principal and Basic Interest by GNMA. The Partnership recently sold one such
MBS, and currently holds two such MBSs. See "Certain Information Concerning the
Partnership -- The Mortgages -- The Highlands -- Recent Developments." The
remaining two MBSs are related to two PIMs which provide for the Partnership to
participate in 50% of the underlying property's net cash flow and appreciation,
if any. The Partnership originally funded three PGLs with respect to the same
properties underlying the Partnership's PIMs. The Partnership currently holds
two such PGLs. These PGLs provide for additional Partnership participation of
10% to 15% in such properties' net cash flow and appreciation, if any.
The General Partner, NYLIFE Realty Inc., is a Delaware corporation and an
indirect wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"). NYLIFE Inc., a subsidiary of New York Life, is the sole stockholder of
the General Partner. The General Partner is primarily responsible for both
investment and administrative matters of the Partnership.
THE PROPOSAL AND ITS POTENTIAL EFFECTS
THE PROPOSAL. The Partnership is soliciting the consent of the Unitholders
to the Proposal. The consents are being sought in connection with a proposed
settlement (the "Settlement") of a class action lawsuit (the "Lawsuit") pending
in the United States District Court for the Southern District of Florida (the
"Court"). The Proposal is not conditioned upon the Settlement being approved or
completed. If the Proposal is approved, the Partnership will be dissolved,
terminated and wound up in
<PAGE>
accordance with the terms of the Partnership Agreement. The assets of the
Partnership will be sold for cash at the best price available therefor and the
cash remaining after satisfaction of the Partnership's liabilities generally
will be distributed to the General Partner and the Unitholders (together, the
"partners"). For a discussion of the allocation and distribution of proceeds to
the partners upon liquidation of the Partnership, see "The Proposal and
Considerations with Respect to the Proposal -- The Proposal -- Liquidating
Distributions."
EFFECT OF APPROVAL OF THE PROPOSAL AND THE SETTLEMENT. Under the
Settlement, "Cash Payments" will be made by the General Partner, as paying agent
for NYLIFE Inc., directly to Settling Unitholders (as defined below) if the
Settlement is approved by the Court and becomes final. If no appeal is filed,
the Settlement will become final 30 days after the Court enters a Final Order
and Judgment approving the Settlement; otherwise, the Settlement becomes final
when all appellate proceedings have been concluded and those proceedings result
in the courts upholding the Final Order and Judgment (the "Final Settlement
Date"). The Cash Payments will be made within 30 days after the Final Settlement
Date, or as soon thereafter as practicable. The Court currently has scheduled
the hearing regarding approval of the Settlement for July 3, 1996.
If the Proposal is approved, a Unitholder who remains in the class (a
"Settling Unitholder") will receive under the Settlement a Cash Payment that,
when added to prior distributions received, will at least equal the amount
invested by that Settling Unitholder. Each Unitholder received, with the
Preliminary Solicitation Statement, a Statement of Eligibility which contained a
schedule showing total distributions received by such Unitholder through March
29, 1996 and an estimate of the payment to be received by such Unitholder under
the Settlement. Upon request, the General Partner will provide a copy of the
Statement of Eligibility to a Unitholder at no charge. See "The Proposal and
Considerations with Respect to the Proposal -- Effect of Approval of the
Proposal and the Settlement -- Cash Payments to Settling Unitholders."
The first part of the Cash Payment will be a "Liquidation Advance." The
Liquidation Advance will be the Unitholder's proportionate share in the Loan
Balance as of December 31, 1995 and in "Distributable Working Capital." "Loan
Balance" and "Distributable Working Capital" are more fully described under "The
Proposal and Considerations with Respect to the Proposal -- Effect of Approval
of the Proposal and the Settlement."
The Liquidation Advance will be repaid to the General Partner solely out of
any "Liquidating Distribution" made by the Partnership to a Settling Unitholder.
The Liquidating Distribution will consist of the Partnership's cash and other
assets that remain after the Partnership's assets are sold and its liabilities
are discharged. To ensure that repayment, each Settling Unitholder will grant
the General Partner a security interest in such Settling Unitholder's Units and
Liquidating Distribution up to the amount of the Liquidation Advance. If the
Liquidating Distribution is less than the Liquidation Advance, a Settling
Unitholder has no obligation to repay the difference to the General Partner. If
a Settling Unitholder's Liquidating Distribution exceeds the Liquidation
Advance, then that Settling Unitholder will receive the excess amount in up to
two installments as the Partnership is liquidated and liabilities are satisfied.
The second part of the Cash Payment to a Settling Unitholder will be either
a "Refund" or an "Enhancement." A Refund will be paid if the Liquidation
Advance, plus all prior distributions, is less than the amount invested by a
Settling Unitholder in the Partnership. The Refund portion of the Cash Payment
will be equal to that difference. An Enhancement will be paid if the Liquidation
Advance, plus all prior distributions, equals or exceeds the amount invested by
a Settling Unitholder in the Partnership. The Enhancement will be equal to $.20
multiplied by the number of Units of the Partnership owned by a Settling
Unitholder. In no event will a Settling Unitholder receive less than $200 as a
Refund or an Enhancement with respect to the Partnership. For payments that may
be made to a Settling Unitholder that is an employee benefit plan, see "The
Proposal and Considerations with Respect to the Proposal -- Effect of Approval
of the Proposal and the Settlement."
The Refund or the Enhancement, together with the Liquidation Advance, form
the consideration provided to a Settling Unitholder in exchange for the release
of claims that is provided under the
2
<PAGE>
Settlement. The Enhancement is being offered to the Settling Unitholders who
have received a full return on their investment as part of the consideration for
the Release (as defined below) they will grant the Defendants (as defined
below). See "Litigation and Proposed Settlement -- Release." Due to their
different individual circumstances, Settling Unitholders who receive an
Enhancement will be receiving, together with the Liquidation Advance and prior
distributions, an aggregate return on their investment that is more than the
return on investment obtained by those Settling Unitholders who receive a
Refund. All Settling Unitholders, however, will receive at least a return of
their investment, taking account of prior distributions.
Cash Payments under the Settlement will not be made to a Unitholder who
elects not to participate in the Settlement. A "Non-Settling Unitholder" will
receive only a Liquidating Distribution after sale of the Partnership
properties, which will not include any Refund or Enhancement amount, and thus
will be less than the amount the Non-Settling Unitholder would have received if
that Unitholder had elected to participate in the Settlement.
There are numerous conditions to the Settlement, including approval by the
Court. There can be no assurance that if the Proposal is approved by the
Unitholders and the Partnership is liquidated, such conditions will be
satisfied. If the Proposal is approved but the Settlement does not become final,
Unitholders will receive only Liquidating Distributions. See "Litigation and
Proposed Settlement -- Potential Termination of the Settlement Agreement" and
"Litigation and Proposed Settlement -- Potential Termination of the Settlement
Agreement with Respect to the Partnership."
NYLIFE Inc., the sole stockholder of the General Partner, will deposit funds
into a trust account for the benefit of the General Partner to ensure the
payment of the Cash Payment to Settling Unitholders under the Settlement
Agreement. The General Partner will act as paying agent for NYLIFE Inc. with
respect to the Cash Payments. The audited balance sheet of NYLIFE Inc. as of
December 31, 1995 is included elsewhere herein. The General Partner, although
solvent, has only nominal assets and capital. Accordingly, it is unable to
contribute in any material manner to any payments required under the Settlement
and is also unable to satisfy any other substantial liabilities of the
Partnership or that may arise as a result of the liquidation of the Partnership.
Liabilities of the General Partner as to the Settlement have been assumed by
NYLIFE Inc. Therefore, the General Partner does not believe that its financial
statements are relevant to the decision of Unitholders with respect to approving
the Proposal or participating in the Settlement, and, accordingly, such
financial information is not included with this Definitive Solicitation
Statement. Any Liquidating Distributions, however, will be made only from the
net proceeds remaining after the sale of the Partnership's assets and
satisfaction, or provision for satisfaction, of all the Partnership's
liabilities (see "The Proposal and Consideration with Respect to the Proposal --
The Proposal -- Liquidating Distributions."). See "The Proposal and
Considerations with Respect to the Proposal -- Effect of Approval of the
Proposal and the Settlement -- Cash Payments."
For an estimate of what a Settling Unitholder who purchased $10,000 worth of
Units in August 1989 at the initial closing of the Public Offering could expect
to receive if the Proposal is approved and the Settlement becomes final, see
"The Proposal and Considerations with Respect to the Proposal -- Effect of
Approval of the Proposal and the Settlement" and Appendix A.
REQUIRED CONSENT. The Partnership Agreement requires that the holders of a
majority in interest of the Units must approve the Proposal. The General Partner
owns 11,869.86 Units and will vote in respect of the Proposal in the same
proportion as the Unitholders who vote for or against the Proposal. For
information on the number of Units outstanding and the total number of Units
with respect to which Unitholders must give their consent to the Proposal to
approve the Proposal, see "The Proposal and Considerations with Respect to the
Proposal -- Consent of Unitholders." Only Unitholders of record at the close of
business on the Record Date will be entitled to submit consent cards with
respect to the Proposal. The consent solicitation for the Partnership will
expire at 5:00 p.m., New York time, on July 1, 1996, unless extended by the
General Partner. See "Voting Procedures."
3
<PAGE>
EFFECT ON PARTNERSHIP AND UNITHOLDERS IF THE PROPOSAL IS NOT APPROVED
If the Proposal is not approved, the Partnership will continue to own the
Mortgages, and the Partnership will continue to receive payments thereon. As
stated in the Public Offering documents, the Partnership anticipated that it
would receive the value of all of its Mortgages between 1997 and 2002.
Consistent with the Partnership's investment objectives, the General Partner may
consider offers for the sale of the Mortgages as opportunities arise. The
Unitholders do not have the right to vote on the individual sale of any of the
Mortgages. In any such sale, while the Partnership may benefit from any increase
in the value of the Mortgages, it may also result in a decrease in anticipated
revenues of the Partnership (including potential revenues from the participation
features of the Mortgages). This decrease in anticipated revenues, coupled with
the ongoing expenditures for overhead costs associated with investor relations,
investor servicing costs and compliance reporting, may result in a decline of
operating revenues available for distribution to the Unitholders. Although New
York Life has determined to exit the partnership business, the Partnership may
continue to operate until the expiration of the term of the Partnership on
December 31, 2028. In any event, the Partnership will not have the right to call
all of its remaining Mortgages until 2001. If the Settlement is not approved, or
if the Settlement is approved but the Proposal is not approved, it is the
General Partner's current intention to remain as the General Partner of the
Partnership. However, the General Partner
reserves its right under the Partnership Agreement, as future events may
warrant, to withdraw as the General Partner of the Partnership. Failure by the
Unitholders of the Partnership to approve the Proposal will not affect the
rights of the Unitholders under the Partnership Agreement.
Under the terms of the Settlement Agreement (as defined below), if the
consents necessary to dissolve, terminate and wind up the Partnership have not
been obtained by the Final Settlement Date, the New York Life Defendants (as
defined below) will have the option of either (a) terminating the Settlement as
it applies to the Partnership and the Settling Unitholders or (b) paying to each
Settling Unitholder the Refund or the Enhancement, as the case may be, but not
the Liquidation Advance, in exchange for a Release (as defined below) from such
Settling Unitholder. In the latter event, the Refund or the Enhancement, as the
case may be, will be calculated as if the Liquidation Advance had been paid.
There can be no assurance that the future performance of the Partnership or the
outcome of the Lawsuit (as defined above) or any possible future settlement
thereof would result in the Unitholders receiving as much or more than they
would receive if the Proposal is approved and the Settlement is approved and
becomes final. See "The Proposal and Considerations with Respect to the Proposal
- - -- Effect on Partnership and Unitholders if Proposal Is Not Approved."
SUMMARY OF POTENTIAL PAYMENTS TO UNITHOLDERS IF SETTLEMENT IS APPROVED
Under "The Proposal and Considerations with Respect to the Proposal --
Summary of Potential Payments to Unitholders If the Settlement Is Approved" is a
chart setting forth the type of payments the Unitholders may receive, assuming
the Settlement is approved and becomes final, depending upon (a) the approval or
rejection of the Proposal by the Unitholders and (b) the election of the
individual Unitholders to participate in the Settlement.
NO DISSENTERS' RIGHTS
The Unitholders will not be entitled to any dissenters' rights or appraisal
rights under either the Partnership Agreement or Massachusetts law with respect
to the transactions described in this Solicitation Statement. See "The Proposal
and Considerations with Respect to the Proposal -- No Dissenters' Rights."
CONSIDERATIONS WITH RESPECT TO THE PROPOSAL
There is no established trading market for the Units. Dissolution of the
Partnership will provide Unitholders an opportunity to receive cash in
liquidation of their investment in the Partnership and make alternative
investments that such Unitholders believe may generate more favorable returns or
offer more liquidity than are currently being provided by an investment in the
Partnership. However, by dissolving the Partnership, the Unitholders will be
forgoing their proportionate interest in the Mortgages, as well as potential
participation in the cash flow and appreciation of the underlying
4
<PAGE>
properties above specified levels through the participation features of the
Mortgages, which participation could generate returns in excess of amounts
receivable pursuant to the Settlement. There can be no assurance that the
potential participation rights would generate returns that are equivalent to or
greater than the amounts received pursuant to the Settlement. There can be no
assurance that the Settlement will be approved or become final or that any
alternative investments made by a Unitholder with amounts received in connection
with the liquidation and Settlement would generate returns that are equivalent
to or greater than those that would be earned by continuing investment in the
Partnership. See "Litigation and Proposed Settlement."
Continuing to operate the Partnership as a public partnership requires
ongoing expenditures for overhead costs associated with investor relations and
investor servicing, as well as legal and accounting costs associated with
required compliance reporting. The Partnership is subject to federal and state
securities laws and the terms of the Partnership Agreement under which periodic
reports and annual financial statements are required to be generated by the
Partnership. In addition, the cost of completing these reports and financial
statements is paid out of the revenues of the Partnership. Due to the return of
the Uninvested Gross Proceeds to investors in 1992, the aggregate principal
amount of the Mortgages purchased by the Partnership is substantially less than
was originally contemplated pursuant to the Public Offering, and has led to a
corresponding reduction in revenues that were expected to be generated by the
Partnership to cover overhead costs. See "The Proposal and Considerations with
Respect to the Proposal -- The Proposal."
If the Proposal is approved by the Unitholders and the Settlement is
approved by the Court and becomes final, Settling Unitholders will not be
permitted to transfer their Units but will receive the Cash Payment.
THE GENERAL PARTNER IS NOT MAKING ANY RECOMMENDATION AS TO WHETHER OR NOT A
UNITHOLDER SHOULD VOTE IN FAVOR OF THE PROPOSAL. EACH UNITHOLDER MUST MAKE HIS,
HER OR ITS OWN DECISION WITH RESPECT TO THE PROPOSAL.
MATERIAL ADVANTAGES AND DISADVANTAGES OF THE PROPOSAL TO THE PARTNERS
Potential disadvantages to the Unitholders if the Proposal is approved:
- The Unitholders will be forgoing their proportionate interest in the
Mortgages, as well as potential participation in the cash flow and
appreciation of the underlying properties above specified levels through
the participation features of the Mortgages, which participation could
generate returns in excess of amounts receivable pursuant to the
Settlement.
- If a Unitholder participates in the Settlement, he, she or it will release
and discharge the Defendants (as defined below) and various other persons
from any and all past, present and future causes of action in connection
with the Proprietary Partnerships (as defined below).
Potential advantages to the Unitholders if the Proposal is approved:
- Dissolution of the Partnership will provide Unitholders an opportunity to
receive cash in liquidation of their investment in the Partnership and
make alternative investments that such Unitholders believe may generate
more favorable returns or offer more liquidity than are currently being
provided by an investment in the Partnership.
If the Proposal is approved, the General Partner will receive the benefit of
the Release (as defined below). See "The Proposal and Considerations with
Respect to the Proposal -- Material Advantages and Disadvantages of the Proposal
to the Partners," "Litigation and Proposed Settlement -- Release" and "Interests
of Certain Persons in Transaction."
DETERMINATION OF LIQUIDATION ADVANCE
The Liquidation Advance will be equal to the Settling Unitholder's
proportionate share in the sum of (i) the Loan Balance plus (ii) the
Distributable Working Capital. As of December 31, 1995, the Loan Balance was
$30,165,900. The Loan Balance at December 31, 1995 does not take into account
the sale of the Highlands MBS as described under "Certain Information Concerning
the Partnership -- The Mortgages -- The Highlands -- Recent Developments." The
proceeds of such sale will be distributed to Unitholders on May 15, 1996.
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LITIGATION AND PROPOSED SETTLEMENT
THE LAWSUIT. On March 18, 1996, Evelyn Shea and Ann Grimshawe
("Plaintiffs") filed the Lawsuit in the Court against New York Life and several
of its subsidiaries, including the General Partner (together with New York Life,
the "New York Life Defendants") and two companies unaffiliated with New York
Life (collectively, with the New York Life Defendants, the "Defendants"). The
Lawsuit was preceded by two similar but separate lawsuits filed by the
Plaintiffs in Texas State Court on January 11, 1996. The Plaintiffs purport to
represent a class (the "Class") of all persons (the "Class Members") who
purchased or otherwise assumed rights and title to interests ("Proprietary
Investment Units") in certain limited partnerships (the "Proprietary
Partnerships"), including the Partnership, created, sponsored, marketed, sold,
operated or managed by the New York Life Defendants from January 1, 1985 through
March 18, 1996. In the Lawsuit, Plaintiffs allege generally that the Defendants
engaged in fraudulent activities in connection with the marketing and sale of
interests in the Proprietary Partnerships and the subsequent operation of such
partnerships, breached implied covenants and fiduciary duties owed to investors
in the Proprietary Partnerships and violated various federal securities and
state laws and rules. See "Litigation and Proposed Settlement -- The Lawsuit and
the Class Members."
DENIAL OF CLAIMS. The Defendants have denied and continue to deny any
wrongdoing or liability alleged in the Lawsuit. The Defendants have,
nevertheless, agreed to the proposed Settlement of the Lawsuit for the reasons
described in more detail elsewhere in this Solicitation Statement. See
"Litigation and Proposed Settlement -- Denial of Claims and Defendants' Reasons
for Proposed Settlement."
TERMS OF PROPOSED SETTLEMENT PAYMENTS. On March 19, 1996, the Plaintiffs
and Defendants filed with the Court a Stipulation of Settlement (the "Settlement
Agreement") that sets forth the terms of the proposed Settlement of the Lawsuit.
With respect to the Partnership, the proposed Settlement generally provides that
each Settling Unitholder who is a Class Member and who has not excluded himself,
herself or itself from the Class by following the procedures outlined by the
Court will receive the Liquidation Advance and either the Refund or the
Enhancement, as the case may be, as described more fully elsewhere in this
Solicitation Statement. See "Litigation and Proposed Settlement -- Payment Under
the Settlement Agreement to Unitholders" and "The Proposal and Considerations
with Respect to the Proposal -- Effect of Approval of the Proposal and the
Settlement -- Cash Payments to Settling Unitholders."
RELEASE. As part of the proposed Settlement, Plaintiffs and all Class
Members who did not exclude themselves from the Class, including the Settling
Unitholders, will each grant a full release and discharge (the "Release") of the
Defendants, their affiliates, agents and various other persons and entities from
any and all causes of action in connection with the Proprietary Partnerships,
including the Partnership. See "Litigation and Proposed Settlement -- Release."
CONDITIONS TO SETTLEMENT. The Settlement Agreement is not yet final and may
be terminated in certain circumstances. The Settlement will become final only
after the Court enters a Final Order and Judgment approving the Settlement and
the period for appeal thereof has expired, or if the Final Order or Judgment is
appealed, on the date on which all appeals have been finally disposed of in a
manner that affirms the Final Order and Judgment. The Court currently has
scheduled the hearing regarding approval of the Settlement for July 3, 1996. See
"Litigation and Proposed Settlement -- Potential Termination of the Settlement
Agreement."
Plaintiffs have the right to terminate the Settlement Agreement under the
circumstances specified therein. In addition, the Defendants may unilaterally
terminate the Settlement Agreement (a) with respect to all the Proprietary
Partnerships taken together if those persons who elect to exclude themselves
from the Class (i) together number more than 3% of all Class Members, or (ii)
have ownership interests in the Proprietary Partnerships that together account
for more than 3% of all capital invested by limited partners or unitholders in
the Proprietary Partnerships; (b) with respect to a particular Proprietary
Partnership if those persons who elect to exclude themselves from the Class with
respect to a Proprietary Partnership (i) together number more than 3% of all
those who are
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members of the Class with respect to such partnership, or (ii) have ownership
interests in such partnership that together account for more than 3% of all
capital invested by limited partners or unitholders in such partnership; (c) if
the votes, consents or authorizations necessary to dissolve and liquidate four
or more of the Proprietary Partnerships are not obtained; (d) if any state or
federal regulator, self-regulatory organization or other administrative body or
official (i) objects either to any aspect or term of the Settlement Agreement or
to the transactions to be entered into to facilitate the proposed Settlement and
takes or threatens to take any regulatory or legal action that would impair the
ability of the parties to conclude the Settlement or (ii) requires as a
condition of not taking action any modification to the Settlement Agreement,
including, without limitation, any constriction or extension of the scope of the
contemplated relief, that the Defendants in their sole discretion believe would
impair their ability to consummate the Settlement or to provide the contemplated
relief; or (e) if a final order dismissing the Texas State court actions with
prejudice, which is no longer appealable, has not been entered by the Final
Settlement Date. See "Litigation and Proposed Settlement -- Potential
Termination of the Settlement Agreement." Furthermore, the Settlement Agreement
provides that if the Unitholders do not approve the Proposal, the New York Life
Defendants may either (i) unilaterally terminate the Settlement Agreement as it
applies to the Partnership and the Settling Unitholders or (ii) pay each
Settling Unitholder the Refund or the Enhancement, as the case may be, but not
the Liquidation Advance, in exchange for a Release from such Settling Unitholder
as described below. In the latter event, the Refund or the Enhancement, as the
case may be, will be calculated as if the Liquidation Advance had been paid. See
"Litigation and Proposed Settlement -- Potential Termination of Settlement
Agreement with Respect to the Partnership."
CLASS NOTICE AND FINAL ORDER. The Court has certified the Class for
settlement purposes only
and directed the New York Life Defendants, or their designee(s), to cause a
notice (the "Class Notice") to be mailed to all potential members of the Class
at their last known address no later than 90 days before the Settlement Hearing.
The Class Notice has been sent to Unitholders included in the Class and should
be referred to for further information regarding the Lawsuit, the Settlement and
the Settlement Hearing. See "Litigation and Proposed Settlement -- The Hearing
Order and the Settlement Hearing."
FEDERAL INCOME TAX CONSEQUENCES
The following summary of what the General Partner believes, based on the
advice of tax counsel, Akin, Gump, Strauss, Hauer & Feld, L.L.P., are likely to
be the principal federal income tax consequences of the transaction for most
Unitholders, is for general information purposes only. Each Unitholder is
strongly urged to consult his, her or its own tax adviser with respect to the
specific consequences of the receipt of a Cash Payment pursuant to the
Settlement and of the winding up and liquidation of the Partnership in such
Unitholder's particular circumstances. See "Federal Income Tax Consequences."
In general, with respect to the receipt of a Cash Payment pursuant to the
Settlement, the Refund and the Enhancement should be treated for federal income
tax purposes as a return of capital and should be applied against and reduce a
Settling Unitholder's adjusted tax basis in his, her or its Units. To the
extent, if any, that the Refund or Enhancement received by a Settling Unitholder
exceeds his, her or its adjusted tax basis in his, her or its Units, such excess
will constitute taxable income to such Settling Unitholder, which may be
ordinary income. A Settling Unitholder generally should not recognize income on
his, her or its receipt of the Liquidation Advance. If the Liquidation Advance
received by a Settling Unitholder ultimately exceeds the Liquidating
Distribution allocable to such Settling Unitholder, such excess generally should
be treated for federal income tax purposes in the same manner as a Refund
received at the time of the liquidation of the Partnership. Except to the extent
a tax-exempt entity such as a charitable or other tax-exempt organization, a
pension, profit sharing or stock bonus plan, or a Keogh Plan, IRA or other
employee benefit plan (a "Tax-Exempt Unitholder") borrowed to purchase its
Units, such a Unitholder should not recognize unrelated business taxable income
as a result of its receipt of the Refund or Enhancement. Property acquired with
the proceeds of the Liquidation Advance should not be treated as "debt-financed
property" within the meaning of the Internal Revenue Code of 1986, as amended
(the "Code").
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In general, upon the disposition of the Partnership's properties, each
Unitholder will recognize his, her or its allocable share of the gain or loss
from the properties sold. Such amount will be treated as capital gain except to
the extent of the amount of gain attributable to (i) accrued, unpaid interest
(including original issue discount), (ii) interest based on appreciation in
property or (iii) market discount (in certain cases).
A Unitholder could also recognize additional gain or loss upon the
liquidation of the partnership and the distribution of the sales proceeds, to
the extent that the sum of the cash received (including the amount of the
Liquidating Distribution deemed received) and the reduction in his, her or its
share of Partnership non-recourse liabilities (if any) is greater or less than
the adjusted tax basis of his, her or its Units (taking into account any gain or
loss recognized from the sale of the Partnership assets and his, her or its
receipt of a Refund or Enhancement). Such gain or loss should be characterized
as capital gain or loss.
A Tax-Exempt Unitholder may have unrelated business taxable income as a
result of the winding up and liquidation of the Partnership if it has incurred
"acquisition indebtedness" within the meaning of the Code with respect to its
Units.
See "Federal Income Tax Consequences."
INTERESTS OF GENERAL PARTNER AND AFFILIATES
The Proposal may give rise to interests of the General Partner and certain
conflicts of interest arising out of the relationships among the Partnership,
the General Partner and affiliates of the General Partner. If the Court approves
the Settlement and the Settlement becomes final, the General Partner and certain
of its affiliates will be released from certain liabilities as discussed under
"Litigation and Proposed Settlement -- Release." As a condition to receipt of a
Liquidation Advance from the General Partner, as paying agent for NYLIFE Inc.,
each Settling Unitholder will grant a security interest in favor of the General
Partner in his, her or its Units and Liquidating Distribution up to the amount
of such Settling Unitholder's Liquidation Advance to secure the repayment of the
Liquidation Advance out of his, her or its Liquidating Distribution. The General
Partner is entitled to receive an asset management fee ("Asset Management Fee")
equal to .5% of the total invested assets of the Partnership on a quarterly
basis. However, the General Partner has agreed to waive any such future Asset
Management Fees if the Proposal is approved. The General Partner will receive a
Liquidating Distribution as a result of its general partnership interest and
ownership of Units. No Cash Payment will be made with respect to Units owned by
the General Partner. See "Interests of Certain Persons in Transaction,"
"Security Ownership of Certain Beneficial Owners and Management" and "The
Proposal and Considerations with Respect to the Proposal -- Material Advantages
and Disadvantages of the Proposal to the Partners -- Advantages to General
Partner."
SOLICITATION COSTS
The Partnership Agreement allows certain costs and expenses incurred by the
General Partner, including those in connection with the preparation and mailing
of the Solicitation Statement and all papers which accompany or supplement the
Solicitation Statement, to be charged to the Partnership. The General Partner,
however, has elected to pay all costs and expenses, including legal fees,
incurred in connection with the preparation, filing and distribution of this
Solicitation Statement and all accompanying or supplementary papers.
The Partnership has retained the services of D. F. King & Co., Inc. ("King")
to solicit the written consents of the Unitholders. Additionally, Boston
Financial Data Services, Inc. ("BFDS") has been retained by the General Partner,
certain of its affiliates and the Plaintiffs as the class action administrator
in connection with the Lawsuit. As such, BFDS may assist in the solicitation of
written consents. Solicitation of written consents also may be undertaken by the
directors, officers, employees and agents of the General Partner or New York
Life. Solicitation may be made by mail, telephone, telegraph, facsimile
transmission or personal interview. The fees and expenses of King and BFDS and
the costs incurred by the General Partner in connection with the solicitation of
consents will be borne by the General Partner. See "Voting Procedures."
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THE PROPOSAL AND CONSIDERATIONS WITH RESPECT TO THE PROPOSAL
THE PROPOSAL
GENERAL. The Partnership is requesting the consent of the Unitholders to
dissolve, terminate and wind up the Partnership. If the Proposal is approved,
the assets of the Partnership will be sold and, after satisfaction of all
Partnership liabilities, the net proceeds of such sale will be distributed to
the partners in accordance with the terms of the Partnership Agreement. The
Proposal is not conditioned upon the Court's approval of the Settlement or the
Settlement becoming final. There can be no assurance that the Settlement will be
approved and become final.
Summarized in this Solicitation Statement are certain provisions of the
Partnership Agreement. Such summaries are qualified in their entirety by
reference to the full text of the Partnership Agreement, which has been provided
previously to the Unitholders and copies of which may be obtained without charge
upon request to the Partnership at the address set forth under "Incorporation By
Reference."
LIQUIDATION PROCEDURES. The Partnership Agreement provides that upon the
dissolution of the Partnership, the General Partner shall proceed with the
liquidation of the Partnership (including, without limitation, the sale or other
disposition of any remaining Mortgages and cancellation of the Certificate of
Limited Partnership), and the net proceeds of such liquidation shall be first
applied to the payment of debts and other obligations of the Partnership, and
all remaining net proceeds, if any, shall be applied and distributed as
described below under "-- Liquidating Distributions." The General Partner will
determine the amount, timing and method of making any Liquidating Distributions
to the Unitholders in accordance with the terms of the Partnership Agreement.
See "-- Liquidating Distributions." (Liquidating Distributions of Settling
Unitholders will be subject to a security interest, as described under "The
Proposal and Considerations with Respect to the Proposal -- Effect of Approval
of the Proposal and the Settlement -- Cash Payments to Settling Unitholders.")
The Partnership will terminate upon the final distribution of the net proceeds
from the liquidation of the Partnership's assets, and the General Partner will
thereafter file a Certificate of Cancellation with the Secretary of State of the
Commonwealth of Massachusetts for the Limited Partnership. Any right of the
General Partner to reasonable compensation for services rendered in connection
with the liquidation will be waived by the General Partner.
SALE OF THE PARTNERSHIP'S ASSETS. If the Proposal is approved, the General
Partner will undertake to sell the Mortgages to unaffiliated third-party
purchasers for cash at the best price available therefor. New York Life has
engaged Morgan Stanley & Co. Incorporated ("Morgan Stanley") to conduct the sale
of the Mortgages and to render advice to the General Partner in connection
therewith. The General Partner, however, reserves the right to sell the
properties in any other manner that it believes will achieve the best price. The
General Partner has not yet received from Morgan Stanley, or any other party,
any estimate of the fair market value of the Mortgages. Morgan Stanley is an
internationally recognized investment banking and advisory firm that provides
investment banking and financial advisory services. Morgan Stanley, as part of
its investment banking business, is continually engaged in the valuation of
businesses and securities in connection with competitive biddings and valuations
for corporate and other purposes. Any fees payable to Morgan Stanley in
connection with the sale of the Mortgages will be paid by New York Life.
The General Partner and its affiliates will not purchase any of the
Partnership's properties or assets in the liquidation. Any such purchase would
generally be prohibited by the Partnership Agreement.
The Partnership has recently sold the Highlands MBS. No sale or agreement to
sell any of the other Mortgages has been made, and there can be no assurance as
to the price that will be received upon any such sale.
PROVISION FOR LIABILITIES. Provision will be made for the payment of all
debts and liabilities of the Partnership, including all expenses incurred in the
liquidation, prior to distribution of the proceeds
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realized from liquidating the Partnership's properties and assets. See the
Financial Statements included elsewhere herein for the liabilities of the
Partnership as shown on the balance sheet of the Partnership as of December 31,
1995 and March 31, 1996. The General Partner will set aside a specified amount
to meet anticipated liabilities of the Partnership.
Under applicable Massachusetts law, distributions to limited partners,
including liquidating distributions, are subject to satisfaction of the
liabilities of the dissolving limited partnership. In general, a limited
partnership is prohibited from making a distribution to its partners to the
extent that, after giving effect to the distribution, the partnership's
liabilities exceed the fair value of its assets. In the event a final
liquidating distribution is made to the Unitholders without payment of all
Partnership liabilities, a Unitholder may be liable therefor, for a period of
one year, to the extent he, she or it received the return of any part of his,
her or its capital contribution to the extent necessary to discharge the
Unitholder's share of the Partnership's liabilities to creditors who extended
credit to the Partnership during the period the contribution was held by the
Partnership. As the Cash Payments are not being made by the Partnership and
therefore do not constitute distributions to the Unitholders, this provision of
Massachusetts law does not apply with respect to the Cash Payments and the
Unitholders will not be liable to the Partnership thereof.
LIQUIDATING DISTRIBUTIONS. After discharging all debts and liabilities of
the Partnership or making provision therefor, all remaining cash will be
distributed in accordance with the terms of the Partnership Agreement as
summarized below. The dissolution of the Partnership is not conditioned upon the
Settlement being approved by the Court or the Settlement becoming final.
Therefore, if the Proposal is approved, there can be no assurance that a
Unitholder will receive any amounts other than a Liquidating Distribution.
The Partnership Agreement provides that upon a Terminating Capital
Transaction, which would include the dissolution, termination and winding up of
the Partnership contemplated by the Proposal, the cash received by the
Partnership in such transaction less all debts and liabilities of the
Partnership required to be paid as a result of the transaction and any reserves
for contingent liabilities, to the extent deemed reasonable by the General
Partner ("Net Cash Proceeds"), will be distributed in the following order of
priority:
(i) first, each Unitholder and the General Partner will receive an
amount equal to the then positive balance, if any, in his, her or its
capital account;
(ii) second, the Unitholders will receive a return of their invested
capital;
(iii) third, the General Partner will receive a return of its invested
capital;
(iv) fourth, Net Cash Proceeds will be distributed 99% to the Unitholders
and 1% to the General Partner until the Unitholders receive such amount as
would be necessary, after giving effect to previous distributable cash flow
distributions, to produce in the aggregate a cumulative return on invested
capital equal to 12% per annum; and
(v) fifth, any remaining Net Cash Proceeds will then be distributed 90%
to the Unitholders and 10% to the General Partner.
Based on the pro forma balance sheet on a liquidation basis, as of March 31,
1996, Unitholders will not receive amounts necessary to produce, in the
aggregate, a cumulative return on invested capital equal to 12% per annum.
ALLOCATION OF PROFITS AND LOSSES. The profits of the Partnership arising
from a Terminating Capital Transaction shall be allocated among the partners as
follows:
(i) first, to the partners in an amount equal to the aggregate of the
then-negative balances in the capital accounts of the partners;
(ii) second, to the Unitholders until the aggregate of the positive
balances in the capital accounts of the Unitholders is equal to their
invested capital;
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(iii) third, to the General Partner until the positive balance in its
capital account is equal to its invested capital;
(iv) fourth, 99% to the Unitholders and 1% to the General Partner until
the aggregate of the positive balances in the capital accounts of the
Unitholders is equal to their invested capital plus the amount of cash which
must be distributed to the Unitholders to provide them, in the aggregate,
with a cumulative return of 12% per annum on their invested capital; and
(v) fifth, any remaining profits will be allocated 90% to the
Unitholders and 10% to the General Partner.
The losses of the Partnership attributable to a Terminating Capital
Transaction and the winding up of the affairs of the Partnership shall be
allocated to the partners to the extent of, and in proportion to, the positive
balances in their capital accounts.
EFFECT OF APPROVAL OF THE PROPOSAL AND THE SETTLEMENT
CASH PAYMENTS TO SETTLING UNITHOLDERS. Under the Settlement, Cash Payments
will be made by the General Partner, as paying agent for NYLIFE Inc., directly
to Settling Unitholders after the Final Settlement Date. If no appeal is filed
from the Final Order and Judgment approving the Settlement, the Final Settlement
Date will be 30 days after the Court enters a Final Order and Judgment approving
the Settlement. If an appeal is filed, the Final Settlement Date will be the
date on which all appellate proceedings have been concluded and those
proceedings result in the courts upholding the Final Order and Judgment. The
Cash Payments will be made within 30 days after the Final Settlement Date, or as
soon thereafter as practicable.
If the Proposal is approved, a Settling Unitholder will receive a Cash
Payment that, when added to prior distributions received, will at least equal
the amount invested by that Settling Unitholder in the Partnership. The first
part of this Cash Payment will be a Liquidation Advance. The Liquidation Advance
will be the Settling Unitholder's share of the Loan Balance and of Distributable
Working Capital. The "Loan Balance" is defined to be the aggregate unpaid
principal amount of all mortgages and loans held by the Partnership as of
December 31, 1995, adjusted as of the Final Settlement Date to reflect any
subsequent payments of principal and any disposition of assets. The Loan Balance
does not reflect the market value of the Mortgages.
"Distributable Working Capital" is the amount of "Working Capital" remaining
in the Partnership as of the Final Settlement Date that the General Partner
estimates will not be needed to meet outstanding liabilities, contingencies,
costs and expenses associated with winding up the Partnership. "Working Capital"
is the amount of cash, cash equivalents and accounts receivable, less payables
and accrued liabilities, and excluding the value of any assets included in the
Loan Balance, as determined by the General Partner as of the end of the fiscal
quarter immediately preceding the Final Settlement Date.
The Liquidation Advance will be repaid to the General Partner solely out of
any "Liquidating Distribution" made by the Partnership to a Settling Unitholder.
The Liquidating Distribution will consist of the Partnership's cash and other
assets that remain after the Partnership's assets are sold and its liabilities
are discharged. To ensure that repayment, each Settling Unitholder will grant
the General Partner a security interest in such Settling Unitholder's Units and
Liquidating Distribution up to the amount of the Liquidation Advance. If the
Liquidating Distribution is less than the Liquidation Advance, a Settling
Unitholder has no obligation to repay the difference to the General Partner. If
a Settling Unitholder's Liquidating Distribution exceeds the Liquidation
Advance, then that Settling Unitholder will receive the excess amount in up to
two installments as the Partnership is liquidated and liabilities are satisfied.
The second part of the Cash Payment to a Settling Unitholder will be either
a "Refund" or an "Enhancement." A Refund will be paid if the Liquidation
Advance, plus all prior distributions, is less than the amount invested by a
Settling Unitholder in the Partnership. The Refund portion of the Cash
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Payment will be equal to that difference. An Enhancement will be paid if the
Liquidation Advance, plus all prior distributions, equals or exceeds the amount
invested by a Settling Unitholder in the Partnership. The Enhancement will be
equal to $.20 multiplied by the number of Units of the Partnership owned by the
Settling Unitholder. In no event will a Settling Unitholder receive less than
$200 as a Refund or an Enhancement. The Enhancement is being offered to the
Settling Unitholders who have received a full return on their investments as
part of the consideration for the Release they will grant the Defendants.
The Refund or the Enhancement, together with the Liquidation Advance, form
the consideration provided to a Settling Unitholder in exchange for the Release
that is provided under the Settlement. See "Litigation and Proposed Settlement
- - -- Release." The Enhancement is being offered to the Settling Unitholders who
have received a full return on their investments as consideration for the
Release they will grant the Defendants. Due to their individual circumstances,
Settling Unitholders who receive an Enhancement will be receiving, together with
the Liquidation Advance and prior distributions, an aggregate return on their
investment that is more than the return on investment obtained by Settling
Unitholders who receive a Refund. All Settling Unitholders, however, will
receive at least a return of their investment, taking account of prior
distributions.
If the Proposal is approved by the Unitholders and the Settlement becomes
final, it is anticipated that, along with the Liquidation Advance, Settling
Unitholders who bought units of the Partnership in August 1989, when it was
first offered for sale, will receive the Enhancement. Each Unitholder received,
with the Preliminary Solicitation Statement, a Statement of Eligibility which
contained an estimate of the payment to be received by such Settling Unitholder
under the Settlement. Such estimated payment was calculated based on the
Partnership's financial statements as of December 31, 1995 and distributions to
Unitholders through March 29, 1996. Upon request, the General Partner will
provide a copy of the Statement of Eligibility to individual Unitholders at no
charge. Based on estimates as of March 31, 1996, a Settling Unitholder who
purchased $10,000 worth of Units in August 1989 at the initial closing of the
Public Offering could expect to receive a Liquidation Advance of $3,819.35 and
an Enhancement of $200.00 as a Cash Payment. See "Appendix A -- Numerical
Examples of Alternative Payments to Partners if Settlement is Approved." These
estimated payments would be made only to a Unitholder who participates in the
Settlement and only if the Proposal is approved by the Unitholders and the
Settlement becomes final. For a summary of the types of payments a Unitholder
would receive in other circumstances when the Proposal is not approved by the
Unitholders or the Unitholder does not participate in the Settlement, see
"Summary of Potential Payments to Unitholders if the Settlement is Approved."
The estimates set forth in the Statement of Eligibility and Appendix A are
based on assumptions that the General Partner believed, as of their respective
dates, to be reasonable, but which are inherently uncertain and unpredictable.
The estimates set forth in Appendix A are based on the pro forma liquidation
balance sheet of the Partnership dated as of March 31, 1996 and the assumptions
stated therein, as well as the additional assumptions set forth in Appendix A.
The actual cash payment received by a Settling Unitholder will differ from the
estimates above as a result of distributions from the Partnership after March
31, 1996, revenues earned and expenses incurred by the Partnership after March
31, 1996 and loan principal payments and may also be affected by other factors.
The estimates do not give effect to the quarterly distribution paid by the
Partnership on May 15, 1996. The actual Cash Payment received by a Settling
Unitholder also will depend upon the amount paid for the Units and prior
distributions received as of the Final Settlement Date. See Appendix A and "Pro
Forma Financial Data" for further detail regarding estimated payment to
Unitholders and the assumptions on which such estimates are based.
To the extent a Settling Unitholder's Liquidating Distribution exceeds the
Liquidation Advance, the Settling Unitholder will receive the excess amount in
up to two installments as the Partnership is liquidated and sales proceeds and
liabilities are determined.
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Notwithstanding the foregoing, if a Settling Unitholder is an employee
benefit plan under the Employee Retirement Income and Security Act of 1974, as
amended ("ERISA"), and the receipt of the Liquidation Advance or the granting of
a security interest in the Units or the Liquidating Distribution would be a
prohibited transaction under ERISA or the Code, then such Settling Unitholder
will be entitled to receive the Refund or the Enhancement, as the case may be,
but not the Liquidation Advance. In such event, the Refund or Enhancement will
be calculated as if the Liquidation Advance had been paid. Such Settling
Unitholder will also be entitled to its proportionate share of any Liquidating
Distributions made by the Partnership. A prohibited transaction will generally
occur if the General Partner is, or is affiliated with, a fiduciary or employer
of, or a service provider to, the plan that is the Settling Unitholder. The
prohibited transfer rules might also apply to individual retirement accounts in
certain circumstances. Settling Unitholders should consult with their personal
advisers regarding the application of the prohibited transfer rules.
Cash Payments under the Settlement will not be made to a Unitholder who
elects not to participate in the Settlement. Such a "Non-Settling Unitholder"
will receive only a Liquidating Distribu-
tion, which will not include any Refund or Enhancement amount, and thus will be
less than the amount the Non-Settling Unitholder would have received if that
Unitholder had elected to participate in the Settlement.
NYLIFE Inc., the sole stockholder of the General Partner, will deposit funds
into a trust account for the benefit of the General Partner to ensure the
payment of the Cash Payment to Settling Unitholders under the Settlement
Agreement. The General Partner will act as paying agent for NYLIFE Inc. with
respect to the Cash Payments. The audited balance sheet of NYLIFE Inc. as of
December 31, 1995 is included elsewhere herein. The General Partner, although
solvent, has only nominal assets and capital. Accordingly, it is unable to
contribute in any material manner to any payments required under the Settlement
and is also unable to satisfy any other substantial liabilities of the
Partnership or that may arise as a result of the liquidation of the Partnership.
Liabilities of the General Partner as to the Settlement have been assumed by
NYLIFE Inc. Therefore, the General Partner does not believe that its financial
statements are relevant to the decision of Unitholders with respect to approving
the Proposal or participating in the Settlement, and, accordingly, such
financial information is not included with this Definitive Solicitation
Statement. Any Liquidating Distributions, however, will be made only from the
net proceeds remaining after the sale of the Partnership's assets and
satisfaction, or provision for satisfaction, of all the Partnership's
liabilities. See "The Proposal and Considerations with Respect to the Proposal
- - -- The Proposal -- Liquidating Distributions."
EFFECT OF SETTLEMENT ON LIQUIDATING DISTRIBUTIONS. If the Proposal is
approved by the Unitholders and the Settlement is approved by the Court and
becomes final, the Partnership Agreement will govern the amount of proceeds
distributed to the partners as described above under "-- The Proposal --
Liquidating Distributions." However, under the terms of the Settlement
Agreement, the Liquidating Distributions would be paid in up to two
installments.
The first installment will be paid within 30 days, or as soon as practicable
thereafter, after the General Partner determines the reserve (the "Reserve")
necessary to meet anticipated liabilities of the Partnership. The second
installment will be paid within 30 days, or as soon as practicable thereafter,
after all liabilities, contingencies and other obligations of the Partnership
(including, without limitation, debts to the General Partner) have been
satisfied or otherwise provided for, to the extent that there is any remaining
Reserve. As each Settling Unitholder will already have received an advance from
the General Partner of his, her or its share of liquidation proceeds up to the
amount of his, her or its Liquidation Advance, such Settling Unitholder's share
of proceeds up to the amount of his, her or its Liquidation Advance will instead
be distributed to the General Partner in repayment of such Liquidation Advance.
If a Settling Unitholder's Liquidating Distribution is less than the amount such
Settling Unitholder received as a Liquidation Advance, such Settling Unitholder
will not be obligated to repay the difference to the General Partner.
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<PAGE>
CONSENT OF UNITHOLDERS TO THE PROPOSAL
The Partnership Agreement provides that the Partnership is to be dissolved,
terminated and wound up upon the consent in writing of Unitholders who own a
majority in interest of the total outstanding Units. As of the Record Date,
there were 8,168,457.7 Units outstanding. Therefore, Unitholders holding at
least 4,084,228.8 Units must consent for the Partnership to be dissolved. The
General Partner owns 11,869.86 Units and will vote in respect of the Proposal in
the same proportion as the Unitholders who vote for or against the Proposal.
If Unitholders owning more than a majority in interest of the total
outstanding Units consent to dissolve the Partnership pursuant to the terms of
the Partnership Agreement, Unitholders who did not join in such consent will
nevertheless be bound by the decision to dissolve, terminate and wind up the
Partnership. Failure to return a consent form will have the effect of a vote
against the Proposal. An abstention from voting on the Proposal will effectively
count as withholding consent with respect to the Proposal. Broker non-votes
expressly indicating a lack of discretionary authority to consent also will
effectively count as a withholding consent with respect to the Proposal. See
"Voting Procedures."
EFFECT ON PARTNERSHIP AND UNITHOLDERS IF THE PROPOSAL IS NOT APPROVED
If the Proposal is not approved, the Partnership will continue to own the
Mortgages and will continue to receive payments thereon. As stated in the Public
Offering documents, the Partnership anticipated that it would receive the value
of all its Mortgages between 1997 and 2002. Consistent with the Partnership's
investment objectives, the General Partner may consider offers for the sale of
the Mortgages as opportunities arise. The Unitholders do not have the right to
vote on the individual sale of any of the Mortgages. In any such sale, while the
Partnership may benefit from any increase in the value of the Mortgages, as a
result of the sale, the anticipated revenues of the Partnership may decline.
This decrease in anticipated revenues, coupled with the ongoing expenditures for
overhead costs associated with investor relations, investor servicing and
compliance reporting, may result in a decline of operating revenues available
for distribution to the Unitholders. Although New York Life has determined to
exit the partnership business, the Partnership may continue to operate until the
expiration of the term of the Partnership on December 31, 2028. In any event,
the Partnership will not have the right to call all of its remaining Mortgages
until 2001. If the Settlement is not approved, or if the Settlement is approved
but the Proposal is not approved, it is the General Partner's current intention
to remain as the General Partner of the Partnership. However, the General
Partner reserves its right under the Partnership Agreement, as future events may
warrant, to withdraw as the General Partner of the Partnership. Failure by the
Unitholders to approve the Proposal will not affect the rights of the
Unitholders under the Partnership Agreement.
Under the terms of the Settlement Agreement, if the consents necessary to
dissolve, terminate and wind up the Partnership have not been obtained by the
Final Settlement Date, the New York Life Defendants will have the option of
either (a) terminating the proposed Settlement as it applies to the Partnership
and the Settling Unitholders or (b) paying to each Settling Unitholder the
Refund or the Enhancement, as the case may be, but not the Liquidation Advance,
in exchange for a Release from such Settling Unitholder. See "Litigation and
Proposed Settlement -- Potential Termination of the Settlement Agreement with
Respect to the Partnership." Whether the Settling Unitholder would be entitled
to receive the Refund or the Enhancement depends upon the amount paid for the
subject Units by the Settling Unitholder, the distributions received as of the
Final Settlement Date on such Units by the Settling Unitholder, and the amount
of the Liquidation Advance the Settling Unitholder would have received had the
Proposal been approved and the Settlement become final. There can be no
assurance that the future performance of the Partnership or the outcome of the
Lawsuit or any possible future settlement thereof will result in a return on
investment to the Unitholders that equals or exceeds the return facilitated by
the approval of the Proposal and the Settlement becoming final.
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<PAGE>
SUMMARY OF POTENTIAL PAYMENTS TO UNITHOLDERS IF SETTLEMENT IS APPROVED
The following chart sets forth the types of payments the Unitholders of the
Partnership will receive, assuming the Settlement is approved and becomes final,
depending upon (a) the approval or rejection of the Proposal by the Unitholders
of the Partnership and (b) the election of an individual Unitholder to
participate in the Settlement.
<TABLE>
<CAPTION>
ACTION TAKEN UNITHOLDER'S
REGARDING PROPOSAL CLASS ACTION STATUS PAYMENTS TO BE RECEIVED
- - ------------------------------ ------------------------------ ------------------------------------------------
<S> <C> <C>
Proposal Approved Settling Unitholder (i) Liquidation Advance, (ii) Enhancement or
Refund and (iii) Liquidation Distributions in
excess of amount of Liquidation Advance, if any.
Proposal Approved Non-Settling Unitholder Liquidating Distribution, as provided in the
Partnership Agreement.
Proposal Not Approved Settling Unitholder (i) Payments as provided under the Partnership
Agreement, including (a) quarterly distributions
from the Partnership, and (b) Liquidating
Distributions upon liquidation of the
Partnership at a later date pursuant to the
terms of the Partnership Agreement, and (ii) at
the New York Life Defendants' option, in
exchange for the Release, the Enhancement or the
Refund to which such Settling Unitholder would
have been entitled had the Proposal been
approved.
Proposal Not Approved Non-Settling Unitholder Payments as provided under the Partnership
Agreement, including (a) quarterly distributions
from the Partnership, and (b) Liquidating
Distributions upon liquidation of the
Partnership at a later date pursuant to the
terms of the Partnership Agreement.
</TABLE>
APPENDIX A contains estimates of the types and amounts of payments a
Unitholder might expect to receive, based on the assumptions stated in such
Appendix, for the Partnership under each of the scenarios set forth above. If
the Proposal is approved by the Unitholders but the Settlement does not become
final, all Unitholders will receive only Liquidating Distributions, as provided
in the Partnership Agreement.
NO DISSENTERS' RIGHTS
The Unitholders will not be entitled to any dissenters' or appraisal rights
under either the Partnership Agreement or Massachusetts law with respect to the
transactions described in this Solicitation Statement.
BOARD DETERMINATION
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER MAKES NO RECOMMENDATION TO THE
UNITHOLDERS AS TO THE DISSOLUTION, TERMINATION AND WINDING UP OF THE
PARTNERSHIP. EACH UNITHOLDER MUST MAKE HIS, HER OR ITS OWN DECISION WITH RESPECT
TO THE PROPOSAL AFTER CONSULTING WITH HIS, HER OR ITS OWN ADVISORS BASED ON HIS,
HER OR ITS OWN FINANCIAL POSITION AND REQUIREMENTS.
15
<PAGE>
CONSIDERATIONS WITH RESPECT TO THE PROPOSAL
There is no established trading market for the Units. Dissolution of the
Partnership will provide Unitholders an opportunity to receive cash in
liquidation of their investment in the Partnership and make alternative
investments that such Unitholders believe may generate more favorable returns or
offer more liquidity than are currently being provided by an investment in the
Partnership. However, by dissolving the Partnership, the Unitholders will be
forgoing their proportionate interest in the Mortgages, as well as potential
participation in the cash flow and appreciation of the underlying properties
above specified levels through the participation features of the Mortgages,
which participation could generate returns in excess of amounts receivable
pursuant to the Settlement. There can be no assurance that the potential
participation rights would generate returns that are equivalent to or greater
than the amounts received pursuant to the Settlement. There can be no assurance
that the Settlement will be approved or become final or that any alternative
investments made by a Unitholder with amounts received in connection with the
liquidation and Settlement would generate returns that are equivalent to or
greater than those that would be earned by continuing investment in the
Partnership. See "Litigation and Proposed Settlement." Pursuant to a preliminary
injunction issued by the Court, Unitholders who have not excluded themselves
from the Class have been enjoined from transferring their Units except in
certain specified circumstances. If the Proposal is approved by the Unitholders
and the Settlement is approved by the Court and becomes final, Settling
Unitholders will not be permitted to transfer their Units. Settling Unitholders
will, however, receive the Cash Payment. See "Litigation and Proposed Settlement
- - -- The Hearing Order and the Settlement Hearing."
Continuing to operate the Partnership as a public partnership requires
ongoing expenditures for overhead costs associated with investor relations and
investor servicing, as well as legal and accounting costs associated with
required compliance reporting. The Partnership is subject to federal and state
securities laws and the terms of the Partnership Agreement under which periodic
reports and annual financial statements are required to be generated by the
Partnership. In addition, the cost of completing these reports and financial
statements is paid out of the revenues of the Partnership. Due to the return of
the Uninvested Gross Proceeds to investors, the aggregate principal amount of
the Mortgages purchased by the Partnership is substantially less than was
originally contemplated pursuant to the Public Offering, and has led to a
corresponding reduction in revenues that were expected to be generated by the
Partnership to cover overhead costs.
If the Proposal is approved by the Unitholders, Settling Unitholders will be
entitled to a Cash Payment if the Settlement is approved by the Court and
becomes final. If the Proposal is not approved, the General Partner may
terminate the Settlement as to the Partnership.
MATERIAL ADVANTAGES AND DISADVANTAGES OF THE PROPOSAL TO THE PARTNERS
DISADVANTAGES TO UNITHOLDERS. If the Proposal is approved with respect to
the Partnership and the Partnership is dissolved, the Unitholders will be
forgoing their proportionate interest in the Mortgages, as well as potential
participation in the cash flow and appreciation of the underlying properties
above specified levels through the participation features of the Mortgages,
which participation could generate returns in excess of amounts receivable
pursuant to the Settlement.
Furthermore, if the Proposal is approved with respect to the Partnership and
(i) the Partnership is not excluded from the Settlement and a Unitholder
participates in the Settlement or (ii) the Settlement is terminated with respect
to the Partnership and the Defendants elect to pay a Refund or Enhancement (see
"Litigation and Proposed Settlement -- Potential Termination of the Settlement
Agreement" and "Litigation and Proposed Settlement -- Potential Termination of
the Settlement Agreement with Respect to the Partnership"), a Settling
Unitholder will release and discharge the Defendants and certain of their
affiliates, agents and various other persons and entities from, among other
things, any and all causes of action that were, could have been, may be or could
be alleged in
16
<PAGE>
connection with the Proprietary Partnerships, including the Partnership, or any
other limited partnership or other direct investment program created, sponsored,
marketed, sold, operated or managed by the Defendants. See "Litigation and
Proposed Settlement -- Release," and the Class Notice that was previously sent
to the Unitholders included in the Class.
ADVANTAGES TO UNITHOLDERS. If the Proposal is approved with respect to the
Partnership, the Partnership's assets will be sold as soon as practicable and
the Partnership will be dissolved. Dissolution of the Partnership will provide
Unitholders an opportunity to receive cash in liquidation of their investment in
the Partnership and make alternative investments that such Unitholders believe
may generate more favorable returns or offer more liquidity than are currently
being provided by an investment in the Partnership.
A Settling Unitholder would receive any amounts by which the Liquidating
Distribution for the Partnership exceeds the Liquidation Advance to the Settling
Unitholder with respect to such Partnership. See "-- Summary of Potential
Payments to Unitholders If Settlement Is Approved" for a summary of the types of
payments a Unitholder might receive under various alternatives in connection
with the proposed Settlement and the Proposal.
ADVANTAGES TO GENERAL PARTNER. The General Partner will receive the benefit
of any Releases given by Settling Unitholders. The General Partner has agreed to
waive any future Asset Management Fees if the Proposal is approved. See
"Litigation and Proposed Settlement -- Release" and "Interests of Certain
Persons in Transaction."
THE GENERAL PARTNER IS NOT MAKING ANY RECOMMENDATION TO UNITHOLDERS AS TO
WHETHER OR NOT TO VOTE IN FAVOR OF THE PROPOSAL. EACH UNITHOLDER MUST MAKE HIS,
HER OR ITS OWN DECISION WITH RESPECT TO THE PROPOSAL.
ESTIMATED FINANCIAL EFFECTS OF IMMEDIATE LIQUIDATION VERSUS CONTINUED OPERATION
OF THE PARTNERSHIP
As described more fully above under "-- Material Advantages and
Disadvantages of the Proposal to the Partners," if the Partnership continues to
operate, it will own the Mortgages and will continue to receive payments
thereon. However, consistent with the Partnership's investment objectives, the
General Partner may consider offers for the sale of the Mortgages as
opportunities arise. If any Mortgages are sold, the Partnership may benefit from
any increase in the value of the Mortgages. However, such sales may also result
in a decrease in anticipated revenues of the Partnership. This decrease in
revenues, coupled with the ongoing expenditures for overhead costs associated
with investor relations and investor servicing, as well as legal and accounting
costs associated with required compliance reporting of the Partnership, may
result in a decline of operating revenues available for distribution to the
Unitholders. The decline may potentially be offset to some extent by the
participation rights held by the partnership in connection with the Mortgages.
LITIGATION AND PROPOSED SETTLEMENT
THE LAWSUIT AND THE CLASS MEMBERS
On January 11, 1996, Evelyn Shea and Ann Grimshawe ("Plaintiffs") filed
separate class action complaints in the District Court of Harris County, Texas
("Texas State Court") against NYLIFE Equity Inc., New York Life, NYLIFE Inc. and
NYLIFE Securities Inc. (collectively with all predecessors and successors of
these entities, and the entities identified below, the "New York Life
Defendants"), and American Exploration Production Company and American
Exploration Company (collectively, the "American Defendants"). The New York Life
Defendants and the American Defendants are sometimes collectively referred to as
the "Defendants." The Plaintiffs' allegations against the Defendants included
fraud, breach of fiduciary duties, violation of the National Association of
Securities Dealers, Inc. Rules of Fair Practice by NYLIFE Securities Inc.,
negligent misrepresentation, breach of implied covenants and violation of Texas
state securities laws.
On March 18, 1996 Plaintiffs filed a complaint in the United States District
Court for the Southern District of Florida captioned SHEA, ET AL. V. NEW YORK
LIFE INSURANCE CO., ET AL. (the "Lawsuit"), amplifying the claims alleged in the
complaint filed in Texas State Court, alleging violations of
17
<PAGE>
federal securities and state laws, adding the General Partner as a New York Life
Defendant and including allegations concerning the Partnership. Plaintiffs
purport to represent a class of all persons who purchased or otherwise assumed
rights and title to interests in certain limited partnerships, including the
Limited Partnerships, and other programs created, sponsored, marketed, sold,
operated or managed by the New York Life Defendants from January 1, 1985 through
March 18, 1996 (the "Proprietary Partnerships"). The Plaintiffs requested
compensatory damages for their lost original investment, plus interest, costs
(including attorneys' fees), punitive damages, disgorgement of any earnings,
compensation and benefits received by the Defendants as a result of the alleged
actions and other unspecified relief to which Plaintiffs may be entitled.
On March 19, 1996, the Plaintiffs and the Defendants filed with the Court a
Stipulation of Settlement (the "Settlement Agreement") that sets forth the terms
of the proposed Settlement of the claims underlying the Lawsuit. The Settlement
Agreement provides that the Plaintiffs will serve as the representatives of all
persons (the "Class" or "Class Members") who purchased an interest ("Proprietary
Investment Units") in any of the Proprietary Partnerships. Expressly excluded
from the Class are investors who signed a document that released the New York
Life Defendants from any further claims concerning such investments. The
Defendants have agreed separately that they will not participate in the
Settlement in connection with respect to any Proprietary Investment Units they
own. The Defendants will receive, however, any Liquidating Distributions to
which they are entitled under the Partnership Agreement with respect to the
Units they own and their general partner interests.
On May 3, 1996, the Texas State Court entered an order dismissing the Texas
proceedings without prejudice, and provided that the dismissal would be with
prejudice upon final disposition of the Lawsuit.
DENIAL OF CLAIMS
Prior to the institution of the Lawsuit, with respect to certain Proprietary
Partnerships, the New York Life Defendants determined that it would be in the
best interests of the investors in certain Proprietary Partnerships to terminate
such partnerships and, in connection therewith, to provide certain payments to
the limited partners that would have been in addition to any amounts they would
receive upon liquidation of the partnerships, although the New York Life
Defendants had no obligation to do so. The Defendants expressly deny any
wrongdoing alleged in the Lawsuit and do not concede any wrongdoing or liability
in connection with any of the facts or claims that have been alleged against
them in the Lawsuit. The Defendants consider it desirable, however, for the
Settlement to be effected because such Settlement will: (i) provide substantial
benefits to the Class Members, in a manner consistent with New York Life's prior
determination to wind up most of the Proprietary Partnerships through orderly
liquidation because the continuation of the business no longer served the
intended objectives of either the Defendants or the owners of interests in such
partnerships; (ii) confer substantial benefits on the Defendants and current
limited partners and unitholders of the Proprietary Partnerships by providing an
opportunity not only to wind up the Proprietary Partnerships on a schedule
favorable to the Class, but also to resolve the issues presented by the Lawsuit
with respect to the sale of interests in and operation of the Proprietary
Partnerships; and (iii) put Plaintiffs' claims and the underlying matters to
rest without undue expense to the Class while reducing the burdens and
uncertainties associated with protracted litigation of the claims underlying the
Lawsuit.
PAYMENT UNDER THE SETTLEMENT AGREEMENT TO THE UNITHOLDERS
The terms of the Settlement Agreement with respect to the Partnership
generally provide that each Settling Unitholder who is a Class Member, and who
has not excluded himself, herself or itself from the Class by following the
procedures outlined by the Court, will receive the Liquidation Advance and
either the Refund or the Enhancement, as the case may be, as described more
fully under "The Proposal and Considerations with Respect to the Proposal -- The
Proposal -- Liquidating Distributions."
18
<PAGE>
THE HEARING ORDER AND THE SETTLEMENT HEARING
On March 19, 1996, the Court issued the Hearing Order, which, among other
things, certified the Class for settlement purposes only and directed
Defendants, or their designee(s), to cause the Class Notice to be mailed to all
potential Class Members at their last known address no later than 90 days before
the Settlement Hearing. The Class Notice previously was sent to the Unitholders.
Unitholders should refer to the Class Notice for further information regarding
the Lawsuit, the Settlement and the Settlement Hearing, which the Court
currently has scheduled for July 3, 1996.
Among other things, the Hearing Order preliminarily enjoins all Class
Members who have not excluded themselves from the Class from selling,
transferring, pledging, encumbering, hypothecating or assigning any Unit they
own or in which they have an interest, PROVIDED THAT (i) the Court may for good
cause shown by a Class Member allow a transfer notwithstanding the injunction
and (ii) any Class Member may transfer a Unit where such Class Member agrees in
writing to be bound by the Release described in the Class Notice and to waive
any right to receive benefits under the proposed Settlement, in which case the
person to whom the Unit(s) are transferred will be entitled to the benefits that
the Class Member would have received but for the transfer.
POTENTIAL TERMINATION OF THE SETTLEMENT AGREEMENT
The Settlement Agreement is not yet final and could be terminated for
various reasons. The Settlement will become final only after the Court enters a
Final Order and Judgment approving the Settlement and the period for appeal
thereof has expired or, if the Final Order and Judgment is appealed, on the date
on which all appeals have been finally disposed of in a manner that affirms the
Final Order and Judgment. There can be no assurance that such approval will be
obtained or that the Settlement will become final.
Plaintiffs have the right to terminate the Settlement Agreement under the
circumstances specified therein. In addition, the Defendants may unilaterally
terminate the Settlement Agreement if: (a) with respect to all the Proprietary
Partnerships taken together, those persons who elect to exclude themselves from
the Class (i) together number more than 3% of all Class Members or (ii) have
ownership interests in the Proprietary Partnerships that together account for
more than 3% of all capital invested by limited partners or unitholders in the
Proprietary Partnerships; (b) with respect to a particular Proprietary
Partnership, if those persons who elect to exclude themselves from the Class
with respect to such Proprietary Partnership (i) together number more than 3% of
all those who are Class Members with respect to such Proprietary Partnership or
(ii) have ownership interests in such partnership that together account for more
than 3% of all capital invested by limited partners or unitholders in such
partnership; (c) if the votes, consents or authorizations necessary to dissolve
and liquidate four or more of the Proprietary Partnerships are not obtained; (d)
if any state or federal regulator, self-regulatory organization or other
administrative body or official (i) objects either to any aspect or term of the
Settlement Agreement or to the transactions to be entered into to facilitate the
proposed Settlement and takes or threatens to take any regulatory or legal
action that would impair the ability of the parties to conclude the Settlement
on the terms set forth in the Settlement Agreement or (ii) requires as a
condition of not taking action any modification to the Settlement Agreement,
including, without limitation, any constriction or extension of the scope of the
contemplated relief, that the Defendants in their sole discretion reasonably
believe would impair their ability to consummate the Settlement or to provide
the contemplated relief; or (e) if a final order dismissing the Texas State
Court actions with prejudice, which is no longer appealable, has not been
entered by the Final Settlement Date.
POTENTIAL TERMINATION OF THE SETTLEMENT AGREEMENT WITH RESPECT TO THE
PARTNERSHIP
If the consents necessary to dissolve the Partnership have not been obtained
by the Final Settlement Date, the New York Life Defendants may either (i)
unilaterally terminate the Settlement Agreement as it applies to the Partnership
and the Unitholders or (ii) pay each Settling Unitholder the Refund or the
Enhancement, as the case may be, but not the Liquidation Advance, in exchange
for a Release from such Settling Unitholder. If the Defendants choose the latter
option, a Settling
19
<PAGE>
Unitholder will receive the Refund or the Enhancement, as the case may be, in an
amount equal to the amount of the Refund or Enhancement he, she or it would have
received had the Proposal been approved and the Liquidation Advance been paid.
RELEASE
Effective as of the Final Settlement Date, Plaintiffs and all Class Members
who did not exclude themselves from the Class, including the Settling
Unitholders, agree that they will release and discharge (the "Release") the
Defendants and certain of their affiliates, agents and various other persons and
entities from, among other things, any and all causes of action that were, could
have been, may be or could be alleged in connection with the Proprietary
Partnerships, including the Partnership, or any other limited partnership or
other direct investment program created, sponsored, marketed, sold, operated or
managed by the Defendants. See "The Proposal and Considerations with Respect to
the Proposal -- Material Advantages and Disadvantages of the Proposal to the
Partners -- Advantages to General Partner" and "Interests of Certain Persons in
Transaction." The Class Notice that was previously provided to the Unitholders
sets forth further information regarding the scope of the Release.
FINAL APPROVAL AND FINAL ORDER AND JUDGMENT
Until the Settlement becomes final as described in the Class Notice, the
General Partner will not be obligated to pay any amounts to the Settling
Unitholders in connection with the Settlement.
REGULATORY APPROVALS
Other than the filing of a Certificate of Cancellation with the Secretary of
State of the Commonwealth of Massachusetts and a filing with the Securities and
Exchange Commission to deregister the Units, the General Partner is not aware of
any federal or state regulatory requirements that must be complied with or any
approval of a state or federal body that is necessary to proceed with the
dissolution, termination and winding up of the Partnership other than any such
requirement or approval that may arise in connection with the sale of the
Partnership's assets due to (i) the identity of the purchaser or purchasers of
the Partnership's properties and assets or (ii) the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, which may require certain information to
be filed with the Department of Justice and the Federal Trade Commission and may
require certain waiting periods to be satisfied prior to such sale. Following
final liquidation of the Partnership, and deregistration of the Units under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Partnership's obligations to file reports pursuant to Section 15(d)
of the Exchange Act will terminate. Additionally, in order to proceed with the
Settlement, the final approval of the Court must be obtained.
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP
GENERAL
The Partnership is a Massachusetts limited partnership that was formed in
1988 solely for the purposes of investing in (a) federally insured or coinsured
mortgages on multi-family residential properties or residential care facilities
directly, or through the purchase of MBSs guaranteed as to principal and Basic
Interest by GNMA, (b) Participation Interests in such properties, and (c) PGLs.
The Partnership's initial public offering of Units of limited partnership
interests began on May 26, 1989 and concluded on September 30, 1991. As of such
date, the Partnership had raised gross proceeds of $81,684,577. After the return
of $42,312,611 of Uninvested Gross Proceeds to investors in 1992, the
Partnership had 8,168,457.7 Units outstanding with a capital value of
$39,371,966 or $4.82 per Unit. The Partnership has returned cash distributions
of $21,005,808, or 53.35%, of the $39,371,966 invested by the Unitholders
through December 31, 1995. The General Partner has received $378,322 in cash
distributions through December 31, 1995.
Since its formation, the Partnership has invested in three PIMs consisting
of (i) MBSs collaterized by three federally co-insured mortgages on multi-family
residential properties pursuant to the
20
<PAGE>
coinsurance program of Section 221(d)(4) of the National Housing Act, and (ii)
Participation Interests evidenced by additional interest agreements and secured
by subordinated mortgages on such properties. Each MBS is guaranteed as to
principal and Basic Interest by GNMA. The Partnership recently sold one such
MBS, and currently holds two such MBSs. See "-- The Mortgages -- The Highlands
- - -- Recent Developments" below. The remaining two MBSs are related to two PIMs
which provide for the Partnership to participate in 50% of the underlying
property's net cash flow and appreciation, if any. The Partnership originally
funded three PGLs with respect to the same properties underlying the
Partnership's PIMs. The Partnership currently holds two such PGLs. These PGLs
provide for additional Partnership participation of 10% to 15% in such
properties' net cash flow and appreciation, if any.
GENERAL PARTNER AND MANAGEMENT
The general partner of the Partnership is NYLIFE Realty Inc., a Delaware
corporation and an indirect wholly-owned subsidiary of New York Life. The
General Partner is primarily responsible for both investment and administrative
matters of the Partnership. NYLIFE Inc., a subsidiary of New York Life, is the
sole stockholder of the General Partner.
RIGHTS AND POWERS OF UNITHOLDERS
Upon dissolution and winding up of the Partnership, the Unitholders will no
longer have an interest in the Partnership's assets and business and will be
giving up all their rights under the Partnership Agreement. The Unitholders may
not take part in the control of the business or affairs of the Partnership and
have no voice in the management or operations of the Partnership. Their lack of
a voice in management and control is necessary to limit liability in excess of
their investment in the Partnership and their share of undistributed profits
from the Partnership. The Unitholders:
(i) share all profits, losses and distributions of the Partnership in
accordance with the Partnership Agreement;
(ii) have their liability for operations of the Partnership limited to
the amount of their capital contributions and to their shares of Partnership
capital and undistributed net revenues of the Partnership, if any; provided,
however, that under applicable partnership law the Unitholders may under
certain circumstances be required to repay to the Partnership amounts
previously distributed to them by the Partnership (see "The Proposal and
Considerations with Respect to the Proposal -- The Proposal -- Provision for
Liabilities");
(iii) have the right to inspect and copy the records relating to the
activities of the Partnership during ordinary business hours;
(iv) obtain from the General Partner from time to time upon reasonable
demand (i) true and full information regarding the status of the business
and financial condition of the Partnership, (ii) promptly after becoming
available, a copy of the Partnership's federal, state and local income tax
returns for each year, and (iii) other information regarding the affairs of
the Partnership as provided in the Partnership Agreement;
(v) receive financial statements, income tax information and certain
periodic reports as provided in the Partnership Agreement;
(vi) have the right to assign their Units to the extent and as provided
in Section 10 of the Partnership Agreement;
(vii) have the right to propose and vote on certain matters affecting the
Partnership as provided in Sections 7 and 13 of the Partnership Agreement;
(viii) have the right to dissolution and winding up of the Partnership by
decree of court as provided for in the Massachusetts Uniform Partnership
Act;
(ix) have the right to dissolve or terminate the Partnership or to
continue the Partnership as described below under "-- Term and Dissolution
of the Partnership";
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(x) have the right to approve or disapprove the sale of all or
substantially all of the assets of the Partnership upon the affirmative vote
of a majority in interest of the Unitholders;
(xi) have the right (subject to certain restrictions) to amend the
Partnership Agreement by the affirmative vote of a majority in interest of
the Unitholders;
(xii) have the right to remove the General Partner and elect a
replacement to operate and carry on the business of the Partnership upon the
affirmative vote of a majority in interest of the Unitholders; and
(xiii) have the right to approve or disapprove a voluntary withdrawal of
the General Partner and elect a replacement therefor upon the affirmative
vote of a majority in interest of the Unitholders.
TERM AND DISSOLUTION OF THE PARTNERSHIP
The Partnership Agreement provides that the Partnership will continue for a
maximum period ending at midnight on December 31, 2028, but may be dissolved at
an earlier date if certain contingencies occur. Unitholders may not withdraw
from the Partnership prior to dissolution, but may assign their Units to others
to the extent permitted by Section 10 of the Partnership Agreement. The
contingencies whereupon the Partnership may be dissolved at an earlier date are
as follows:
(i) the retirement, withdrawal, dissolution, bankruptcy or removal of
the General Partner, or the sale, assignment, encumbrance, or other
disposition by the General Partner of its entire interest, unless a
substitute General Partner, who shall be consented to by a majority in
interest of the Unitholders and admitted into the Partnership, elects to
continue the business of the Partnership within 90 days of the date of such
event;
(ii) an election to dissolve the Partnership made in writing by the
General Partner with the consent of a majority in interest of the
Unitholders, or, subject to compliance with Section 13 of the Partnership
Agreement, by a majority in interest of the Unitholders, without action by
the General Partner;
(iii) the sale or other disposition of all or substantially all of the
Mortgages unless the General Partner elects to continue the Partnership
business for the purpose of the receipt and collection of a note and
payments thereon or the collection of any other consideration to be received
in exchange for the Mortgages; or
(iv) any other event which causes the dissolution and/or winding up of
the Partnership under the Massachusetts Uniform Limited Partnership Act to
the extent not otherwise provided in the Partnership Agreement.
See Section 11 of the Partnership Agreement.
The General Partner has no current intention to dissolve the Partnership
upon the occurrence of any one or more of the foregoing contingencies, but
reserves the right to change such intention, depending upon future
circumstances.
THE MORTGAGES
CROSS CREEK
In 1990, the Partnership acquired a PIM (the "Cross Creek PIM") consisting
of (i) an MBS collaterized by a mortgage loan in the principal amount of up to
$7,230,000 (the "Cross Creek Mortgage") secured by a first mortgage on a 152
unit garden style apartment complex in Greenville, South Carolina known as
Halcyon at Cross Creek ("Cross Creek") and (ii) an uninsured participation
interest secured by a subordinated mortgage on Cross Creek. The borrower under
the Cross Creek Mortgage is Boiling Springs Apartments, Ltd. (the "Cross Creek
Borrower"). In addition, the Partnership made a PGL to the Individual Investors
in the Cross Creek Borrower (the "Individual Cross Creek Borrowers") in the
principal amount of up to $600,000 (the "Cross Creek PGL").
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PARTICIPATING INSURED MORTGAGE
To fund the construction of Cross Creek, the Partnership purchased from Love
Funding Corporation ("LFC"), mortgage-backed pass-through construction loan
certificates ("CLCs"), guaranteed as to timely payment of principal and Basic
Interest by GNMA, in the maximum principal amount of $7,230,000.
Following the maturity of the CLCs at the conclusion of the construction
period, and upon final endorsement ("Final Endorsement") of the promissory note
evidencing the Cross Creek Mortgage (the "Cross Creek Mortgage Note") by the
department of Housing and Urban Development ("HUD"), which occurred on January
8, 1992, the Partnership received a mortgage-backed permanent loan certificate
("PLC"), guaranteed as to the timely payment of principal and Basic Interest by
GNMA. The PLC has a face amount of $7,226,406, and an issue date of February 1,
1992.
The Cross Creek Mortgage Note bears interest at an annual rate ("Basic
Interest Rate") of 8.50% during the permanent term. One quarter of one percent
(.25%) of the foregoing amount is retained by LFC and GNMA as a servicing and
guarantee fee; accordingly, the Partnership's MBS related to the Cross Creek
Mortgage bears interest at the rate of 8.25% per annum. The Cross Creek Borrower
is required to make equal monthly payments of principal and interest on the
Cross Creek Mortgage Note until its maturity on December 15, 2031.
The Cross Creek Mortgage is coinsured by LFC and HUD under Section 221(d)(4)
of the National Housing Act, which relates to new construction of multi-family
residential properties. The Cross Creek Mortgage Note is non-recourse to the
Cross Creek Borrower, except under limited circumstances, including fraud.
The Cross Creek Mortgage Note may be prepaid upon 30 days written notice
after, but not prior to, the tenth anniversary of the date of initial HUD
endorsement ("Initial Endorsement") of the Cross Creek Mortgage Note, with a
prepayment charge equal to 1% of the outstanding principal amount of the Cross
Creek Mortgage Note. Initial Endorsement of the Cross Creek Mortgage Note
occurred on February 22, 1990. Notwithstanding the foregoing, if HUD determines
that prepayment will avoid a mortgage insurance claim and is in the best
interest of the federal government, the Cross Creek Mortgage Note may be prepaid
at any time without the Partnership's consent and without any prepayment charge.
The Partnership has the option, upon six months written notice, to require
prepayment in full of the Cross Creek Mortgage Note on or after the tenth
anniversary of the date of the Initial Endorsement. No prepayment fee shall be
imposed if the Partnership exercises this option. Enforcement of this option
would require the termination of the coinsurance contract and the surrender of
the PLC.
The Partnership is entitled under the participation portion of the Cross
Creek PIM, in addition to monthly pass-through payments of principal and Basis
Interest to: (i) 50% of any increase in the value of Cross Creek in excess of
its base value (i.e., the outstanding principal amounts of the Cross Creek MBS
and PGL), the increase in value is measured from February 22, 1990 until the
sale of Cross Creek, or until the maturity, refinancing or prepayment of the
Cross Creek Mortgage; and (ii) 50% of Cross Creek's monthly net cash flow
(subject to certain HUD restrictions and reserve requirements) beginning with
the first month after completion of construction. The obligation of the Cross
Creek Borrower to make these participation payments is evidenced by an
additional interest agreement between the Cross Creek Borrower and the
Partnership, which is secured by a subordinated mortgage on Cross Creek, and is
non-recourse to the Cross Creek Borrower, except under limited circumstances,
including fraud. This obligation is further secured by a collateral assignment
by the Individual Cross Creek Borrowers of their interests in the Cross Creek
Borrower.
PARTICIPATING GUARANTEED LOAN
The Partnership has made a PGL of up to $600,000 to the Individual Cross
Creek Borrowers, who are jointly and severally liable for this obligation. The
Cross Creek PGL, which is non-recourse debt, is secured by a collateral
assignment by the Individual Cross Creek Borrowers of their partnership
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interests in the Cross Creek Borrower, constituting a second lien thereon. The
promissory note evidencing the Cross Creek PGL provides that the Individual
Cross Creek Borrowers will use the proceeds thereof to satisfy obligations of
the Cross Creek Borrower.
Of the maximum loan proceeds to be available under the Cross Creek PGL,
$400,000 had been advanced as of December 31, 1995. The Partnership's commitment
to advance additional funds under the Cross Creek PGL expired on January 8,
1993. The unfunded loan commitment of $200,000, which had been included in the
Partnership's working capital reserve, was distributed to the Partnership's
investors on November 15, 1994.
The Cross Creek PGL bears interest at the rate of 10% per annum, payable
semi-annually, and provides that interest may be accrued up to $100,000 to the
extent Surplus Cash Distributions (as defined by HUD) to the Individual Cross
Creek Borrowers are insufficient to fully pay the interest obligation. Any such
accruals will be added to the outstanding principal balance of the PGL and shall
bear interest at the same rate. Accrued interest reached $100,000 on September
25, 1993. Accordingly, accrued interest became due and payable on October 1,
1993. Principal and unpaid interest, if any, shall be due and payable on
February 21, 2005, unless sooner paid.
No prepayments of the principal amount of the Cross Creek PGL will be
permitted prior to the tenth anniversary of the Initial Endorsement of the Cross
Creek Mortgage Note. Thereafter, the PGL may be prepaid in whole, but not in
part, subject to a prepayment fee equal to 1% of the principal amount prepaid.
Also, commencing on the tenth anniversary date, the Partnership will have the
right to call the Cross Creek PGL, in which case no prepayment fee shall be
paid.
The terms of the Cross Creek PGL entitle the Partnership to participations,
in addition to Basic Interest, equal to: (i) 15% of any increase in the value of
the Individual Cross Creek Borrowers' partnership interest in the Cross Creek
Borrower (determined by reference to the value of Cross Creek) over the base
value of the Individual Cross Creek Borrowers' partnership interest (based on
the outstanding principal amount of the Cross Creek Mortgage and the Cross Creek
PGL), such increase to be determined upon the sale of Cross Creek or upon the
refinancing, prepayment or maturity of the PGL; and (ii) 15% of the Individual
Cross Creek Borrowers' interest in Cross Creek's net cash flow (subject to
certain HUD restrictions and reserve requirements). The aforesaid 15%
participation provided by the Cross Creek PGL is over and above the 50%
participation provided by the Cross Creek PIM. The payment obligation of the
Individual Cross Creek Borrowers with respect to this participation is evidenced
by a supplemental interest agreement, and is non-recourse to the Individual
Cross Creek Borrowers, except under limited circumstances, including fraud.
These obligations are collateralized by a collateral assignment by the
Individual Cross Creek Borrowers of their partnership interests in the Cross
Creek Borrower (constituting a second lien thereon).
PARTICIPATION PAYMENTS
As of December 31, 1995, the Partnership had not received any participating
distributions with respect to either the Cross Creek PIM or the Cross Creek PGL
because HUD regulations generally do not permit the distribution of Surplus Cash
(as defined by HUD) until cash on hand at a particular month end exceeds the
amount of the required reserve. As outlined by HUD, the required reserve
generally includes reserves for obligations due within 30 days, such as accrued
mortgage interest payable; delinquent mortgage principal payments and deposits
to reserve for replacements, if any; accounts payable and accrued expenses due
within 30 days; loans and notes payable due within 30 days; deficient tax
insurance or mortgage insurance premium escrow deposits, if any; prepaid rents;
and tenant security deposits payable.
At December 31, 1995, the Cross Creek Borrower represented that it had cash
on hand of $32,009 while the required reserve was $127,572. Therefore, there was
no Surplus Cash available for distribution under HUD regulations at that time.
Since cash on hand and the required reserve fluctuate monthly based on property
performance, the General Partner cannot determine when participating
distributions will be received by the Partnership, if at all.
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PROPERTY DESCRIPTION
Cross Creek is a 152 unit garden style apartment complex situated on 21.66
acres of land in Greenville, South Carolina. Cross Creek consists of 19
two-story buildings of cedar siding and stucco accents with pitched roofs. All
upper floor units have covered wooden balconies and all ground floor units have
patios. Amenities at Cross Creek include two pools, two tennis courts, a
clubhouse with an exercise room, locker rooms, sauna and steam room.
Occupancy at Cross Creek was 94% at December 31, 1995. The average occupancy
rate for Cross Creek's primary submarket ranges between 94 and 97%. No rental
concessions were offered during the year ended December 31, 1995.
THE HIGHLANDS
In December 1990, the Partnership acquired a PIM (the "Highlands PIM")
consisting of (i) an MBS collateralized by a mortgage loan in the principal
amount of up to $13,154,200 (the "Highlands Mortgage") secured by a first
mortgage on a 272 unit garden style apartment complex located outside Tampa,
Florida (the "Highlands") and (ii) a participation interest evidenced by an
additional interest agreement and secured by a subordinated mortgage on the
Highlands. The borrower under the Highlands Mortgage was originally Highland
Oaks Associates Limited (the "Original Highlands Borrower"). The Original
Highlands Borrower sold the Highlands in 1995 as discussed in further detail
below. In addition, the Partnership made a PGL to the Individual Investors in
the Original Highlands Borrower (the "Individual Highlands Borrowers") in the
principal amount of up to $1,595,800 (the "Highlands PGL").
PARTICIPATING INSURED MORTGAGE
In 1990, to finance the construction of the Highlands, the Partnership
purchased from Related Mortgage Corporation ("RMC"), CLCs, guaranteed as to
timely payment of principal and Basic Interest by GNMA, in the maximum principal
amount of up to $13,154,200.
Upon the maturity of the CLCs at the conclusion of the construction period
and upon Final Endorsement of the Highlands Mortgage Note, which occurred on May
31, 1992, the Partnership received a PLC guaranteed as to the timely payment of
principal and Basic Interest by GNMA (the "Highlands PLC").
In connection with its purchase of the CLCs, the Partnership acquired a
participation interest in the Highlands pursuant to an additional interest
agreement with the Highlands Borrower. Under the additional interest agreement
the Partnership was entitled to (i) 50% of the net appreciation in the value of
the Highlands from Initial Endorsement until the sale of the Highlands; and (ii)
50% of the Highlands' net cash flow (subject to certain HUD restrictions and
reserve requirements). The obligations of the Original Highlands Borrower under
the additional interest agreement were secured in part by a second mortgage on
the Highlands.
PARTICIPATING GUARANTEED LOAN
Pursuant to the Highlands PGL, the Partnership advanced $1,095,800 to the
Individual Highlands Borrowers. The Highlands PGL was repaid in 1995 as
described below.
SALE OF THE HIGHLANDS
Effective January 31, 1995, the Original Highlands Borrower sold the
Highlands to Richland Properties, Inc. (the "New Highlands Borrower") for
$16,300,000. The sale closed in escrow pending the receipt by the Partnership of
a new GNMA certificate in the principal amount of $13,037,676, bearing interest
at 7.625% per annum (the "Highlands GNMA") in exchange for the Highlands PLC.
The Highlands GNMA certificate was received by the Partnership on February 15,
1995, at which time the sale was completed and the Partnership received the
payments described below, together with the other closing documents. In
addition, a mutual release was delivered, effective January 31, 1995,
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pursuant to which all obligations of, and claims against, the Original Highlands
Borrower and its general partners were released by the Partnership and RMC, and
all obligations of, and claims against, the Partnership and RMC were released by
the Original Highlands Borrower and its general partners.
In connection with the sale of the Highlands, the Highlands Mortgage
("Modified Mortgage") and related promissory note ("Modified Note") were
modified to provide for (a) prepayment at any time with a prepayment charge
payable to RMC, equal to 1% of the outstanding principal, and (b) a reduction in
the interest rate from 8.5% to 7.875% per annum, one-quarter of one percent of
which is retained by RMC and GNMA as a servicing and guarantee fee. Accordingly,
the Highlands GNMA bears interest at the rate of 7.625% per annum.
Concurrent with the sale of the Highlands as described above, the
participation interests in the Highlands PIM and the Highlands PGL were cashed
out and retired and principal and accrued interest of the Highlands PGL were
repaid as the Partnership received $2,463,060, which included $1,095,800 of PGL
principal, $210,798 of accrued interest, a prepayment fee of $324,000 and
participation in net cash flow and net appreciation of $832,462. The Partnership
distributed these proceeds to investors on May 15, 1995.
Also on January 31, 1995, the Partnership and the Original Highlands
Borrower (together with its partners) entered into a Special Closing Agreement,
pursuant to which the two letters of credit held by the Partnership were each
reduced from $75,000 to $17,500. The two letters of credit were being held as
security for the obligations of the Original Highlands Borrower and its partners
under the Special Closing Agreement, pursuant to which the Original Highlands
Borrower agreed to pay a portion of any additional taxes determined to be due to
the State of Florida in connection with the recording of the original loan
documents. The State of Florida claimed that $136,800 of additional recording
taxes were due. The recording tax dispute was recently settled. See "-- Recent
Developments" below.
During the year ended December 31, 1995, the Partnership received interest
totaling $999,170.10 related to the Highlands GNMA, which has been distributed
to investors in connection with the Partnership's regular quarterly
distributions in accordance with the Partnership Agreement.
RECENT DEVELOPMENTS
On February 27, 1996, the Partnership sold the Highlands GNMA for cash in
the amount of $13,105,373.01. The Highlands GNMA was sold through Utendahl
Capital Partners, an unaffiliated broker dealer. The sales price represents
principal in the amount of $12,976,812.45, accrued interest in the amount of
$71,462.59 and a premium of $57,097.97. The Partnership was not charged any
separate fees or commissions in connection with the sale. The General Partner's
decision to sell the Highlands GNMA was based in part on what it perceived to be
a favorable market in which the Highlands GNMA could be sold at a premium.
The 1996 sale of the Highlands GNMA, together with the 1995 sale of the
Highlands and the related modification of the Highlands Mortgage, terminates the
Partnership's beneficial interest in the Highlands Mortgage and the Highlands.
The General Partner anticipates distributing the proceeds from the sale of
the Highlands GNMA in connection with the Partnership's regular quarterly
distribution to investors on May 15, 1996.
On March 12, 1996, the Partnership settled the $136,800 recording tax claim
of the State of Florida discussed above through a payment to the State of
Florida made on behalf of the Partnership in the amount of $64,000 ($53,800 of
which was funded by the General Partner and $10,150 of which was funded by the
Original Highlands Borrower). The Partnership has recently received the signed
Closing Agreement from the State of Florida settling the claim, and the letters
of credit being held under the Special Closing Agreement will be returned to the
Original Highlands Borrower.
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SIGNATURE PLACE
In 1991, the Partnership acquired a PIM (the "Signature Place PIM")
consisting of (i) MBSs issued by LFC and collateralized by a mortgage loan in
the maximum principal amount of up to $9,800,000 (the "Signature Place
Mortgage") secured by a first mortgage on a 232-unit multi-family residential
apartment complex in Hampton, Virginia known as Signature Place ("Signature
Place") and (ii) a participation interest evidenced by an additional interest
agreement secured by a subordinated mortgage on Signature Place. The borrower
under the Signature Place Mortgage is HG Partners Limited Partnership (the
"Signature Place Borrower"). The Partnership also made a PGL to the Individual
Investors in the Signature Place Borrower (the "Individual Signature Place
Borrowers") in the original principal amount of up to $1,200,000 (the "Signature
Place PGL").
PARTICIPATING INSURED MORTGAGE
In 1991, the Partnership purchased MBSs from LFC in the form of CLCs,
guaranteed as to timely payment of principal and Basic Interest by GNMA, in the
maximum principal amount of $9,800,000 to fund the construction of Signature
Place.
Following the maturity of the CLCs at the conclusion of the construction
period and upon Final Endorsement of the promissory note evidencing the
Signature Place Mortgage (the "Signature Place Mortgage Note") by HUD, which
occurred on February 9, 1993, the Partnership received a PLC, guaranteed as to
timely payment of principal and Basic Interest by GNMA (the "Signature Place
PLC"). The Signature Place PLC has a face amount of $9,756,900, and an issue
date of February 1, 1993.
The Signature Place Mortgage Note bears interest at the Basic Interest Rate
of 8.25% during the permanent term. One quarter of one percent (.25%) of the
Basic Interest Rate is retained by LFC and GNMA as a servicing and guarantee
fee; accordingly the Signature Place PLC bears interest at the rate of 8% per
annum. The Signature Place Borrower is required to make equal monthly payments
of principal and interest until maturity of the Signature Place Mortgage Note on
January 15, 2033.
The Signature Place Mortgage is coinsured by LFC and HUD under Section
221(d)(4) of the National Housing Act. The Signature Place Mortgage Note is
non-recourse to the Signature Place Borrower, except under limited
circumstances, including fraud.
The Signature Place Mortgage Note may be prepaid in full upon 45 days
written notice after (but not prior to) the tenth anniversary of Initial
Endorsement, which occurred on May 10, 1991 with a prepayment charge equal to 1%
of the principal amount prepaid, plus any additional interest due thereon.
Notwithstanding the foregoing, if HUD determines that prepayment will avoid a
mortgage insurance claim and is in the best interest of the federal government,
the Signature Place Mortgage Note may be prepaid at any time without the
Partnership's consent and without any prepayment charge. The Partnership has the
option, upon six months written notice, to require prepayment in full of the
Signature Place Mortgage Note on or after the tenth anniversary of Initial
Endorsement. No prepayment fee shall be imposed if the Partnership exercises
this option. Enforcement of this option would require the termination of the
coinsurance contract and the surrender of the Signature Place PLC.
The Partnership is entitled under the participation portion of the Signature
Place PIM, in addition to monthly pass-through payments of principal and Basic
Interest, to: (i) 50% of the net appreciation in the value of Signature Place
from Initial Endorsement of the Signature Place Mortgage Note until the sale of
Signature Place or the maturity, refinancing or prepayment of the Signature
Place Mortgage; and (ii) 50% of Signature Place's net cash flow (subject to
certain HUD restrictions and reserve requirements) beginning after completion of
construction. The payment obligation of the Signature Place Borrower with
respect to this participation is evidenced by an additional interest agreement,
which is collateralized by a subordinated mortgage on Signature Place and is
non-recourse to the Signature Place Borrower, except under limited
circumstances, including fraud and environmental noncompliance.
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PARTICIPATING GUARANTEED LOAN
The Partnership made the Signature Place PGL in the aggregate amount of up
to $1,200,000 to the Individual Signature Place Borrowers, jointly and
severally, in the form of a personal loan collateralized by the pledge of 100%
of their partnership interests in the Signature Place Borrower. Only $100 had
been funded under the Signature Place PGL as of December 31, 1995. The
Partnership's obligation to advance funds under the Signature Place PGL expired
on August 8, 1994. The unfunded loan proceeds of $1,199,900, which had been
included in the Partnership's working capital reserve, were distributed to the
Partnership's investors on November 15, 1994.
The Signature Place PGL bears interest at the rate of 15% per annum, payable
semi-annually, and provides that interest shall be accrued up to $100,000 to the
extent Surplus Cash is insufficient to fully pay the interest obligation. Any
such accruals will be added to the outstanding principal balance of the PGL and
shall bear interest at the same rate. At such time as accruals of interest
(including semi-annually compounded interest) exceed $100,000 or commencing with
the second anniversary of Final Endorsement (regardless of the balance of such
accruals), whichever occurs first, the Individual Signature Place Borrowers
shall pay interest on the outstanding principal amount semi-annually, whether or
not Surplus Cash is available. Principal and accrued interest, if any, shall be
due and payable on May 8, 2006.
Because less than $250,000 was funded under the Signature Place PGL,
$249,900 (the difference between $250,000 and the total amount funded) is
considered additional equity in the Signature Place Borrower ("Additional
Equity") contributed by the Individual Signature Place Borrowers. To the extent
the Individual Signature Place Borrowers' share of cash flow provides less than
a 10% cumulative annual return on the outstanding balance of Additional Equity
(compounded semi-annually) over the holding period of the investment, the
shortfall shall be paid to the Individual Investors out of the proceeds from the
sale of Signature Place or refinancing of the Signature Place Mortgage. All
participation earned by the Partnership with respect to the Signature Place PGL
shall be calculated after deducting the Borrowers' Additional Equity and
interest and principal paid on the Signature Place PIM and PGL.
No prepayments of the Signature Place PGL will be permitted prior to the
tenth anniversary of Initial Endorsement of the Signature Place Mortgage Note.
Thereafter, the Signature Place PGL may be prepaid in whole, but not in part,
upon 90 days prior written notice to the Partnership subject to a prepayment fee
equal to 1% of the principal amount prepaid. On the tenth anniversary date, the
Partnership will have the right to call the Signature Place PGL by six months
prior written notice to the Individual Signature Place Borrowers, in which case
no prepayment fee shall be paid.
The terms of the Signature Place PGL entitle the Partnership to
participation in addition to Basic Interest equal to (i) 10% of any increase in
the value of the partnership interests in the Signature Place Borrower
(determined by reference to the value of Signature Place) over the base value of
the partnership interests (based on the outstanding principal amount of the
Signature Place Mortgage and the Signature Place PGL), such increase to be
determined upon the sale of Signature Place or upon the refinancing, prepayment
or maturity of the PGL; and (ii) 10% of the Individual Investors' interest in
Signature Place's net cash flow (subject to certain HUD restrictions and reserve
requirements). The aforesaid 10% participation in Signature Place provided by
the Signature Place PGL is over and above the 50% participation in the Signature
Place PIM. The payment obligation of the Individual Borrowers' with respect to
this participation is evidenced by a supplemental interest agreement, and is
non-recourse to such partners, except under limited circumstances, including
fraud.
PARTICIPATION PAYMENTS
To date, the Partnership has not received any participating distributions
with respect to either the Signature Place PIM or the Signature Place PGL
because HUD regulations generally do not permit the distribution of Surplus Cash
(as defined by HUD) until cash on hand at a particular month end exceeds the
amount of the required reserve. As outlined by HUD, the required reserve
generally
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includes reserves for obligations due within 30 days such as accrued mortgage
interest payable; delinquent mortgage principal payments and deposits to reserve
for replacements, if any; accounts payable and accrued expenses due within 30
days; loans and notes payable due within 30 days; deficient tax insurance or
mortgage insurance premium escrow deposits, if any; prepaid rents; and tenant
security deposits payable.
At December 31, 1995, the Signature Place Borrower represented that it had
cash on hand of $328,840 while the required reserve was approximately $183,659.
The General Partner is currently evaluating the Surplus Cash statement from the
Signature Place Borrower as of December 31, 1995 in order to determine what
amount of participation in Surplus Cash, if any, is due to the Partnership.
PROPERTY DESCRIPTION
Signature Place is a 232 unit apartment complex located in Hampton,
Virginia. The property is located in the Mercury Central section of Hampton, an
area which includes a regional mall and a wide range of retail and other
services, and convenient access from Interstate 64.
Signature Place consists of approximately 191,728 net rentable square feet
of building area in 13 two-and three-story buildings of wood frame construction
with siding and brick veneer exteriors. The complex contains eight floor plans
ranging from a 544 square foot one-bedroom unit to a 1,132 square foot three
bedroom, two-bath unit. Signature Place offers a clubhouse, swimming pool,
Jacuzzi spa, sauna, exercise room and tennis court, nine-foot ceilings, patios
or balconies, walk-in closets and washer/dryer hookups in all units, fireplaces
in 208 units, laundry equipment in 64 units, other amenities, and at least 375
surface parking spaces, including 42 garage spaces.
The overall occupancy rate in the area is approximately 94%. Occupancy at
Signature Place was 95% at December 31, 1995. No rental concessions are being
offered at this time. The economy in this region is impacted by the presence of
the military. The market has been somewhat impacted by base realignments and
closures but the overall outlook is cautiously optimistic, as various base
realignments should mitigate any base reductions in the area. Approximately 50%
of the tenants at Signature Place are employed by the military.
GUARANTEE OF PGLS
The General Partner agreed pursuant to the Partnership Agreement to
guarantee a return to the Partnership, in the aggregate, of the amount of
investments in the PGLs for Cross Creek, the Highlands and Signature Place.
Pursuant to this guarantee, on the date that dissolution and winding up of the
Partnership shall be completed, the General Partner agreed to pay to the
Partnership an amount, if any, by which (i) the funds invested by the
Partnership in all PGLs exceeds (ii) all cash payments received by the
Partnership with respect to all Mortgages, INCLUDING points, Basic Interest,
Additional Interest and repayment of principal, but EXCLUDING Basic Interest and
repayment of principal of MBSs and other insured/guaranteed Mortgages. As a
result of the sale of the Highlands as referred to in "Mortgages -- the
Highlands" above, the Partnership received cash in excess of the amount of funds
invested by the Partnership in all PGLs. Accordingly, the General Partner has no
remaining future guarantee obligation with respect to any of the PGLs.
COMPETITION
The real estate business is highly competitive, and the properties
underlying the Mortgages acquired by the Partnership have active competition for
tenants from similar properties in their respective vicinities.
LEGAL PROCEEDINGS
For a discussion of the Lawsuit, see "Litigation and Proposed Settlement."
29
<PAGE>
SELECTED FINANCIAL DATA
The following selected audited financial data for the years ended December
31, 1991 through 1995, and the selected unaudited financial data for the three
months ended March 31, 1996, should be read in conjunction with, and are
qualified in their entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements,
related notes and other financial information included elsewhere herein. The
unaudited financial data reflect, in the opinion of management, all adjustments,
consisting of only normal recurring items, which are necessary for a fair
presentation of financial conditions and results of operations of the
Partnership on a basis consistent with that of the audited financial data. The
results for the three months ended March 31, 1996 are not necessarily indicative
of results to be expected for the full year.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31.
1996 1995 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 1995 1994 1993 1992
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total income........................... $ 626,458 $ 1,432,605 $3,268,459 $2,705,003 $2,550,740 $3,739,883
Total expenses......................... $ 67,585 $ 71,997 $ 315,427 $ 458,288 $ 407,966 $ 440,041
Net income............................. $ 558,873 $ 1,360,608 $2,953,032 $2,246,715 $2,142,774 $3,299,842
NET INCOME ALLOCATED:
Corporate Limited Partner.............. $ 13 $ 33 $ 71 $ 55 $ 51 $ 79
General Partner........................ $ 10,619 $ 11,806 $ 43,654 $ 44,934 $ 42,856 $ 65,997
Unitholders............................ $ 548,241 $ 1,348,769 $2,909,307 $2,201,726 $2,099,867 $3,233,766
Weighted Average net income per Unit... $ .07 $ .17 $ .36 $ .27 $ .26 $ .40
OTHER OPERATING DATA:
Net cash provided by operating
activities............................ $ 616,499 $ 1,933,292 $3,514,222 $2,286,337 $2,189,890 $3,208,517
Cash provided by (used in) investing
activities............................ $13,000,835 $ 1,125,044 $1,221,263 $ 108,069 $ (297,709) $(6,864,431)
Return of capital...................... $ -- $ -- $ -- $ -- $ -- ($42,312,611)
Refund of public offering expenses..... $ -- $ -- $ -- $ -- $ -- $3,596,571
Return of excess working capital
reserves.............................. $ -- $ -- $ -- $(2,008,773) $ -- $ --
Sales Proceeds......................... $13,105,373 $ -- $2,463,060 $ -- $ -- $ --
Cash distributions to Unitholders...... $ (536,829) $ (590,567) $(4,771,535) $(4,275,142) $(2,283,906) $(3,944,595)
Cash distributions to General
Partner............................... (10,956) (12,053) $ (47,114) $ (87,250) $ (46,612) $ (80,504)
Cash distribution to Corporate Limited
Partner............................... (13) (14) $ (117) $ (105) $ (56) $ (97)
Total cash distributions............... $ (547,798) $ (602,634) $(4,818,766) $(4,362,497) $(2,330,574) $(4,025,196)
Net (decrease) increase in cash and
cash equivalents...................... $13,069,536 $ 2,455,702 $ (83,281) $(1,968,091) $ (438,393) ($46,397,150)
Cash and cash equivalents at end of
period................................ $13,937,222 $ 3,406,669 $ 867,686 $ 950,967 $2,919,058 $3,357,451
BALANCE SHEET DATA:
Total assets........................... $32,113,831 $34,774,544 $32,117,943 $34,070,778 $36,102,009 $36,259,215
Total liabilities...................... $ 85,965 $ 134,045 $ 101,152 $ 188,253 $ 103,702 $ 73,108
Partners capital:
General Partner...................... (43,618) (40,069) $ (43,281) $ (39,821) $ 2,495 $ 6,251
Corporate Limited Partner............ $ 869 $ 935 $ 869 $ 915 $ 965 $ 970
Unitholders.......................... $32,070,615 $34,679,633 $32,059,203 $33,921,431 $35,994,847 $36,178,886
Total Partners capital............... $32,027,866 $34,640,499 $32,016,791 $33,882,525 $35,998,307 $36,186,107
Number of Units outstanding............ 8,168,457.7 8,168,457.7 8,168,457.7 8,168,457.7 8,168,457.7 8,168,457.7
Book value per Unit.................... $ 3.92 $ 4.24 $ 3.92 $ 4.15 $ 4.41 $ 4.43
<CAPTION>
DECEMBER 31,
1991
------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total income........................... $3,905,073
Total expenses......................... $ 266,511
Net income............................. $3,638,562
NET INCOME ALLOCATED:
Corporate Limited Partner.............. $ 106
General Partner........................ $ 72,771
Unitholders............................ $3,565,685
Weighted Average net income per Unit... $ .54
OTHER OPERATING DATA:
Net cash provided by operating
activities............................ $3,767,352
Cash provided by (used in) investing
activities............................ ($17,971,142)
Return of capital...................... $ --
Refund of public offering expenses..... $ --
Return of excess working capital
reserves.............................. $ --
Sales Proceeds......................... $ --
Cash distributions to Unitholders...... $(3,481,225)
Cash distributions to General
Partner............................... $ (71,049)
Cash distribution to Corporate Limited
Partner............................... $ (118)
Total cash distributions............... $(3,552,392)
Net (decrease) increase in cash and
cash equivalents...................... $10,284,516
Cash and cash equivalents at end of
period................................ $49,754,601
BALANCE SHEET DATA:
Total assets........................... $75,765,875
Total liabilities...................... $ 138,374
Partners capital:
General Partner...................... $ 20,758
Corporate Limited Partner............ $ 2,024
Unitholders.......................... $75,604,719
Total Partners capital............... $75,627,501
Number of Units outstanding............ 8,168,457.7
Book value per Unit.................... $ 9.26
</TABLE>
30
<PAGE>
PRO FORMA FINANCIAL DATA
The Pro Forma Balance Sheet as of March 31, 1996, has been prepared to
reflect the adjustments described in the accompanying notes. The Pro Forma
Balance Sheet is based on and should be read in conjunction with the historical
financial statements and the notes thereto filed as part of the Partnership's
quarterly report on Form 10-Q for the quarter ended March 31, 1996 and the
Partnership's annual report on Form 10-K for the year ended December 31, 1995.
The Pro Forma Balance Sheet was prepared on a liquidation basis of accounting,
as if the liquidation of the Partnership commenced on March 31, 1996. While the
General Partner believes that liquidation of the Partnership is possible, the
General Partner does not believe that liquidation is imminent because a number
of conditions must be satisfied, including approval of the Proposal by holders
of a majority of Units. The Pro Forma Balance Sheet is unaudited and not
necessarily indicative of the value which may be received if such liquidation
occurs.
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
PRO FORMA BALANCE SHEET ON A LIQUIDATION BASIS
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
MARCH 31, 1996 ADJUSTMENTS (AS ADJUSTED)
--------------- ---------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................... $ 13,937,222 $ 13,937,222
Interest receivable.......................................... 138,249 138,249
Investments in PIMs.......................................... 16,764,965 16,764,965
Deferred acquisition fees and expenses -- net................ 873,295 (873,295)(A) 0
Investments in PGLs.......................................... 400,100 400,100
--------------- ---------------- ---------------
Total assets............................................. $ 32,113,831 $ (873,295) $ 31,240,536
--------------- ---------------- ---------------
--------------- ---------------- ---------------
LIABILITIES AND PARTNERS' CAPITAL
Due to affiliates............................................ $ 25,000 $ 25,000
Accrued liabilities.......................................... 60,965 60,965
--------------- ---------------- ---------------
Total liabilities........................................ 85,965 85,965
--------------- ---------------- ---------------
Partners' capital
Capital contributions net of Public Offering expenses...... 36,028,557 36,028,557
Accumulated earnings....................................... 17,931,236 (873,295)(A) 17,057,941
Cumulative distributions................................... (21,931,927) (21,931,927)
--------------- ---------------- ---------------
Total partners' capital...................................... 32,027,866 (873,295) 31,154,571
--------------- ---------------- ---------------
Total liabilities and partners' capital...................... $ 32,113,831 $ (873,295) $ 31,240,536
--------------- ---------------- ---------------
--------------- ---------------- ---------------
Amount per Unit.............................................. $ 3.82
---------------
</TABLE>
31
<PAGE>
NOTES AND MANAGEMENT'S ASSUMPTION TO
UNAUDITED PRO FORMA BALANCE SHEET ON A LIQUIDATION BASIS AS OF
MARCH 31, 1996
NOTE 1 -- BASIS OF PRESENTATION
The accompanying Pro Forma Balance Sheet as of March 31, 1996 is presented
as if the liquidation of the Partnership commenced on March 31, 1996 and is
prepared on a liquidation basis of accounting. In general, under the liquidation
basis of accounting, assets are stated at estimated amounts to be realized and
liabilities are stated at estimated amounts to be paid upon settlement.
This Pro Forma Balance Sheet is to be read in conjunction with the
historical financial statements and notes thereto as of March 31, 1996 and
December 31, 1995, filed as part of the Partnership's quarterly report on Form
10-Q for the quarter ended March 31, 1996 and the Partnership's annual report on
Form 10-K for the fiscal year ended December 31, 1995, respectively. In
management's opinion, all adjustments necessary to reflect the effect of the
liquidation of the Partnership have been made. Because management believes that
it will dispose of the Mortgages at par, no gain or loss would be recognized
from such disposition. The unaudited Pro Forma Balance Sheet is not necessarily
indicative of the actual financial position as of March 31, 1996 nor does it
purport to represent the Partnership's financial position for future periods.
NOTE 2 -- ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
(A) To reflect the write-off of deferred acquisition fees and expenses as of
March 31, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's cash and cash equivalents balance at March 31, 1996
consists of $426,269 of working capital reserves, $13,105,373 of proceeds from
the sale of the Highlands GNMA and cash generated from operations net of accrued
interest. The Partnership's working capital reserves are invested in short-term
obligations of the United States government and other cash equivalents. As a
result of the sale of the Highlands GNMA and the distribution of the proceeds
from the sale to Unitholders on May 15, 1996, the Partnership's net cash
provided by operating activities is expected to decline significantly. The
Partnership will, however, still generate sufficient cash from operating
activities to pay its operating expenses as well as continue to make quarterly
distributions to the Unitholders.
The Partnership currently derives its income primarily from its investments
in MBSs, which are long-term, fixed interest rate GNMA securities, guaranteed as
to the timely payment of principal and interest by GNMA and backed by the full
faith and credit of the United States Government. The Partnership's only
operating expenses are general and administrative expenses which include audit
and tax return preparation fees, printing and postage costs for quarterly and
annual reports, and reimbursement to the General Partner for reimbursable
expenses incurred in accordance with the Partnership Agreement. In addition, the
Partnership pays an Asset Management Fee to the General Partner of .5% annually
of the average aggregate amount invested in the Cross Creek and Signature Place
Mortgages. As discussed in "Certain Information Concerning the Partnership --
The Mortgages -- The Highlands," in connection with the 1995 sale of the
Highlands, the Partnership is no longer entitled to any participation in net
cash flow or net appreciation of the Highlands. Accordingly, effective January
31, 1995 the General Partner decided to forgo an Asset Management Fee with
respect to the aggregate amount invested in the Modified Mortgage. After payment
of general and administrative expenses, the Partnership distributes all of its
income plus principal repayments on the MBSs to the partners on a quarterly
basis.
The PIMs and PGLs relating to Cross Creek and Signature Place Mortgages
entitle the Partnership to participate in the net cash flow of the properties
above certain levels and in any net appreciation in value upon refinancing. To
date the Partnership has not received any such participations from these
properties.
32
<PAGE>
Net cash provided by operating activities for the three months ended March
31, 1996 was $616,499 compared to $1,933,292 for the comparable 1995 period.
This decrease was primarily a result of the sale of the Highlands in January
1995 as discussed under "Certain Information Concerning the Mortgages -- The
Mortgages -- The Highlands."
RESULTS OF OPERATIONS
MARCH 31, 1996 COMPARED TO MARCH 31, 1995
The decrease in the Partnership's net income from the three months ended
March 31, 1996 as compared to the corresponding period in 1995 is primarily a
result of the sale of the Highlands property on January 1995, as discussed under
"Certain Information Concerning the Mortgages -- The Mortgages -- The
Highlands."
The increase in interest income on cash and cash equivalents is due to the
shift of funds from investments in PIMs to short-term investments as a result of
the sale of the Highlands GNMA in the first quarter. In addition, as a result of
the sale of the Highlands, GNMA the Partnership recognized a gain of $57,098.
The distribution of the proceeds from the sale of the Highlands GNMA to
Unitholders on May 15, 1996 will result in approximately a 33% decrease in net
income in the second quarter and remain at that level until such time, if any,
that the Partnership receives participations on the Cross Creek and Signature
Place Mortgages.
1995 COMPARED TO 1994
The Partnership's net income for the year ended December 31, 1995 increased
by $706,317 from the prior year primarily as a result of other income recognized
in connection with the sale of the Highlands as discussed in "Certain
Information Concerning the Partnership -- The Mortgages -- The Highlands", and
decreases in general and administrative expenses and Asset Management Fees as
offset by decreases in interest income earned on cash and cash equivalents and
the Mortgages.
Interest income on cash and cash equivalents decreased by $18,980 for the
year ended December 31, 1995 as compared to the prior year primarily due to the
distribution on November 15, 1994 of excess working capital which had previously
been invested in short term obligations of the United States government.
Interest income on Mortgages for the year ended December 31, 1995 decreased
by $573,026 from the prior year due to the repayment of the Highlands PGL and
the interest rate reduction on the Modified Mortgage as resulting from the sale
of the Highlands as discussed in "Certain Information Concerning the Partnership
- - -- The Mortgages -- The Highlands."
Other income for the year ended December 31, 1995 increased by $1,155,462
from the prior year due to the receipt of a prepayment charge of $324,000 and
participations in net appreciation and cash flow of $832,462 received in
connection with the sale of the Highlands as discussed in "Certain Information
Concerning the Partnership -- The Mortgages -- The Highlands."
General and administrative expenses for the year ended December 31, 1995
decreased by $77,549 from the prior year as all legal fees incurred in
connection with the sale of the Highlands and the mutual release delivered in
connection therewith had been paid or accrued as of December 31, 1994. Partially
offsetting this decrease in legal fees was an increase in tax fees and slight
increases in costs related to quarterly investor distribution processing and
investor K-1 processing.
Asset Management Fees for the year ended December 31, 1995 decreased by
$65,312 from the prior year as the General Partner had decided to forego an
asset management fee with respect to the aggregate amount invested in the
Highlands GNMA as, in accordance with the Amended and Restated Agreement, the
Partnership would no longer be entitled to participations in net cash flow or
net appreciation in value of the Highlands.
33
<PAGE>
1994 COMPARED TO 1993
The Partnership's net income for the year ended December 31, 1994 increased
by $103,941 from the prior year primarily as a result of interest income on the
PGLs. Interest income from PGLs increased by $177,708 over 1993, as semi-annual
interest payments became due and payable on the Cross Creek and the Highlands
PGLs during the latter half of 1993. Accordingly, the Partnership realized 12
months worth of interest income on the Cross Creek and the Highlands PGLs during
1994. In addition, the Partnership's 1994 general and administrative expenses
increased from the prior year as a result of professional fees associated with
the Highlands litigation previously disclosed in the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1995.
1993 COMPARED TO 1992
The Partnership's net income for the year ended December 31, 1993 decreased
by $1,157,068 from the prior year resulting primarily from a decrease in
interest income on cash and cash equivalents. Cash and cash equivalents includes
unfunded net proceeds which are invested in short-term obligations. Unfunded net
proceeds declined throughout 1992 and the first quarter of 1993 as additional
investments in Mortgages were funded. Additionally, there was a decrease in
interest income on Mortgages resulting from the reduction of the interest rate
on the Signature Place MBS from 10% to 8% upon conversion to permanent status in
March 1993. The decrease in income for the year more than offset a 10% decrease
in general and administrative expenses.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion briefly addresses what the General Partner
believes, based on the advice of tax counsel, Akin, Gump, Strauss, Hauer & Feld,
L.L.P., are likely to be the principal federal income tax consequences under
current law of a Unitholder's receipt of a Cash Payment pursuant to the
Settlement and the winding-up and liquidation of the Partnership. The federal
income tax discussion set forth below is a summary included for general
information purposes only and does not address all of the potential tax
consequences that might be relevant to a particular Unitholder.
The United States federal income tax consequences to each Unitholder,
including a Unitholder that is a Tax-Exempt Unitholder, of the receipt of a Cash
Payment pursuant to the Settlement and of the winding-up and liquidation of the
Partnership will vary depending on the Unitholder's particular circumstances. In
addition, the views of the General Partner and tax counsel described below are
not binding on the Internal Revenue Service (the "IRS") or the courts. It is
possible that the IRS could take a different position regarding the federal
income tax consequences described below and that a court would sustain the IRS's
position, in which case a Unitholder may realize different tax consequences.
Accordingly, each Unitholder is strongly urged to consult his, her or its own
tax adviser with respect to the specific tax consequences of his, her or its
receipt of a Cash Payment pursuant to the Settlement and of the winding-up and
liquidation of the Partnership, including the effect and applicability of
federal, state, local and foreign tax laws.
CASH PAYMENT
LIQUIDATION ADVANCE. A Settling Unitholder generally should not recognize
income on his, her or its receipt of the Liquidation Advance. If the Liquidation
Advance received by a Settling Unitholder ultimately exceeds the Liquidating
Distribution allocable to such Settling Unitholder (see "-- Winding Up and
Liquidation of the Partnership", below), such excess generally should be treated
for federal income tax purposes in the same manner as a Refund received at the
time of the liquidation of the Partnership.
REFUND. The Refund should be treated for federal income tax purposes as a
return of capital and should be applied against and reduce a Settling
Unitholder's adjusted tax basis in his, her or its Units. To the extent, if any,
that the Refund received by a Settling Unitholder exceeds his, her or its
adjusted
34
<PAGE>
tax basis in his, her or its Units, such excess will constitute taxable income
to such Settling Unitholder which may be ordinary income. It is unlikely that
Unitholders will receive a Refund in excess of their adjusted tax basis.
ENHANCEMENT. The Enhancement should be treated in the same manner as the
Refund.
SPECIAL RULES FOR TAX-EXEMPT UNITHOLDERS. A Tax-Exempt Unitholder which
participates in the Settlement generally should not recognize unrelated business
taxable income as a result of its receipt of the Refund or Enhancement. However,
if such a Tax-Exempt Unitholder has incurred "acquisition indebtedness" within
the meaning of the Code with respect to its Units, then such Unitholder may
recognize unrelated business taxable income to the extent (if any) the Refund or
Enhancement exceeds his, her or its adjusted tax basis in its Units.
The General Partner and tax counsel believe that property acquired with the
proceeds of the Liquidation Advance should not be treated as "debt-financed
property" within the meaning of the Code even though it is expected that the
General Partner will recoup all or part of the Liquidation Advance from
Liquidating Distributions that would otherwise be paid to the Settling
Unitholder. However, there is no clear legal authority on the treatment of
payments like the Liquidation Advance for such purposes and it is possible that
the IRS could take a different view.
EACH TAX-EXEMPT UNITHOLDER IS PARTICULARLY URGED TO CONSULT ITS OWN TAX
ADVISER WITH RESPECT TO THE TAX CONSEQUENCES OF THE RECEIPT OF THE CASH PAYMENT.
WINDING UP AND LIQUIDATION OF THE PARTNERSHIP
In general, in computing his, her or its federal income tax liability for
his, her or its tax year in which the assets of the Partnership are sold, each
Unitholder will be required to take into account his, her or its allocable share
of any gain or loss from the sale of the Partnership's properties. Generally,
the amount of any gain should be treated as capital gain except to the extent
the gain is attributable to (i) accrued unpaid interest, including original
issue discount, (ii) interest based on appreciation in property or (iii) market
discount (in certain cases). Any loss from the sale should be treated as capital
loss.
A Unitholder may deduct losses allocated by the Partnership only to the
extent of his, her or its adjusted tax basis in its Units. Because the Refund
paid to a Unitholder will reduce his, her or its adjusted tax basis in its
Units, a Unitholder who receives a Refund may not be entitled to deduct the full
amount of its share of any losses realized by the Partnership.
Upon the liquidation of the Partnership and the distribution of sale
proceeds, a Unitholder could, depending on his, her or its personal tax
situation, recognize additional gain or loss, to the extent that the sum of the
cash received (and in the case of a Settling Unitholder, any amounts treated as
received and used to pay the Liquidation Advance) and the reduction in his, her
or its share of Partnership non-recourse liabilities (if any) is greater than or
less than his, her or its adjusted tax basis in his, her or its Units. For this
purpose, the Unitholder's adjusted tax basis in his, her or its Units is
increased by such Unitholder's share of any gain and reduced by his, her or its
share of any loss recognized from the sale of Partnership assets (as well as
such Unitholder's receipt of a Refund, as described above).
As described more fully under the heading "The Proposal and Considerations
with Respect to the Proposal -- The Proposal -- Effect of Approval of the
Proposal and the Settlement," all or part of the Liquidating Distribution
otherwise payable to any Unitholder who has received a Liquidation Advance will
be paid to the General Partner as a repayment of the Liquidation Advance.
Although the issue is not free from doubt, the General Partner and tax counsel
believe that any Unitholder who has received a Liquidation Advance will be
treated for federal income tax purposes as having received from the Partnership
his, her or its full allocable share of the Liquidating Distribution, and, to
the extent
35
<PAGE>
such amount is paid to the General Partner, to have applied such proceeds to
repay the Liquidation Advance. The General Partner intends that the
Partnership's annual information returns will be prepared in a manner consistent
with such treatment.
Any additional gain or loss recognized by a Unitholder on the liquidation of
the Partnership generally will be treated as capital gain or loss.
Any loss reportable by a Unitholder as a result of the transactions
contemplated herein, and any suspended passive activity losses from prior years
that are attributable to the Partnership, will generally be deductible in the
year of sale without regard to the passive activity loss limitations. Any net
income or gains reportable by a Unitholder as a result of the transactions
contemplated herein should generally be considered "portfolio income" that
cannot be offset against passive activity losses from other sources.
A Tax-Exempt Unitholder may have unrelated business taxable income as a
result of the winding up and liquidation of the Partnership if it has incurred
"acquisition indebtedness" within the meaning of the Code with respect to his,
her or its Units.
EACH UNITHOLDER IS STRONGLY URGED TO CONSULT HIS, HER OR ITS TAX ADVISER
WITH RESPECT TO THE TAX CONSEQUENCES OF THE RECEIPT OF THE CASH PAYMENT AND OF
THE WINDING UP AND LIQUIDATION OF THE PARTNERSHIP ON THE UNITHOLDER'S PARTICULAR
TAX SITUATION.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
There is no individual known by the General Partner to be the beneficial
owner of more than five percent of the Partnership's 8,168,457.7 outstanding
Units. The General Partner holds 11,869.86 Units. Any Units held by the
Partnership or the General Partner will be voted with respect to the Proposal in
the same proportion as the Unitholders vote for or against the Proposal. The
ownership interests held by management and its affiliates consist of its General
Partner and Corporate Limited Partner interests; no interests are held by
executive officers or directors.
INTERESTS OF CERTAIN PERSONS IN TRANSACTION
If the Proposal is approved by the Unitholders, the Partnership will proceed
with the dissolution, termination and winding up of the Partnership pursuant to
the Partnership Agreement and any Partnership assets remaining after the sale of
the Partnership's properties and the discharge of all of its liabilities,
including debts to partners, will be distributed to the partners in accordance
with the Partnership Agreement regardless of whether the Settlement is approved
by the Court. See "The Proposal -- Liquidating Distributions."
If the Unitholders approve the Proposal and the Court approves the
Settlement and the Settlement becomes final, the General Partner will pay a
Liquidation Advance to each Settling Unitholder. The Liquidation Advance will be
non-interest bearing and repayable solely out of any Liquidating Distribution
payable by the Partnership to the Settling Unitholder. Each Settling Unitholder
will grant a security interest in favor of the General Partner in his, her or
its Units and Liquidating Distribution up to the amount of such Settling
Unitholder's Liquidation Advance to secure the repayment of such Liquidation
Advance out of his, her or its Liquidating Distribution. In addition to amounts
received by NYLIFE Realty Inc. as the General Partner, as the owner of Units,
NYLIFE Realty Inc. will receive a percentage of the Liquidating Distribution to
Unitholders corresponding to the percentage of Units owned by NYLIFE Realty Inc.
No Liquidation Advance will be made with respect to Units owned by NYLIFE Realty
Inc.
The Proposal may give rise to certain conflicts of interest arising out of
the relationships among the Partnership, the General Partner and affiliates of
the General Partner. If the Proposal is approved by the Unitholders and the
Court approves the Settlement and the Settlement becomes final, the
36
<PAGE>
General Partner and certain of its affiliates will be released from certain
liabilities as discussed under "Litigation and Proposed Settlement -- Release."
As a condition to receipt of a Liquidation Advance from the General Partner, as
paying agent for NYLIFE Inc., each Settling Unitholder will grant a security
interest in favor of the General Partner in his, her or its Units and the
Liquidating Distribution up to the amount of such Settling Unitholder's
Liquidation Advance to secure the repayment of the Liquidation Advance out of
his, her or its Liquidating Distribution. The General Partner is entitled to
receive an Asset Management Fees equal to .5% of the total invested assets of
the Partnership on a quarterly basis. However, the General Partner has agreed to
waive any such future fees if the Proposal is approved.
MARKET FOR UNITS AND RELATED MATTERS
There is no organized trading market for the Units. The Units represent the
assigned economic rights attributable to the Unitholder Interests of NYLIFE
Depositary Corporation, the Corporate Limited Partner. Each Unit originally
represented $10 of depositary interest in the Partnership. The Corporate Limited
Partner acts as depositary for and on behalf of the Partnership. Units were
issued in registered form only and cannot be issued to nominee holders, except
at the sole discretion of the General Partner.
The Corporate Limited Partner assigned to the extent permitted by the
Massachusetts Uniform Limited Partnership Act (the "Act") all of its rights and
interest in the Partnership (except its $2,000 Limited Partner Interest) to
Unitholders upon their purchase of the Units. Currently, the rights and
interests assignable under the Act by the Corporate Limited Partner include the
right to distributions, profits and losses, and liquidating distributions of the
Partnership. As to the voting rights and the right to inspect or copy the
Partnership's books which are not assignable under the Act, Unitholders are
entitled to exercise their rights through the Corporate Limited Partner as if
they were limited partners of the Partnership under the Act, pursuant to the
Subscription Agreement and the Partnership Agreement. Accordingly, the Corporate
Limited Partner is required to exercise its rights and perform its obligations
as may be required by the Act solely in favor of, in the interest of, and at the
direction of the Unitholders pursuant to the Partnership Agreement. Units may be
assigned upon compliance with applicable laws and the terms of the Partnership
Agreement. As of the Record Date, the Partnership had 5,913 Unitholders.
Pursuant to a preliminary injunction issued by the Court, Unitholders who have
not excluded themselves from the Class have been enjoined from transferring
their Units except in certain specified circumstances. If the Proposal is
approved by the Unitholders and the Settlement is approved by the Court and
becomes final, Settling Unitholders will not be permitted to transfer Units.
Settling Unitholders will, however, receive the Cash Payment. See "The Proposal
and Considerations with Respect to the Proposal -- Considerations with Respect
to the Proposal" and "Litigation and Proposed Settlement -- The Hearing Order
and the Settlement Hearings."
Information regarding cash distributions to the Unitholders is included
under "Selected Financial Data."
VOTING PROCEDURES
Each Unitholder shall be entitled to one vote for each Unit owned of record
by such Unitholder on the Record Date. Approval of the Proposal requires the
affirmative consents of Unitholders holding a majority of the Units (a minimum
of 4,084,228.8 Units) outstanding on the Record Date. A duly executed consent
form on which a consent or indication of withholding consent is not indicated
will be deemed a consent to the Proposal set forth herein, except that broker
non-votes (Units held by a broker or nominee for which a consent form is
submitted but with respect to which such broker or nominee expressly indicates
that it does not have discretionary authority to consent to the Proposal) will
be treated as negative votes. Abstentions also will be treated effectively as
negative votes.
37
<PAGE>
This Definitive Solicitation Statement is accompanied by a separate consent
form. Consent forms should be completed, signed and returned promptly to New
York Life Limited Partnership Class Action Administrator, P.O. Box 9224, Boston,
MA 02205-8622 if sent by United States mail, or New York Life Limited
Partnership Class Action Administrator c/o Boston Financial Data Services, Inc.,
1250 Hancock Street, Quincy, MA 02169 if sent by hand delivery or delivery
service. A self-addressed, prepaid envelope for return of the consent cards has
been included with this Solicitation Statement.
Only Unitholders of record on the Record Date (May 14, 1996) will be
entitled to submit consent forms with respect to the Proposal. The consent
solicitation will expire at 5:00 p.m., New York time, on July 1, 1996, unless
extended by the General Partner (as extended from time to time, the "Expiration
Date"). The General Partner may extend the Expiration Date in its sole
discretion. The General Partner intends to extend the Expiration Date until the
earlier of the date on which a majority of the Unitholders have approved or
disapproved the Proposal or the Final Settlement Date.
Any Unitholder delivering a consent form pursuant to the Solicitation
Statement may revoke his, her or its consent with respect to the Proposal at any
time prior to the earlier of the Approval Date or the Expiration Date by
delivering written notice of such revocation to the General Partner at New York
Life Limited Partnership Class Action Administrator, P.O. Box 9224, Boston, MA
02205-8622 if sent by United States mail, or New York Life Limited Partnership
Class Action Administrator c/o Boston Financial Data Services, Inc., 1250
Hancock Street, Quincy, MA 02169 if sent by hand delivery or delivery service.
Such written notice must be received by the General Partner prior to the earlier
of the Approval Date or the Expiration Date.
The Partnership Agreement allows certain costs and expenses incurred by the
General Partner, including those in connection with the preparation and mailing
of the Solicitation Statement and all papers which accompany or supplement the
Solicitation Statement, to be charged to the Partnership. The General Partner,
however, has elected to pay all costs and expenses, including legal fees,
incurred in connection with the preparation, filing and distribution of this
Solicitation Statement and all accompanying or supplementary papers.
The Proprietary Partnerships have retained the services of King to solicit
the written consents of limited partners and unitholders to the dissolution of
such Partnerships. Additionally, BFDS has been retained by the General Partner,
certain of its affiliates and the Plaintiffs to act as the class action
administrator in connection with the Lawsuit. As such, BFDS may assist in the
solicitation of written consents. Solicitation of consents also may be
undertaken by the directors, officers, employees and agents of the General
Partner and New York Life. Solicitation may be made by mail, telephone,
telegraph, facsimile transmission or personal interview. The fees and expenses
of King and BFDS and the costs incurred by the General Partner in connection
with the solicitation of consents will be borne by the General Partner and
certain of its affiliates. The fees of King for the solicitation of consents on
behalf of all Proprietary Partnerships (including the Partnership) is estimated
to be $100,000, plus reimbursement for out-of-pocket costs and expenses. The
fees of BFDS for its services as class action administrator in connection with
the Lawsuit are estimated to be $2,500,000.
ADDITIONAL INFORMATION
The Partnership is subject to the informational requirements of the Exchange
Act and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Partnership may be inspected at, and, upon payment of
the Commission's customary charges, copies may be obtained from, the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such reports, proxy statements and other information are
also available for inspection and copying at prescribed rates at the
Commission's regional offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661.
38
<PAGE>
INCORPORATION BY REFERENCE
The following documents are incorporated by reference in this Solicitation
Statement:
1. The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. The Partnership's Current Report on Form 8-K dated March 13, 1996.
3. The Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
The Partnership will provide without charge to each person to whom a copy of
this Solicitation Statement is delivered, upon written or oral request of such
person and by first class mail or other equally prompt means, a copy of any or
all of the documents incorporated by reference herein, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests should be directed to NYLIFE Realty Inc., 51
Madison Avenue, Suite 1710, New York, New York 10010.
By Order of the General Partner
NYLIFE REALTY INC.
39
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
-----
<S> <C>
Report of Independent Accountants................................ F-2
Balance Sheets as of December 31, 1995 and 1994.................. F-3
Statements of Income for the Years Ended December 31, 1995, 1994
and 1993........................................................ F-4
Statements of Partners' Capital for the Years Ended December 31,
1995, 1994 and 1993............................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993................................................... F-6
Notes to Financial Statements.................................... F-7
Balance Sheets as of March 31, 1996 (Unaudited) and December 31,
1995............................................................ F-21
Statement of Operations for the Three Months Ended March 31, 1996
and 1995 (Unaudited)............................................ F-22
Statement of Partners' Capital for the Three Months Ended March
31, 1996 (Unaudited) and for the Year Ended December 31, 1995... F-23
Statement of Cash Flows for the Three Months Ended March 31, 1996
and 1995 (Unaudited)............................................ F-24
Notes to Financial Statements.................................... F-25
Report of Independent Accountants of NYLIFE Inc.................. F-29
Consolidated Statement of Financial Position as of December 31,
1995 and 1994 of NYLIFE Inc..................................... F-30
Consolidated Statement of Changes in Stockholder's Equity for the
Years Ended December 31, 1995 and 1994 of NYLIFE Inc............ F-31
Notes to Consolidated Statement of Financial Position of NYLIFE
Inc............................................................. F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners and Unitholders
of NYLIFE Government Mortgage
Plus Limited Partnership:
We have audited the accompanying balance sheets of NYLIFE Government Mortgage
Plus Limited Partnership (a Massachusetts limited partnership, the
"Partnership") as of December 31, 1995 and 1994, and the related statements of
income, partners' capital and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the General Partner. 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.
As further discussed in Note 9, in connection with the settlement of litigation
involving the General Partner of the Partnership, the general partner will
solicit consents of the limited partners for the dissolution of the Partnership.
The financial statements do not include any adjustments that might result should
the Unitholders consent to liquidate the Partnership.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NYLIFE Government Mortgage Plus
Limited Partnership as of December 31, 1995 and 1994 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 22, 1996
F-2
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
Cash and cash equivalents.............................. $ 867,686 $ 950,967
Interest receivable.................................... 208,392 280,773
Investments in Participating Insured Mortgages......... 29,765,800 29,891,263
Investments in Participating Guaranteed Loans.......... 400,100 1,495,900
Deferred acquisition fees and expenses -- net.......... 875,965 1,451,875
------------ ------------
Total assets....................................... $ 32,117,943 $ 34,070,778
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Due to affiliates...................................... $ 21,729 $ 100,000
Accrued liabilities.................................... 79,423 88,253
------------ ------------
Total liabilities.................................. 101,152 188,253
------------ ------------
Commitments and contingencies
Partners' capital:
Capital contributions net of public offering
expenses............................................ 36,028,557 36,028,557
Accumulated earnings................................. 17,372,364 14,419,332
Cumulative distributions............................. (21,384,130) (16,565,364)
------------ ------------
Total partners' capital............................ 32,016,791 33,882,525
------------ ------------
Total liabilities and partners' capital............ $ 32,117,943 $ 34,070,778
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Interest -- cash and cash equivalents.................. $ 64,991 $ 83,971 $ 79,410
Interest -- Mortgages (net of write-off and
amortization of deferred acquisition costs)........... 2,047,006 2,620,032 2,463,163
Other income........................................... 1,156,462 1,000 8,167
---------- ---------- ----------
Total income....................................... 3,268,459 2,705,003 2,550,740
---------- ---------- ----------
EXPENSES
General and administrative............................. 222,572 300,121 250,000
Asset Management Fees.................................. 92,855 158,167 157,966
---------- ---------- ----------
Total expenses..................................... 315,427 458,288 407,966
---------- ---------- ----------
Net income....................................... $2,953,032 $2,246,715 $2,142,774
---------- ---------- ----------
---------- ---------- ----------
NET INCOME ALLOCATED
General Partner........................................ $ 43,654 $ 44,934 $ 42,856
Corporate Limited Partner.............................. 71 55 51
Unitholders............................................ 2,909,307 2,201,726 2,099,867
---------- ---------- ----------
$2,953,032 $2,246,715 $2,142,774
---------- ---------- ----------
---------- ---------- ----------
Net income per Unit.................................... $ .36 $ .27 $ .26
---------- ---------- ----------
---------- ---------- ----------
Number of Units........................................ 8,168,457.7 8,168,457.7 8,168,457.7
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
CORPORATE TOTAL
LIMITED GENERAL PARTNERS'
UNITHOLDERS PARTNER PARTNER CAPITAL
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993............................... $ 36,178,886 $ 970 $ 6,251 $ 36,186,107
Net income............................................... 2,099,867 51 42,856 2,142,774
Distributions............................................ (2,283,906) (56) (46,612) (2,330,574)
-------------- ----------- ---------- --------------
Balance at December 31, 1993............................. $ 35,994,847 $ 965 $ 2,495 $ 35,998,307
Net income............................................... 2,201,726 55 44,934 2,246,715
Distributions............................................ (4,275,142) (105) (87,250) (4,362,497)
-------------- ----------- ---------- --------------
Balance at December 31, 1994............................. 33,921,431 915 (39,821) 33,882,525
Net income............................................... 2,909,307 71 43,654 2,953,032
Distributions............................................ (4,771,535) (117) (47,114) (4,818,766)
-------------- ----------- ---------- --------------
Balance at December 31, 1995............................. $ 32,059,203 $ 869 $ (43,281) $ 32,016,791
-------------- ----------- ---------- --------------
-------------- ----------- ---------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 2,953,032 $ 2,246,715 $ 2,142,774
----------- ----------- -----------
Adjustments to reconcile net income to net cash flows
from operating activities:
Amortization of acquisition costs.................... 575,910 17,948 16,494
Changes in assets and liabilities:
Decrease (increase) in interest receivable......... 72,381 (62,877) 28
(Decrease) increase in due to affiliates........... (78,271) 100,000 --
(Decrease) increase in accrued liabilities......... (8,830) (15,449) 30,594
----------- ----------- -----------
Total adjustments................................ 561,190 39,622 47,116
----------- ----------- -----------
Net cash provided by operating activities........ 3,514,222 2,286,337 2,189,890
----------- ----------- -----------
Cash flows from investing activities:
Repayment of Participating Insured Mortgages......... 125,463 108,069 94,191
Investment in Participating Insured Mortgages........ -- -- (391,900)
Repayment of Participating Guaranteed Loans.......... 1,095,800 -- --
----------- ----------- -----------
Net cash provided by (used in) investing
activities...................................... 1,221,263 108,069 (297,709)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners............................ (4,818,766) (4,362,497) (2,330,574)
----------- ----------- -----------
Net cash used in financing activities............ (4,818,766) (4,362,497) (2,330,574)
----------- ----------- -----------
Net decrease in cash and cash equivalents.............. (83,281) (1,968,091) (438,393)
Cash and cash equivalents at beginning of period....... 950,967 2,919,058 3,357,451
----------- ----------- -----------
Cash and cash equivalents at end of period............. $ 867,686 $ 950,967 $ 2,919,058
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
NYLIFE Government Mortgage Plus Limited Partnership (the "Partnership") is a
limited partnership which was formed on November 21, 1988 pursuant to the
provisions of the Massachusetts Uniform Limited Partnership Act. The
Partnership's general partner, NYLIFE Realty Inc. (the "General Partner"), an
indirect wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"), was issued all of the general partner interests in exchange for a
capital contribution of $3,000. The Partnership also issued all of the limited
partner interests to NYLIFE Depositary Corporation, an indirect wholly-owned
subsidiary of New York Life (the "Corporate Limited Partner"), in exchange for a
capital contribution of $2,000.
Limited partner interests ("Limited Partner Interests") are defined as the
interests of any partner having an ownership interest representing an initial
capital contribution of $10 together with the obligations of such partner to
comply with all terms and provisions of the Partnership Agreement, but excluding
any claims which the partner may have as a creditor.
A unit is defined as the interest of a unitholder in the Partnership
(hereafter referred to as "Units" and "Unitholders"). Upon the purchase of Units
by Unitholders, the Corporate Limited Partner contributed to the Partnership
cash in the amount of the subscription prices paid by the Unitholders and the
Unitholders received Limited Partner Interests in return. In addition, the
Corporate Limited Partner assigned all of the economic rights attributable to
the Limited Partner Interests to the Unitholders to the extent permitted by
Massachusetts law, and exercised all rights with respect to such Limited Partner
Interests as directed by the Unitholders, pursuant to the Partnership Agreement.
The offering period for the Partnership's Units expired on September 30,
1991.
The Partnership Agreement authorizes the Partnership to acquire guaranteed
or federally insured or coinsured mortgages on multi-family residential
properties or residential care facilities directly or through the purchase of
mortgage-backed securities ("MBSs") guaranteed as to principal and Basic
Interest issued or originated under or in connection with the housing programs
of the department of Housing and Urban Development ("HUD"), or Government
National Mortgage Association ("GNMA"). The Partnership may also acquire
uninsured participation interests secured by subordinated mortgages
("Participation Interests"), which may provide for Partnership participation in
the operating revenues and residual value, if any, of the underlying properties.
In addition, the Partnership may invest in uninsured loans ("Participating
Guaranteed Loans" or "PGLs") with respect to the same properties underlying the
MBSs, which may also provide for such participations. Although the Participation
Interests are not guaranteed or insured by any government agency and the PGLs
are not secured by any real estate mortgage, for ease of reference, the MBSs and
the Participation Interests are collectively referred to herein as the
"Participating Insured Mortgages" or "PIMs" and PIMs and PGLs are collectively
referred to herein as the "Mortgages."
Since its formation, the Partnership has invested in three PIMs consisting
of (i) MBSs collateralized by federally coinsured mortgages on multi-family
residential properties pursuant to the coinsurance programs of Section 221(d)(4)
of the National Housing Act and (ii) participating interests evidenced by
additional interest agreements and secured by subordinated mortgages on those
properties. Each MBS is guaranteed as to principal and Basic Interest by GNMA.
As described in Note 9, one such MBS was sold on February 27, 1996. The Cross
Creek and Signature Place PIMs also provide for the Partnership to participate
in 50% of the underlying property's net cash flow and appreciation, if any. The
Partnership has funded three PGLs with respect to the same properties underlying
the
F-7
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
Partnership's PIMs. The General Partner has guaranteed a return to the
Partnership, upon liquidation, of funds invested in PGLs, if any, in excess of
cash payments received by the Partnership from all mortgages and loans (other
than cash payments of principal and Basic Interest on MBSs). The PIMs and PGLs
are further described in Note 5.
"Basic Interest" is defined as interest which is generally payable monthly,
and is calculated on the unpaid balance of the underlying mortgage loan or PGL
at an annual percentage rate (the "Basic Interest Rate") specified in the
documents establishing such mortgage loan or PGL.
The Partnership terminates on December 31, 2028, unless terminated earlier
by the occurrence of certain events as set forth in the Partnership Agreement.
At January 1, 1992, the Partnership had committed $33,580,000 for investment
in MBSs and Participation Interests related to three properties, known as Cross
Creek, the Highlands and Signature Place. This represented 48.2% of the funds
available for investment by the Partnership. Since it was unable to invest its
remaining available net proceeds, the Partnership returned $42,312,611 of its
capital to investors during 1992. This amount included $37,020,024 of proceeds
which were not committed for Mortgages, as well as $5,292,587 of fees and
expense reimbursements previously paid to the General Partner and its
affiliates, of which $3,596,572 were credited to capital and $1,696,015 reduced
deferred acquisition costs. This distribution represented a $5.18 per unit
return of capital. Accordingly, subsequent to such distribution, the Partnership
has 8,168,457.7 Units with a capital value of $4.82 per unit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership uses the following accounting policies for financial
reporting purposes:
CASH AND CASH EQUIVALENTS
Highly liquid debt instruments (including short-term obligations of the
United States government) purchased with a maturity of three months or less, are
considered cash equivalents and are stated at cost, which approximates market
value. Included in cash and cash equivalents is a working capital reserve of
$426,266 which may be used to meet the Partnership's operating expenses and
liabilities.
PARTICIPATING INSURED MORTGAGES
In 1995, mortgage-backed permanent loan certificates ("PLCs") are carried at
current market value and are classified as available-for-sale. PLCs were carried
at amortized cost in 1994 and were classified as held to maturity (See Note 5).
PARTICIPATING GUARANTEED LOANS ("PGLS")
In 1995, PGLs are carried at current market value and are classified as
available-for-sale. PGLs were carried at amortized cost and were classified as
held to maturity in 1994 (See Note 5). Although interest accrues on the PGLs,
the Partnership does not recognize such income on its books until it is
realizable.
DEFERRED ACQUISITION FEES AND EXPENSES
Acquisition expenses, which were paid upon the receipt of gross offering
proceeds of the Partnership, were deferred and, upon conversion of the
construction loan certificates ("CLCs") to a PLC, are currently being amortized
over the term of the PLC, using the effective interest method. Amounts
F-8
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
paid to the Partnership as origination fees relating to the acquisition of
Mortgages were netted against acquisition costs, and are also currently being
amortized over the term of the PLC using the effective interest method.
INCOME TAXES
No provision for income taxes has been made in the financial statements
because these taxes are the responsibility of the individual partners rather
than the Partnership.
PUBLIC OFFERING EXPENSES
Reimbursement to the General Partner for organization and offering expenses
and amounts paid to NYLIFE Securities Inc. ("NYLIFE Securities"), pursuant to a
sales agent agreement, were charged directly to the capital accounts upon the
admission of Unitholders through September 30, 1991. Organization and offering
expenses included costs of preparing the Partnership for registration, and
thereafter offering and selling Units to the public, and included advertising
expenses and any sales commissions paid to broker-dealers relating to the sale
of the Units. In 1992 a portion of these public offering expenses were returned
to the Partnership (See Note 1).
OTHER
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. CAPITAL CONTRIBUTIONS AND ALLOCATION OF NET INCOME TO THE CORPORATE LIMITED
PARTNER AND UNITHOLDERS
As of December 31, 1995, the Partnership had 8,168,457.7 Units outstanding
which originally sold for $81,684,577 and which reflected purchase volume
discounts of $143,319.
4. THE PARTNERSHIP AGREEMENT
In accordance with the Partnership Agreement, Distributable Cash Flow, as
defined below, of the Partnership remaining after payment of the Asset
Management Fee, as defined, is distributed quarterly, 98% to the class comprised
of the Unitholders (which includes the Corporate Limited Partner) and 2% to the
General Partner.
"Distributable Cash Flow" is defined as i) the net cash provided by the
Partnership's normal operations for each fiscal year, or portion thereof,
including, without limitation, Basic Interest, Minimum Additional Interest and
Shared Income Interest from Mortgages, points, interest from interim investments
and from funds held in escrow and amounts released from operating reserve
accounts available for distribution, after the general expenses and current
liabilities of the Partnership for such period (other than the Asset Management
Fee) are paid, less ii) amounts set aside for reserves.
"Asset Management Fee" is defined as an amount paid by the Partnership to
the General Partner on a quarterly basis equal to .5% per annum of the value of
the Total Invested Assets of the Partnership. Under no circumstances may the
aggregate of the Asset Management Fee paid since the organization of the
Partnership and the distributions to the General Partner of Distributable Cash
Flow paid since the organization of the Partnership exceed 10% of the aggregate
Distributable Cash Flow since the organization of the Partnership. The General
Partner may subcontract all or a portion of the services rendered for the Asset
Management Fee.
F-9
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. THE PARTNERSHIP AGREEMENT (CONTINUED)
"Total Invested Assets" is defined as the portion of the net proceeds of the
offering which is invested in Mortgages.
Upon the occurrence of a Capital Transaction, as defined below, the General
Partner will apply the proceeds first to the payment of all debts and
liabilities of the Partnership then due, and then fund any reserves for
contingent liabilities which it deems appropriate. "Capital Transaction" is
defined as a principal repayment or Mortgage prepayment to the extent that it is
classified as a return of capital for federal income tax purposes.
The remaining Net Cash Proceeds if any, as defined below, will be
distributed as follows: FIRST, to the class comprising the Unitholders until
they have received a return of their total Invested Capital; SECOND, to the
General Partner until it has received a return of its total Invested Capital;
THIRD, 99% to the class comprising the Unitholders and 1% to the General Partner
until the class comprising the Unitholders have received any deficiency in their
12% per annum Cumulative Return on Invested Capital through fiscal years ended
prior to the date of the Capital Transaction; and FOURTH, as to any remaining
proceeds, 90% to the class comprised of the Unitholders and 10% to the General
Partner.
"Net Cash Proceeds" is defined as cash received by the Partnership as a
result of a Capital Transaction, less any reinvested amounts, all debts and
liabilities of the Partnership required to be paid as a result of the
Transaction, and any reserves for contingent liabilities, to the extent deemed
reasonable by the General Partner. This is provided that, at the expiration of
such period as the General Partner shall deem advisable, the balance of such
reserves remaining after payment of such contingencies shall be distributed in
the manner provided in this Agreement for Net Cash Proceeds. If the Partnership
takes back a mortgage note in connection with a Capital Transaction, all
payments received with respect to it shall be included in the Net Cash Proceeds
of that Transaction.
"Invested Capital" means, with respect to the General Partner, its capital
contributions (other than capital contributions represented by any Guarantee
Payments, as described in Note 5) and, with respect to the Limited Partners and
Unitholders, $10.00 for each Limited Partner Interest or Unit, in either case
reduced by any amounts received as distributions of Distributable Cash Flow.
The Cumulative Return is defined as a 12% return per annum on the invested
capital of the class made up of the Unitholders calculated from the respective
dates on which the Units are deemed to be outstanding through the most recent
fiscal year completed prior to the Capital Transaction giving rise to the
computation.
Net income or loss from operations for any fiscal year is allocated 98% to
the class comprised of the Unitholders and 2% to the General Partner.
F-10
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES
The Partnership's net proceeds of $33,580,000 had been committed for
investment in Mortgages. Of this total amount committed, $1,946,594 had been
included in the Partnership's working capital reserve and subsequently
distributed to its Partners on November 15, 1994 and the following amounts have
been funded as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 (1) 1994 (1)
-------------- -----------
<S> <C> <C> <C>
Halcyon at Cross Creek........................ -PIM $ 7,226,406 $ 7,226,406
-PGL 400,000 400,000
The Highlands................................. -PIM 13,037,676(2) 13,154,200
-PGL -- (2) 1,095,800
Signature Place............................... -PIM 9,756,900 9,756,900
-PGL 100 100
-------------- -----------
$ 30,421,082 $31,633,406
-------------- -----------
-------------- -----------
</TABLE>
- - ------------------------
(1) As of December 31, 1995 and 1994 cumulative principal repayments on the PIMS
of $371,707 and $246,244 have been received, respectively.
(2) Effective January 31, 1995, as part of the sale of the Highlands, as
described below, the participation feature of the Highlands PIM was
released, a new MBS was issued to the Partnership and the related PGL was
repaid. As described in Note 9, the MBS was subsequently sold in 1996.
MORTGAGE BACKED SECURITIES
Effective January 1, 1994, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). The Partnership had
considered its PIMs and PGLs to be held-to-maturity as defined by SFAS No. 115
in 1994.
SFAS No. 115 addresses the definition of, accounting for and disclosure of
debt and equity securities. In accordance with the statement, securities are
classified when purchased as either securities held to maturity, securities
available for sale or trading securities.
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." Concurrent with the initial
adoption of this implementation guidance, but no later than December 31, 1995,
the FASB permitted a one-time opportunity to reassess the appropriateness of the
classification of all securities. Accordingly, on December 31, 1995, the
Partnership reclassified its held-to-maturity investments to available-for-sale,
based on a one-time assessment of the portfolio. The impact of the assessment
was to transfer securities with an amortized cost of approximately $30,200,000
(which approximates market value of $30,700,000) from held-to-maturity to
available-for-sale. Market value has been calculated by management by
discounting future cash flows using interest rates based on treasury bills with
similar maturities.
A) CROSS CREEK
In 1990, the Partnership acquired a PIM (the "Cross Creek PIM") consisting
of (i) a MBS collateralized by a first mortgage loan in the principal amount of
up to $7,230,000 (the "Cross Creek Mortgage") with respect to a 152 unit garden
style apartment complex in Greenville, South Carolina known as Halcyon at Cross
Creek ("Cross Creek") and (ii) a participation interest in Cross Creek evidenced
by an additional interest agreement and secured by a subordinated mortgage on
Cross
F-11
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
Creek. The borrower is Boiling Springs Apartments Limited (the "Cross Creek
Borrower"). In addition, the Partnership agreed to make a PGL to the Cross Creek
Borrower's partners ("Individual Cross Creek Borrowers") of up to $600,000.
PARTICIPATING INSURED MORTGAGE
To fund the construction of Cross Creek, the Partnership purchased from Love
Funding Corporation ("LFC") mortgage-backed pass-through construction loan
certificates ("CLCs"), guaranteed as to timely payment of principal and Basic
Interest by GNMA, in the maximum principal amount of $7,230,000.
Upon the maturity of the CLCs at the conclusion of the construction period
and upon final endorsement ("Final Endorsement") of the Cross Creek Mortgage
Note by HUD, which occurred on January 8, 1992, the Partnership received a
mortgage-backed permanent loan certificate ( the "Cross Creek PLC"), guaranteed
as to the timely payment of principal and Basic Interest by GNMA. The Cross
Creek PLC has a face amount of $7,226,406, and an issue date of February 1,
1992.
The Cross Creek Mortgage Note bears interest at a Basic Interest Rate of
8.50% during the permanent term. One quarter of one percent (.25%) of the
foregoing amount is retained by LFC and GNMA as a servicing and guarantee fee;
accordingly, the Cross Creek PLC bears an interest rate of 8.25% per annum. The
Cross Creek Borrower is required to make equal monthly payments of principal and
interest on the Cross Creek Mortgage Note until maturity on December 15, 2031.
The Cross Creek Mortgage is coinsured by LFC and HUD under Section 221(d)(4)
of the National Housing Act for new construction of multi-family residential
properties. The Cross Creek Mortgage Note, which is non-recourse to the Cross
Creek Borrower, except under limited circumstances, including fraud, is
collateralized by a first mortgage on Cross Creek.
The Cross Creek Mortgage Note may be prepaid upon 30 days written notice
after, but not prior to, the tenth anniversary of the date of Initial
Endorsement, with a prepayment charge equal to 1% of the outstanding principal
on the Cross Creek Mortgage. Notwithstanding the foregoing, if HUD determines
that prepayment will avoid a mortgage insurance claim and is in the best
interest of the federal government, the Cross Creek Mortgage Note may be prepaid
at any time without the Partnership's consent and without any prepayment charge.
The Partnership has the option, upon six months written notice, to require
prepayment in full on or after the tenth anniversary of the date of the Initial
Endorsement. No prepayment fee shall be imposed if the Partnership exercises
this option. Enforcement of this option would require the termination of the
coinsurance contract and the surrender of the Cross Creek PLC.
The Partnership is entitled under the Cross Creek PIM to participations, in
addition to monthly pass-through payments of principal and Basic Interest, of:
(i) 50% of any increase in the value of Cross Creek in excess of its base value
(i.e., the outstanding principal amounts of the Cross Creek Mortgage and PGL);
the increase in value is measured from February 22, 1990 until the sale of Cross
Creek, or until the maturity, refinancing or prepayment of the Cross Creek
Mortgage; and (ii) 50% of Cross Creek's monthly net cash flow (subject to
certain HUD restrictions and reserve requirements) beginning with the first
month after completion of construction. The obligation of the Cross Creek
Borrower to pay these participations is evidenced by an additional interest
agreement, which is collateralized by a subordinated mortgage on Cross Creek and
is non-recourse to the Cross Creek Borrower, except under limited circumstances,
including fraud. This obligation is further collateralized by a collateral
assignment by the Individual Cross Creek Borrowers of their interests in the
Cross Creek Borrower.
F-12
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
PARTICIPATING GUARANTEED LOAN
The Partnership agreed to make a PGL of up to $600,000 to the Individual
Cross Creek Borrowers who are jointly and severally liable for this obligation.
The PGL, which is non-recourse debt, is collateralized by a collateral
assignment by the Individual Borrowers of their partnership interests in the
Cross Creek Borrower, constituting a second lien thereon. The promissory note
evidencing the PGL provides that the Individual Borrowers will use the proceeds
thereof to satisfy obligations of the Cross Creek Borrower.
Of the maximum loan proceeds to be available under the PGL, $400,000 has
been advanced as of December 31, 1995. In addition, up to $200,000 of the
maximum loan proceeds was to be advanced at the rate of $10.00 for each $1.00 of
net operating income in excess of $750,000 earned by Cross Creek at any time up
to and including one year after Final Endorsement of the Cross Creek Mortgage.
The one year anniversary of Final Endorsement was January 8, 1993 and no
additional amounts were advanced under the PGL. The unfunded loan proceeds of
$200,000, which had been included in the Partnership's working capital reserve,
were distributed to its Partners on November 15, 1994.
The PGL bears interest at the rate of 10% per annum, payable semi-annually,
and provides that interest shall be accrued up to $100,000 to the extent Surplus
Cash distributions (as defined by HUD) to the Individual Borrowers are
insufficient to fully pay the interest obligation. Any such accruals will be
added to the outstanding principal balance of the PGL and shall bear interest at
the same rate. At such time as accruals of interest (including semi-annually
compounded interest) exceed $100,000, the Individual Borrowers shall pay
interest on the outstanding principal amount semi-annually, whether or not
Surplus Cash is available. Accrued interest reached $100,000 on September 25,
1993. Accordingly, accrued interest became due and payable on October 1, 1993.
Semi-annual interest payments of $25,000 will be due and payable on each April 1
and October 1. Principal and unpaid interest, if any, shall be due and payable
on February 21, 2005.
No prepayments of the PGL will be permitted prior to the tenth anniversary
of the Initial Endorsement of the Cross Creek Mortgage. Thereafter, the PGL may
be prepaid in whole, but not in part, subject to a prepayment fee equal to 1% of
the principal amount prepaid. Also, commencing on the tenth anniversary date,
the Partnership will have the right to call the PGL, in which case no prepayment
fee shall be paid.
The terms of the PGL entitle the Partnership to participations in addition
to Basic Interest equal to: (i) 15% of any increase in the value of the
Individual Borrowers' partnership interest in the Cross Creek Borrower
(determined by reference to the value of Cross Creek) over the base value of the
Individual Borrowers' partnership interest (based on the outstanding principal
amount of the Cross Creek Mortgage and the PGL), such increase to be determined
upon the sale of Cross Creek or upon the refinancing, prepayment or maturity of
the PGL; and (ii) 15% of the Individual Borrowers' interest in Cross Creek's net
cash flow (subject to certain HUD restrictions and reserve requirements). The
aforesaid 15% participations in the PGL are over and above the 50%
participations in the Cross Creek Mortgage. The obligation of the Individual
Borrowers to pay these participations is evidenced by a supplemental interest
agreement, and is non-recourse to the Individual Borrowers, except under limited
circumstances, including fraud. These obligations are collateralized by a
collateral assignment by the Individual Borrowers of their partnership interests
in the Cross Creek Borrower (constituting a second lien thereon).
F-13
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
B) THE HIGHLANDS
In 1990, the Partnership acquired a PIM consisting of (i) an MBS
collateralized by a mortgage loan in the principal amount of up to $13,154,200
(the "Highlands Mortgage") secured by a first mortgage on a 272 unit garden
style apartment complex located outside Tampa, Florida (the "Highlands") and
(ii) a participation interest in the Highlands evidenced by an additional
interest agreement and secured by a subordinated mortgage on the Highlands. The
original borrower under the Highlands Mortgage was Highland Oaks Associates
Limited (the "Original Highlands Borrower").
PARTICIPATING INSURED MORTGAGE
To fund the construction of the Highlands, the Partnership entered into a
purchase agreement with Related Mortgage Corporation ("RMC"), pursuant to which
it agreed to purchase CLCs, guaranteed as to timely payment of principal and
Basic Interest by GNMA, in the maximum principal amount of up to $13,154,200.
Upon the maturity of the CLCs at the conclusion of the construction period
and upon Final Endorsement of the Highlands Mortgage Note by HUD, which occurred
on May 31, 1992, the Partnership received a PLC guaranteed as to the timely
payment of principal and Basic Interest by GNMA. The PLC had a face amount of
$13,154,200 and an issue date of June 1, 1992.
Effective January 31, 1995, the Original Highlands Borrower sold the
Highlands to Richland Properties, Inc. (the "New Highlands Borrower") for
$16,300,000 in accordance with the terms and conditions of the Purchase and Sale
Agreement dated October 14, 1994. The sale closed in escrow pending the receipt
by the Partnership of a new GNMA certificate in the principal amount of
$13,037,676, and bearing interest at 7.625% per annum. The new GNMA certificate
was received by the Partnership on February 15, 1995, at which time the sale was
completed and the Partnership received the payments described below, together
with the other closing documents. In addition, a mutual release was delivered,
effective January 31, 1995, pursuant to which all obligations of, and claims
against, the Highlands Borrower and its general partners were released by the
Partnership and Related Mortgage Corporation ("RMC"), and all obligations of,
and claims against, the Partnership and RMC were released by the Highlands
Borrower and its general partners.
The Partnership retained its beneficial interest in the Highlands Mortgage
("Modified Mortgage") and related promissory note ("Modified Note"), which were
modified to provide for (a) prepayment at any time with a prepayment charge
payable to RMC, equal to 1% of the outstanding principal, and (b) a reduction in
the interest rate from 8.5% to 7.875% per annum, one-quarter of one percent of
which is retained by RMC and GNMA as a servicing and guarantee fee. Accordingly,
the Partnership earns an interest rate of 7.625% per annum. The New Highlands
Borrower is required pursuant to the Modified Note and Modified Mortgage to make
equal monthly payments of principal and interest until maturity on May 15, 2032.
The Modified Mortgage is coinsured by RMC and HUD under Section 221(d)(4), of
the National Housing Act for new construction of multi-family residential
properties.
The Partnership has the option, upon six months written notice, to require
prepayment in full of the Modified Note on or after January 31, 2005. No
prepayment fee will be imposed if the Partnership exercises this option.
Enforcement of this option would require the termination of the coinsurance
contract and the surrender of the new GNMA certificate.
The Additional Interest Agreement has been amended and restated ("Amended
and Restated Agreement") to provide that the Partnership will no longer be
entitled to any participations in net cash flow or net appreciation in value of
the Highlands.
F-14
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
Concurrent with the sale of the Highlands as described above, the Highlands
PGL was repaid as the Partnership received $2,463,060, which included $1,095,800
of principal, $210,798 of accrued interest, a prepayment fee of $324,000 and
participations of $832,462. Such prepayment fee and participation are included
in other income for the year ended December 31, 1995. The Partnership
distributed these proceeds to its partners on May 15, 1995. In addition, the
Supplemental Interest Agreement was terminated, and the Partnership and the New
Highlands Borrower entered into an Amended and Restated Subordinated Mortgage
and Security Agreement to secure the Partnership's call option, as described
above.
As described in Note 9, the Highlands GNMA was sold on February 27, 1996.
Also on January 31, 1995, the Partnership and the Original Highlands
Borrower (together with its partners) entered into a Special Closing Agreement,
pursuant to which two letters of credit held by the Partnership were each
reduced from $75,000 to $17,500. The two letters of credit were being held as
security for the obligations of the Original Highlands Borrower and its partners
under the Special Closing Agreement, pursuant to which the Original Highlands
Borrower agreed to pay a portion of any additional taxes determined to be due in
connection with the recording of the original loan documents to the State of
Florida. In 1996, the recording tax claim was settled with the State of Florida
as described in Note 9.
During the year ended December 31, 1995, the Partnership received interest
totaling $999,170.10 related to the Highlands GNMA, which has been distributed
to investors in connection with the Partnership's regular quarterly
distributions in accordance with the Partnership's partnership agreement.
C) SIGNATURE PLACE
On May 8, 1991, the Partnership agreed to acquired a PIM (the "Signature
Place PIM") consisting of (i) an MBS collateralized by a federally coinsured
mortgage loan in the maximum principal amount of up to $9,800,000 (the
"Signature Place Mortgage") and (ii) a Participation Interest evidenced by an
additional interest agreement and secured by a subordinated mortgage on
Signature Place. The borrower of the Signature Place Mortgage is HG Partners
Limited Partnership (the "Signature Place Borrower"), which used the funds to
finance the construction of a 232-unit multi-family residential apartment
complex in Hampton, Virginia known as Signature Place ("Signature Place"). In
addition, the Partnership agreed to make a PGL to each of the Individual
Borrowers in the aggregate amount of up to $1,200,000.
PARTICIPATING INSURED MORTGAGES
The Partnership entered into a GNMA purchase agreement with LFC, pursuant to
which it agreed to purchase CLCs, guaranteed as to timely payment of principal
and Basic Interest by GNMA, in the maximum principal amount of $9,800,000. The
proceeds of the Signature Place Mortgage were disbursed to the Signature Place
Borrower in stages during the construction of Signature Place.
Upon the maturity of the CLCs at the conclusion of the construction period
and upon Final Endorsement of the Signature Place Mortgage note by HUD, which
occurred on February 9, 1993, the Partnership received a PLC (the "Signature
Place PLC"), guaranteed as to timely payment of principal and Basic Interest by
GNMA. The Signature Place PLC has a face amount of $9,756,900, and an issue date
of February 1, 1993.
The Signature Place Mortgage Note bears interest at a Basic Interest Rate of
8.25% during the permanent term. One quarter of one percent (.25%) of the
foregoing amount is retained by LFC and
F-15
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
GNMA as a servicing and guarantee fee; accordingly the Signature Place PLC bears
an interest rate of 8% per annum. The Signature Place Borrower will make equal
monthly payments of principal and interest until maturity on January 15, 2033.
The Signature Place Mortgage is coinsured by LFC and HUD under Section
221(d)(4) of the National Housing Act for new construction of multi-family
residential properties. The Signature Place Mortgage note, which is non-recourse
to the Signature Place Borrower, except under limited circumstances, including
fraud, is secured by a first mortgage on Signature Place.
The Signature Place Mortgage Note may be prepaid in full upon 45 days
written notice after (but not prior to) the tenth anniversary of Initial
Endorsement with a prepayment charge equal to 1% of the principal amount
prepaid, plus any additional interest due thereon. Notwithstanding the
foregoing, if HUD determines that prepayment will avoid a mortgage insurance
claim and is in the best interest of the federal government, the Signature Place
Mortgage Note may be prepaid at any time without the Partnership's consent and
without any prepayment charge. The Partnership has the option, upon six months
written notice, to require prepayment in full of the Signature Place Mortgage
Note on or after the tenth anniversary of Initial Endorsement. No prepayment fee
shall be imposed if the Partnership exercises this option. Enforcement of this
option would require the termination of the coinsurance contract and the
surrender of the Signature Place PLC.
The Partnership is entitled to participations under the Signature Place PIM
in addition to monthly pass-through payments of principal and Basic Interest,
equal to: (i) 50% of the net appreciation in the value of Signature Place from
Initial Endorsement until the sale of Signature Place or the maturity,
refinancing or prepayment of the Signature Place Mortgage; and (ii) 50% of
Signature Place's net cash flow (subject to certain HUD restrictions and reserve
requirements) beginning after completion of construction. The obligation of the
Signature Place Borrower to pay these participations is evidenced by an
additional interest agreement, which is collateralized by a subordinated
mortgage on Signature Place and is non-recourse to the Signature Place Borrower,
except under limited circumstances, including fraud and environmental
noncompliance.
PARTICIPATING GUARANTEED LOAN
The Partnership has also agreed to make a PGL in the aggregate amount of up
to $1,200,000 to the Individual Borrowers, jointly and severally, in the form of
a personal loan collateralized by the pledge of 100% of their partnership
interests in the Signature Place Borrower. Of the maximum loan proceeds to be
available under the PGL, $100 was funded as of December 31, 1995. In addition,
up to $499,900 of the loan proceeds were to be advanced at the rate of $6.25 for
each $1.00 of net operating income in excess of $960,000 per annum, and up to an
additional $700,000 of loan proceeds were to be advanced at the rate of $9.50
for each $1.00 of net operating income in excess of $1,040,000 per annum, earned
by the Signature Place Borrower at any time up to and including eighteen months
after Final Endorsement of the Signature Place Mortgage (the "Earn-Out"). The
Earn-Out period expired on August 8, 1994 and no additional amounts were
advanced under the PGL. The unfunded loan proceeds of $1,199,900, which had been
included in the Partnership's working capital reserve, were distributed to its
Partners on November 15, 1994.
The PGL bears interest at the rate of 15% per annum, payable semi-annually,
and provides that interest shall be accrued up to $100,000 to the extent Surplus
Cash (as defined by HUD) is insufficient to fully pay the interest obligation.
Any such accruals will be added to the outstanding principal balance of the PGL
and shall bear interest at the same rate. At such time as accruals of interest
(including semi-annually compounded interest) exceed $100,000 or commencing with
the second
F-16
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
anniversary of Final Endorsement (regardless of the balance of such accruals),
whichever occurs first, the Individual Borrowers shall pay interest on the
outstanding principal amount semi-annually, whether or not Surplus Cash is
available. Principal and accrued interest, if any, shall be due and payable on
May 8, 2006.
Since less than $250,000 was funded under the PGL, $249,900 (the difference
between $250,000 and the total amount funded) shall be considered additional
equity ("Additional Equity") contributed by the Individual Borrowers. To the
extent the Individual Borrowers' share of cash flow provides less than a 10%
cumulative annual return on the outstanding balance of Additional Equity
(compounded semi-annually) over the holding period of the investment, the
shortfall shall be paid out of the proceeds from the sale or refinancing of the
Signature Place Mortgage. All participations earned by the Partnership shall be
calculated after deducting interest and principal paid on the PIM, PGL and the
Additional Equity.
No prepayments of the PGL will be permitted prior to the tenth anniversary
of Initial Endorsement of the Signature Place Mortgage. Thereafter, the PGL may
be prepaid in whole, but not in part, upon 90 days prior written notice to the
Partnership subject to a prepayment fee equal to 1% of the principal amount
prepaid. On the tenth anniversary date, the Partnership will have the right to
call the PGL by six months prior written notice to the Individual Borrowers, in
which case no prepayment fee shall be paid.
The terms of the PGL entitle the Partnership to participations in addition
to Basic Interest equal to: (i) 10% of any increase in the value of the
partnership interests in the Signature Place Borrower (determined by references
to the value of Signature Place) over the base value of the partnership
interests (based on the outstanding principal amount of the Signature Place
Mortgage and the PGL), such increase to be determined upon the sale of Signature
Place or upon the refinancing, prepayment or maturity of the PGL; and (ii) 10%
of the Individual Borrowers' interest in Signature Place's net cash flow
(subject to certain HUD restrictions and reserve requirements). The aforesaid
10% participations in the PGL are over and above the 50% participations in the
Signature Place Mortgage. The obligation of the Individual Borrowers' to pay
these participations is evidenced by a Supplemental Interest Agreement, and is
non-recourse to such partners, except under limited circumstances, including
fraud.
6. THE GUARANTEE OF PGLS (ALL PROPERTIES)
The General Partner has agreed to guarantee a return to the Partnership, in
the aggregate, of all amounts invested in PGLs. Pursuant to the Guarantee, on
the date that dissolution and winding-up of the Partnership shall be completed,
the General Partner agreed to pay to the Partnership an amount, if any, by which
(i) the funds invested by the Partnership in PGLs exceeds (ii) all cash payments
received by the Partnership with respect to all Mortgages, INCLUDING points,
Basic Interest, Additional Interest and repayment of principal, but EXCLUDING
Basic Interest and repayment of principal of MBSs and other insured/guaranteed
Mortgages. As a result of the sale of the Highlands as referred to in
"Mortgages-the Highlands" above, the Partnership received cash in excess of the
amount of funds invested by the Partnership in PGLs. Accordingly, the General
Partner has no remaining future obligation with respect to any of the PGLs.
F-17
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The following is a summary of the fees earned and reimbursements paid or
payable to the General Partner and its Affiliates for the years ended December
31, 1995, 1994 and 1993, pursuant to the Partnership Agreement:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C> <C>
(1) Asset Management Fees....................................... $ 92,855 $ 158,167 $ 157,966
(2) Reimbursement of general and administrative expenses to the
General Partner............................................ 100,000 100,000 125,000
----------- ----------- -----------
$ 192,855 $ 258,167 $ 282,966
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- - ------------------------
(1) For services rendered in managing the business of the Partnership, the
Partnership is obligated to pay on a quarterly basis to the General Partner
an Asset Management Fee equal to 0.5% per annum of the value of the Total
Invested Assets of the Partnership.
(2) The Partnership Agreement allows the Partnership to reimburse the General
Partner for certain general and administrative expenses paid in connection
with the management of the Partnership.
8. DEFERRED ACQUISITION FEES
Deferred acquisition fees as of December 31, 1995 and 1994 consisted of:
<TABLE>
<CAPTION>
1995 1994
----------- -------------
<S> <C> <C>
Acquisition expenses..................................................... $ 908,701 $ 1,945,006
Loan origination fees.................................................... -- (451,600)
Accumulated amortization................................................. (32,736) (41,531)
----------- -------------
Net deferred acquisition fees............................................ $ 875,965 $ 1,451,875
----------- -------------
----------- -------------
</TABLE>
9. SUBSEQUENT EVENTS
A) DISTRIBUTIONS TO PARTNERS
On February 15, 1996, the Partnership distributed $547,798 to the Partners,
which represented the Partnership's Distributable Cash Flow for the three months
ended December 31, 1995. The distribution to other Unitholders, the Corporate
Limited Partner and the General Partner was $536,829, $13 and $10,956,
respectively.
B) THE HIGHLANDS
RECENT DEVELOPMENTS
On February 27, 1996, the Partnership sold the Highlands GNMA for cash in
the amount of $13,105,373.01. The Highlands GNMA was sold through Utendahl
Capital Partners, an unaffiliated broker dealer, pursuant to which the Highlands
Borrower agreed to pay a portion of any additional taxes determined by the State
of Florida to be due in connection with the recording of the original loan
documents. The State of Florida claimed that $136,800 in additional recording
taxes were due. On March 12, 1996, the Partnership settled the recording tax
claim of the State of Florida discussed in Note 5 through a payment made on
behalf of the Partnership in the amount of $64,000 ($53,850 of which was funded
by the General Partner and $10,150 of which was funded by the Original Highlands
Borrower). The Partnership has recently received the signed Closing Agreement
settling the claim from the State of Florida and the letters of credit discussed
in Note 5 will be returned to the Original Highlands Borrower. The sales price
represents principal in the amount of $12,976,812.45, accrued interest in the
amount of $71,462.59 and a premium of $57,097.97. The Partnership was not
charged any separate fees or commissions in connection with the sale. The
General Partner of the Partnership
F-18
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS (CONTINUED)
decided to sell the Highlands GNMA to take advantage of what it perceived to be
a favorable market in which the Highlands GNMA could be sold at a premium. The
Partnership intends to distribute such proceeds to its partners on May 15, 1996,
the next scheduled distribution date.
The sale of the Highlands GNMA, together with the 1995 sale of the Highlands
and the related modification of the Highlands Mortgage, terminated the
Partnership's beneficial interest in the Highlands Mortgage and the Highlands.
C) CLASS ACTION LAWSUIT
Two class action lawsuits were filed against certain affiliates of the
General Partner in the District Court of Harris County, Texas on January 11,
1996, styled GRIMSHAWE V. NEW YORK LIFE INSURANCE CO., ET AL. (No. 96-001188)
and SHEA V. NEW YORK LIFE INSURANCE CO., ET AL. (No. 96-001189) alleging
misconduct in connection with the original sale of investment units in various
partnerships (the "Proprietary Partnerships"), including violation of various
federal and state laws and regulations and claims of continuing fraudulent
conduct. The plaintiffs have asked for compensatory damages for their lost
original investment, plus interest, costs (including attorneys fees), punitive
damages, disgorgement of any earnings, compensation and benefits received by the
defendants as a result of the alleged actions and other unspecified relief to
which plaintiffs may be entitled. These suits were amended and refiled in a
consolidated action in the United States District Court for the Southern
District of Florida (the "Court") on March 18, 1996. In the federal action, the
plaintiffs added the General Partner as a defendant and included allegations
concerning the Partnership. The Partnership is not a defendant in the
litigation.
The defendants expressly deny any wrongdoing alleged in the complaint and
concede no liability or wrongdoing in connection with the sale of the Units or
the structure of the Proprietary Partnerships. Nevertheless, to reduce the
burden of protracted litigation, the defendants have entered into a Stipulation
of Settlement ("Settlement Agreement") with the plaintiffs because in their
opinion such Settlement would (i) provide substantial benefits to the limited
partners in a manner consistent with New York Life's position that it had
previously determined to wind up most of the Proprietary Partnerships, including
the Partnership, through orderly liquidation as the continuation of the business
no longer serves the intended objectives of either the limited partners or the
defendants and to offer the limited partners an enhancement to the liquidating
distribution they would otherwise receive and (ii) provide an opportunity to
wind up such partnerships on a schedule favorable to the limited partners and
resolve the issues raised by the lawsuit.
In connection with the proposed settlement (the "Settlement"), the General
Partner will solicit consents of the Unitholders for the dissolution of the
Partnership.
Under the terms of the Settlement Agreement, any settling Unitholders will
receive at least a complete return of their original investment, less
distributions received prior to the final settlement date, in exchange for a
release of any and all claims a Unitholder may have against the defendants in
connection with the Proprietary Partnership, including the Partnership, and all
activities related to the dissolution and liquidation of such partnerships.
Preliminary approval of the Settlement Agreement was given by the Court on
March 19, 1996. The Settlement Agreement is further conditioned upon final
approval by the Court as well as certain other conditions and is subject to
certain rights of termination detailed in the consent solicitation material
being mailed to the Unitholders.
F-19
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS (CONTINUED)
If the necessary consents of Unitholders for dissolution are obtained, the
Partnership will be dissolved even if all necessary approvals for the Settlement
Agreement are not obtained or the Settlement Agreement is otherwise terminated.
In general, upon the dissolution of the Partnership, tax consequences will
accrue to the partners. If the necessary consents of the Unitholders for
dissolution are not obtained, the Partnership will continue to own the Mortgages
and will continue to receive payments thereon.
The financial statements do not include any adjustments that might result
should the Unitholders vote to liquidate the Partnership.
F-20
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 DECEMBER 31
(UNAUDITED) 1995
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................ $ 13,937,222 $ 867,686
Interest receivable.............................................................. 138,249 208,392
Investments in Participating Insured Mortgages................................... 16,764,965 29,765,800
Deferred acquisition fees and expenses -- net.................................... 873,295 875,965
Investments in Participating Guaranteed Loans.................................... 400,100 400,100
-------------- --------------
Total assets............................................................... $ 32,113,831 $ 32,117,943
-------------- --------------
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Due to affiliates................................................................ $ 25,000 $ 21,729
Accrued liabilities.............................................................. 60,965 79,423
-------------- --------------
Total liabilities.......................................................... 85,965 101,152
-------------- --------------
Commitments and Contingencies
Partners' capital:
Capital contributions net of public offering expenses.......................... 36,028,557 36,028,557
Accumulated earnings........................................................... 17,931,236 17,372,364
Cumulative distributions....................................................... (21,931,927) (21,384,130)
-------------- --------------
Total partners' capital.......................................................... 32,027,866 32,016,791
-------------- --------------
Total liabilities and partners' capital.......................................... $ 32,113,831 $ 32,117,943
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-21
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
INCOME
Interest -- cash and cash equivalents.............................................. $ 65,709 $ 23,952
Interest -- Mortgages (net of write-off and amortization of deferred acquisition
costs)............................................................................ 503,651 1,084,653
Other income....................................................................... 57,098 324,000
------------- -------------
Total income..................................................................... 626,458 1,432,605
------------- -------------
EXPENSES
General and administrative......................................................... 45,856 44,330
Asset management fees.............................................................. 21,729 27,667
------------- -------------
Total expenses................................................................... 67,585 71,997
------------- -------------
Net income..................................................................... $ 558,873 $ 1,360,608
------------- -------------
------------- -------------
NET INCOME ALLOCATED
General Partner.................................................................... $ 10,619 $ 11,806
Corporate Limited Partner.......................................................... 13 33
Unitholders........................................................................ 548,241 1,348,769
------------- -------------
$ 558,873 $ 1,360,608
------------- -------------
------------- -------------
Net income per Unit................................................................ $ .07 $ .17
------------- -------------
------------- -------------
Number of Units.................................................................... 8,168,457.7 8,168,457.7
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CORPORATE
LIMITED GENERAL TOTAL PARTNERS'
UNITHOLDERS PARTNER PARTNER CAPITAL
-------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.............................. $ 33,921,431 $ 915 $ (39,821) $ 33,882,525
Net income.............................................. 2,909,307 71 43,654 2,953,032
Distributions........................................... (4,771,535) (117) (47,114) (4,818,766)
-------------- ----------- ---------- ---------------
Balance at December 31, 1995............................ 32,059,203 869 (43,281) 32,016,791
Net income.............................................. 548,241 13 10,619 558,873
Distributions........................................... (536,829) (13) (10,956) (547,798)
-------------- ----------- ---------- ---------------
Balance at March 31, 1996............................... $ 32,070,615 $ 869 $ (43,618) $ 32,027,866
-------------- ----------- ---------- ---------------
-------------- ----------- ---------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-23
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 558,873 $ 1,360,608
-------------- -------------
Adjustments to reconcile net income to net cash flows provided by operating
activities:
Amortization of acquisition costs.............................................. 2,670 567,642
Changes in assets and liabilities:
Decrease in interest receivable.............................................. 70,143 59,250
Increase (decrease) in due to affiliates..................................... 3,271 (47,333)
Decrease in accrued liabilities.............................................. (18,458) (6,875)
-------------- -------------
Total adjustments.......................................................... 57,626 572,684
-------------- -------------
Net cash provided by operating activities.................................. 616,499 1,933,292
-------------- -------------
Cash flows from investing activities:
Repayment of Participating Insured Mortgages................................... 24,023 29,244
Repayment of GNMA Certificate.................................................. 12,976,812 0
Repayment of Participating Guaranteed Loans.................................... 0 1,095,800
-------------- -------------
Net cash provided by investing activities.................................. 13,000,835 1,125,044
-------------- -------------
Cash flows from financing activities:
Distributions to partners........................................................ (547,798) (602,634)
-------------- -------------
Net cash used in financing activities...................................... (547,798) (602,634)
-------------- -------------
Net increase in cash and cash equivalents.......................................... 13,069,536 2,455,702
Cash and cash equivalents at beginning of period................................... 867,686 950,967
-------------- -------------
Cash and cash equivalents at end of period......................................... $ 13,937,222 $ 3,406,669
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1 -- GENERAL
The accompanying financial statements and related notes should be read in
conjunction with the Partnership's 1995 Annual Report on Form 10-K. The
Partnership terminates on December 31, 2028, unless terminated earlier by the
occurrence of certain events as set forth in the Partnership Agreement.
The summarized financial information contained herein is unaudited; however,
in the opinion of management, all adjustments (which include normal recurring
adjustments) necessary for a fair presentation of financial information have
been included.
All capitalized terms used in these Notes to Financial Statements, unless
otherwise defined herein, shall have the meanings set forth in the Partnership
Agreement.
NOTE 2 -- INVESTMENTS IN MORTGAGES
The Partnership's net proceeds of $33,580,000 wree committed for investment
in Participating Insured Mortgages ("PIMs") and Participating Guaranteed Loans
("PGLs"). Of this total amount committed, $1,946,594 had been included in the
Partnership's working capital reserve and subsequently distributed to its
Partners on November 15, 1994.
PARTICIPATING INSURED MORTGAGES
Investment in PIMs on the balance sheets as of March 31, 1996 and December
31, 1995 is comprised of the following:
<TABLE>
<CAPTION>
SIGNATURE
CROSS CREEK PLACE TOTAL
------------- -------------- --------------
<S> <C> <C> <C> <C>
March 31, 1996:
Investment in PIM.............................. $ 7,226,406 $ 9,756,900 $ 16,983,306
Principal repayments........................... (7,644) (9,981) (17,625)
Acquisition fees and expenses net of
accumulated amortization...................... 292,057 581,238 873,295
------------- -------------- --------------
$ 7,510,819 $ 10,328,157 $ 17,838,976
------------- -------------- --------------
------------- -------------- --------------
<CAPTION>
SIGNATURE
CROSS CREEK THE HIGHLANDS PLACE TOTAL
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
December 31, 1995:
Investment in PIM.............................. $ 7,226,406 $ 13,037,676 $ 9,756,900 $ 30,020,982
Principal repayments........................... (100,837) (170,991) (99,879) (371,707)
Acquisition fees and expenses net of
accumulated amortization...................... 293,276 0 582,689 875,965
------------- -------------- -------------- --------------
$ 7,418,845 $ 12,866,685 $ 10,239,710 $ 30,525,240
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
</TABLE>
PARTICIPATING GUARANTEED LOANS
Investment in PGLs on the balance sheets as of March 31, 1996 and December
31, 1995 is comprised of the following:
<TABLE>
<CAPTION>
SIGNATURE
CROSS CREEK PLACE TOTAL
------------- -------------- --------------
<S> <C> <C> <C>
March 31, 1996:
Investment in PGL............................................... $ 400,000 $ 100 $ 400,100
------------- -------------- --------------
------------- -------------- --------------
December 31, 1995:
Investment in PGL............................................... $ 400,000 $ 100 $ 400,100
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
F-25
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 2 -- INVESTMENTS IN MORTGAGES (CONTINUED)
As the Earn-out periods for each of the Properties expired during 1994, the
Partnership has no further commitments to fund amounts under the PGLs.
RECENT DEVELOPMENTS
On February 27, 1996, the Partnership sold the Highlands GNMA for cash in
the amount of $13,105,373.01. The Highlands GNMA was sold through Utendahl
Capital Partners, an unaffiliated broker dealer, pursuant to which the Highlands
Borrower agreed to pay a portion of any additional taxes determined by the State
of Florida to be due in connection with the recording of the original loan
documents. The State of Florida claimed that $136,800 in additional recording
taxes were due. On March 12, 1996, the Partnership settled the recording tax
claim of the State of Florida through a payment made on behalf of the
Partnership in the amount of $64,000 ($53,850 of which was funded by the General
Partner and $10,150 of which was funded by the Original Highlands Borrower). The
Partnership has recently received the signed Closing Agreement settling the
claim from the State of Florida and the letters of credit will be returned to
the Original Highlands Borrower. The sales price represents principal in the
amount of $12,976,812.45, accrued interest in the amount of $71,462.59 and a
premium of $57,097.97. The Partnership was not charged any separate fees or
commissions in connection with the sale. The General Partner of the Partnership
decided to sell the Highlands GNMA to take advantage of what it perceived to be
a favorable market in which the Highlands GNMA could be sold at a premium. The
Partnership intends to distribute such proceeds to its partners on May 15, 1996,
the next scheduled distribution date.
The sale of the Highlands GNMA, together with the 1995 sale of the Highlands
and the related modification of the Highlands Mortgage, terminated the
Partnership's beneficial interest in the Highlands Mortgage and the Highlands.
CLASS ACTION LAWSUIT
Two class action lawsuits were filed against certain affiliates of the
General Partner in the District Court of Harris County, Texas on January 11,
1996, styled GRIMSHAWE V. NEW YORK LIFE INSURANCE CO., ET AL. (No. 96-001188)
and SHEA V. NEW YORK LIFE INSURANCE CO., ET AL. (96-001189) alleging misconduct
in connection with the original sale of investment units in various
partnerships, including violation of various laws and regulations and claims of
continuing fraudulent conduct. The plaintiffs have asked for compensatory
damages for their lost original investment, plus interest, costs (including
attorneys fees), punitive damages, disgorgement of any earnings, compensation
and benefits received by the defendants as a result of the alleged actions and
other unspecified relief to which plaintiffs may be entitled. These suits were
amended and refiled in a consolidated action in the United States District Court
for the Southern District of Florida (the "Court") on March 18, 1996. In the
federal action, the plaintiffs added the General Partner as a defendant and
included allegations concerning the Partnership. The plaintiffs purport to
represent a class of all persons (the "Class") who purchased or otherwise
assumed rights and title to interests in certain limited partnerships, including
the Partnership, and other programs created, sponsored, marketed, sold, operated
or managed by the defendants (the "Proprietary Partnerships"). The Partnership
is not a defendant in the litigation.
The defendants expressly deny any wrongdoing alleged in the complaint and
concede no liability or wrongdoing in connection with the sale of the Units or
the structure of the Proprietary Partnerships. Nevertheless, to reduce the
burden of protracted litigation, the defendants have entered into a Stipulation
of Settlement ("Settlement Agreement") with the plaintiffs because in their
opinion such
F-26
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 2 -- INVESTMENTS IN MORTGAGES (CONTINUED)
Settlement would (i) provide substantial benefits to the Class in a manner
consistent with New York Life's position that it had previously determined to
wind up most of the Proprietary Partnerships through orderly liquidation as the
continuation of the business no longer serves the intended objectives of either
the owners of interest in such Proprietary Partnerships or the defendants and to
offer investors an enhancement to the liquidating distribution they would
otherwise receive and (ii) provide an opportunity to wind up such partnerships
on a schedule favorable to the Class and resolve the issues raised by the
lawsuit.
In coordination with the proposed settlement (the "Settlement"), the General
Partner will solicit consents of the Unitholders for the dissolution of the
Partnership.
Under the terms of the Settlement Agreement, any settling Unitholder will
receive at least a complete return of their original investment, less
distributions received prior to the final settlement date, in exchange for a
release of any and all claims a Unitholder may have against the defendants in
connection with the Proprietary Partnerships, including the Partnership, and all
activities related to the dissolution and liquidation of such partnerships.
Preliminary approval of the Settlement Agreement was given by the Court on
March 19, 1996. The Settlement Agreement is further conditioned upon final
approval by the Court as well as certain other conditions and is subject to
certain of termination detailed in the consent solicitation material being
mailed to the Unitholders.
If the necessary consents of Unitholders for dissolution are obtained, the
Partnership will be dissolved even if all necessary approvals for the Settlement
Agreement are not obtained or the Settlement Agreement is otherwise terminated.
In general, upon the dissolution of the Partnership, tax consequences will
accrue to the partners. If the necessary consents of the Unitholders for
dissolution are not obtained the Partnership will continue to own the Mortgages
and will continue to receive payments thereon.
The financial statements do not include any adjustments that might result
should the Unitholders vote to liquidate the Partnership.
NOTE 3 -- TRANSACTIONS WITH THE GENERAL PARTNER
The following is a summary of the fees earned and reimbursable expenses
incurred by the General Partner for the three months ended March 31, 1996 and
1995:
<TABLE>
<CAPTION>
TOTAL EARNED FOR TOTAL EARNED FOR
THE THREE MONTHS THE THREE MONTHS
UNPAID AT ENDED MARCH 31, ENDED MARCH 31,
MARCH 31, 1996 1996 1995
-------------- ------------------ ------------------
<S> <C> <C> <C>
Asset management fees.......................... $ 21,729 $ 21,729 $ 27,667
Reimbursement of general and administrative
expenses to the General Partner............... 25,000 25,000 25,000
-------------- -------- --------
$ 46,729 $ 46,729 $ 52,667
-------------- -------- --------
-------------- -------- --------
</TABLE>
F-27
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 4 -- SUBSEQUENT EVENTS
Surplus Cash -- Signature Place
A review of the borrower's audited financial statements for the year ended
December 31, 1995 indicated that the sum of $79,840.20 is due the Partnership
representing surplus cash. The Partnership filed an application for a
distribution of surplus cash with the co-insurer for approval. On May 7, 1996
the Partnership received the co-insurer's approval and therefore expects to
receive payment during the second quarter of 1996.
F-28
<PAGE>
April 15, 1996
To the Board of Directors and
Stockholder of NYLIFE Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying statutory basis consolidated statement of
financial position of NYLIFE Inc. and its subsidiaries (affiliates of New York
Life Insurance Company) as of December 31, 1995 and 1994, and the related
statutory basis consolidated statements of changes in stockholder's equity for
the years then ended. 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by the New York State
Insurance Department for valuing companies owned by an insurer, which is a
comprehensive basis of accounting other than generally accepted accounting
principles. The effects on the financial statements of the variances between
such practices and generally accepted accounting principles are described in
Note 1.
In our opinion, except for the effects of the matters described in the preceding
paragraph, the financial statements referred to above present fairly, in all
material respects, the financial position of NYLIFE Inc. and its subsidiaries at
December 31, 1995 and 1994, in conformity with generally accepted accounting
principles.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NYLIFE Inc. and its
subsidiaries at December 31, 1995 and 1994, on the basis of the accounting
described in Note 1.
As described in Note 12, certain transactions occurred in early 1996 which
increased the Company's capital and broadened its healthcare business.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
F-29
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(STATUTORY BASIS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 252,640 $ 240,799
Short-term investments.............................................................. 9,925 17,801
Accounts receivable less allowance for doubtful accounts of $5,642 and $3,638,
respectively....................................................................... 245,942 152,452
Interest and other receivables...................................................... 67,205 24,996
Deferred distribution costs (net of accumulated amortization of $172,254 and
$126,013 respectively)............................................................. 174,055 151,758
Investments:
Common stocks..................................................................... 3,664 2,385
Available for sale-bonds.......................................................... 163,648 150,689
Held to maturity-bonds............................................................ -- 28,000
Insurance operations-bonds........................................................ 29,201 57,533
Mortgage loans.................................................................... 18,197 116,960
Real estate....................................................................... 94,193 130,663
MainStay funds at fair value...................................................... 33,762 46,709
Security alarm monitoring contracts (net of accumulated amortization of $23,017
and $12,674 respectively)........................................................ 48,425 59,620
Other investments and advances to affiliates...................................... 114,386 87,718
Statutory valuation of subsidiary in excess of GAAP net equity...................... 406,834 289,713
Fixed assets (net of accumulated depreciation of $59,044 and $48,981,
respectively)...................................................................... 72,925 63,856
Income taxes receivable............................................................. 2,412 1,422
Other assets........................................................................ 209,001 150,903
------------ ------------
Total assets.................................................................... $ 1,946,415 $ 1,773,977
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Claims and capitation costs payable................................................. $ 183,888 $ 167,599
Participating policyholder liability................................................ 1,130 939
Payable to New York Life Insurance Company.......................................... 49,828 80,573
Accrued expenses and other payables................................................. 158,633 152,763
Interest payable.................................................................... 1,347 6,330
Medical group risk sharing and unearned premiums.................................... 53,626 46,082
Notes payable....................................................................... 141,081 484,144
Insurance reserves.................................................................. 39,328 30,167
Deferred taxes and other liabilities................................................ 126,828 70,108
Accrued costs for liquidation of Limited Partnerships............................... 137,000 --
------------ ------------
Total liabilities............................................................... 892,689 1,038,705
------------ ------------
Minority interest................................................................... 26,252 21,603
Stockholder's equity:
Common stock, par value $.10 per share (20,000 shares authorized, 3,850 shares
issued and outstanding) and additional paid-in capital........................... 946,546 599,073
Accumulated deficit............................................................... (328,753) (176,124)
Investment valuation account...................................................... 406,834 289,713
Net unrealized gains (losses) on available for sale investments (net of taxes of
$882 and $(591), respectively)................................................... 1,724 (956)
Cumulative translation adjustment................................................. 1,123 1,963
------------ ------------
Total stockholder's equity...................................................... 1,027,474 713,669
------------ ------------
Total liabilities and stockholder's equity...................................... $ 1,946,415 $ 1,773,977
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(STATUTORY BASIS)
<TABLE>
<CAPTION>
COMMON NET UNREALIZED
STOCK & GAINS (LOSSES)
ADDITIONAL INVESTMENT ON AVAILABLE CUMULATIVE TOTAL
PAID-IN ACCUMULATED VALUATION FOR SALE TRANSLATION STOCKHOLDER'S
CAPITAL DEFICIT ACCOUNT INVESTMENTS ADJUSTMENT EQUITY
----------- ------------- ----------- -------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......... $ 482,390 $ (122,303) $ 180,818 $ -- $ 3,880 $ 544,785
Capital contributions................. 127,913 -- -- -- -- 127,913
Return of capital..................... (11,230) -- -- -- -- (11,230)
Dividends............................. -- (72,946) -- -- -- (72,946)
Cumulative translation adjustment..... -- -- -- -- (1,917) (1,917)
Statutory valuation of subsidiary in
excess of GAAP net equity............ -- -- 108,895 -- -- 108,895
Other equity adjustments.............. -- (10,768) -- -- -- (10,768)
Net unrealized losses on available for
sale investments..................... -- -- -- (956) -- (956)
Net income............................ -- 29,893 -- -- -- 29,893
----------- ------------- ----------- ------- ----------- -------------
Balance at December 31, 1994.......... 599,073 (176,124) 289,713 (956) 1,963 713,669
Capital contributions................. 347,473 -- -- -- -- 347,473
Dividends............................. -- (41,900) -- -- -- (41,900)
Cumulative translation adjustment..... -- -- -- -- (840) (840)
Statutory valuation of subsidiary in
excess of GAAP net equity............ -- -- 117,121 -- -- 117,121
Other equity adjustments.............. -- (621) -- -- -- (621)
Net unrealized gains on available for
sale investments..................... -- -- -- 2,680 -- 2,680
Net (loss) income..................... -- (110,108) -- -- -- (110,108)
----------- ------------- ----------- ------- ----------- -------------
Balance at December 31, 1995.......... $ 946,546 $ (328,753) $ 406,834 $ 1,724 $ 1,123 $ 1,027,474
----------- ------------- ----------- ------- ----------- -------------
----------- ------------- ----------- ------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the consolidation of NYLIFE
Inc. ("NYLIFE" or the "Company"), a wholly-owned subsidiary of New York Life
Insurance Company ("New York Life"), and its subsidiaries, each of which is
wholly-owned, except as noted:
Aegis Technologies, Inc.("Aegis"), 94% owned, formerly Personal Financial
Assistant, Inc.
Eagle Strategies Corp. ("Eagle")
Greystone Realty Corporation ("Greystone")
MacKay-Shields Financial Corporation ("MacKay-Shields")
MSC Holding, Inc. ("MSC"), 85% owned, formerly Magnus Software Corp.
Monitor Capital Advisors, Inc.
New York Life Capital Corporation ("Capital Corp.")
New York Life International Investment Inc. ("NYL International")
Quorum Capital Management Limited ("Quorum")
Monetary Research Limited ("MRL")
New York Life Settlement Corporation ("NYL Settlement")
New York Life Worldwide Holding, Inc. ("Worldwide")
NAFCO, Inc. ("NAFCO")
NAFCO Auto Funding, LP
NYLIFE Administration Corp. ("NYLACOR")
NYLCO, Inc.
NYLICO Inc. ("NYLICO"), formerly New York Life Capital Corp.
NYL Benefit Services Company, Inc. ("Benefit Services"), formerly ADQ,
Inc.
NYL Trust Company ("NYL Trust")
NYLIFE Depositary Corporation
NYLIFE Distributors Inc. ("NYLIFE Distributors")
NYLIFE Equity Inc. ("NYLIFE Equity")
NYLIFE Funding Inc. ("NYLIFE Funding")
NYLIFE HealthCare Management Inc. ("NYLIFE HealthCare"), 99% owned
Sanus Corp. Health Systems ("Sanus")
Express Scripts Inc. ("ESI"), 69% owned
NYLIFE Realty Inc. ("NYLIFE Realty")
NYLIFE Refinery Inc. ("NYLIFE Refinery")
NYLIFE Resources Inc. ("NYLIFE Resources")
NYLIFE Securities Inc. ("NYLIFE Securities")
NYLTemps Inc.
NYLIFE Inc., though its subsidiaries, primarily develops and manages health
maintenance organizations, markets mail order prescriptions and provides
pharmacy claims processing services; offers life insurance products and services
in the United Kingdom, Hong Kong, Korea, Indonesia, Mexico, Argentina and
Bermuda; provides investment management services; and distributes and
administers mutual funds.
Intercompany accounts and transactions have been eliminated.
The accompanying statutory basis consolidated financial statements have been
prepared on the basis of accounting practices prescribed or permitted by the New
York State Insurance Department for valuing common stocks of subsidiaries, which
is a comprehensive basis of accounting other than
F-32
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
generally accepted accounting principles ("GAAP"). Under such practices,
goodwill arising from the purchase of non-insurance subsidiaries is amortized
over a period not to exceed ten years. Under GAAP, this goodwill would be
amortized over a period of 15 to 25 years. In 1993, New York Life received
authorization from the New York State Insurance Department to adopt approximate
market value as the carrying value for its investment in Express Scripts Inc., a
publicly traded 69% owned subsidiary of NYLIFE HealthCare. This practice is not
recognized under GAAP.
The approximate effects on the financial statements of the variances between
the practices described in the preceding paragraph and generally accepted
accounting principles are as follows: a decrease in net income of $3,000,000,
$2,000,000 and $3,000,000 for the years ending December 31, 1995, 1994 and 1993,
respectively, and a decrease in total assets of $322,000,000 and $222,000,000
and a decrease in stockholder's equity of $339,000,000 and $224,000,000 as of
December 31, 1995 and 1994, respectively.
Accounting principles prescribed or permitted by the New York State
Insurance Department are considered GAAP for the insurance operations as they
are wholly-owned stock life subsidiaries of a mutual life insurer. The Financial
Accounting Standards Board has issued an Interpretation which establishes a
different definition of GAAP for mutual life insurance companies and their
subsidiaries. Under that interpretation, financial statements for mutual life
insurance companies and their subsidiaries for periods beginning after December
15, 1995 which are prepared on the basis of statutory accounting principles
(practices prescribed or permitted by insurance regulatory authorities) will no
longer be characterized as in conformity with GAAP.
Management of the Company has not yet determined the effect on its December
31, 1995 financial statements of applying the new Interpretation nor whether the
Company will continue to present its general purpose financial statements in
conformity with the statutory basis of accounting or adopt the accounting
changes required. The effect of the changes would be reported retroactively
through restatement of all previously issued financial statements presented for
comparative purposes. The cumulative effect of adopting these changes would be
included in the earliest year restated.
INSURANCE SUBSIDIARY POLICIES:
Specific policies pertaining to life insurance subsidiaries are as follows:
(1) premiums are recognized when due and are taken into income over the
premium-paying period of the policies; (2) commissions and other costs incurred
in connection with acquiring new business are charged to current operations as
incurred; (3) reserves for life insurance policies are based on mortality tables
and interest assumptions which are consistent with the local statutory
requirements of each respective subsidiary and are considered to be sufficient
to provide for contractual benefits and to meet the minimum requirements of the
New York State Insurance Regulations; (4) the participating policyholder
liability consists principally of the amount of surplus attributable to
participating policyholders after the provision for policy reserves; (5) the
excess of purchase price over statutory net assets acquired is charged to
stockholder's equity in the year of acquisition; (6) in the year that the
insurance subsidiaries are wholly or partially sold, the excess of purchase
price over statutory net assets acquired is then wholly or partially charged to
realized gains; (7) bonds associated with insurance operations are generally
stated at amortized cost; and (8) joint ventures and minority stock investments
are included in other investments and advances to affiliates and are stated at
the value of their underlying statutory net assets.
F-33
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEE INCOME:
The Company through its subsidiaries receives fees for services provided
under agreements with its clients. The Company accrues fee income when earned.
Additionally, the Company derives monitoring revenues from customer payments for
alarm monitoring services. The Company recognizes revenue as the monitoring
services are provided.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities denominated in foreign currency have been translated
into U.S. dollars at the respective year end exchange rates. Operating results
are translated at the average exchange rates for the year. Foreign currency
translation gains and losses are credited or charged directly to the Cumulative
Translation Adjustment account in stockholder's equity. The change in the
Cumulative Translation Adjustment account is due to the current year effect of
the translation adjustment. Foreign currency transaction gains and losses are
included in net income.
CASH AND CASH EQUIVALENTS:
Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less. The carrying value of cash and cash equivalents approximates
fair value.
ACCOUNTS RECEIVABLE:
The carrying value of accounts receivable at December 31, 1995 and 1994
approximates fair value.
DEFERRED DISTRIBUTION COSTS:
Deferred distribution costs relate to commission expenses and certain other
costs related to the distribution of MainStay Funds which have a contingent
deferred sales charge, and are deferred and amortized over a six year period on
a straight-line basis, adjusted for related contingent deferred sales charge
income earned.
INVESTMENTS:
Short-term investments are carried at cost which approximates fair value.
Common stocks are stated at market value. At December 31, 1995 and 1994, bonds,
other than those associated with insurance operations, are either classified as
held to maturity and are reported at amortized cost or classified as available
for sale and are reported at estimated fair value, with unrealized gains and
losses, net of tax, being reported as a separate component of stockholder's
equity. The investment in the MainStay Funds is primarily held by NYLIFE
Securities and NYLIFE Distributors, broker-dealers, and accordingly is recorded
at fair value, with unrealized gains and losses included in income.
Mortgage loans are generally stated at the aggregate principal balance due,
except when in management's opinion collection of the loan is doubtful, in which
case the loan is written down to the appraised value of the underlying property.
Real estate acquired through foreclosure is valued at the lower of the mortgage
loan carrying value or the appraised value of the property at the time of
foreclosure. Any excess of the carrying value of the loan over the appraised
value is recorded as a realized loss. Alarm monitoring contracts are recorded at
cost net of accumulated amortization. Auto loans in the warehouse period are
carried at cost and reduced for impairment. Investments in limited partnerships
are generally accounted for under the equity method of accounting. Under this
method, net earnings or losses are included in income currently.
F-34
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Fair values of various assets and liabilities are included throughout the
notes to financial statements. Specifically, fair value disclosure of bonds,
mortgage loans, real estate and the investment in the MainStay Funds is reported
in Note 4, and fair value disclosure of notes payable is reported in Note 6.
Fair values of bonds and the investment in the MainStay Funds are based on
published or quoted market values, respectively. Fair value of mortgage loans is
estimated based on discounted cash flow analyses prepared for each loan using
interest rates approximating the current rates for new mortgages with similar
remaining maturities. Fair value of notes payable is estimated based on quoted
market prices and borrowing rates currently available to NYLIFE and its
subsidiaries for bank loans with similar terms and average maturities.
FIXED ASSETS:
Fixed assets are recorded at cost and are depreciated over the estimated
useful lives of the assets, generally 3 to 10 years, using the double-declining
balance and straight-line methods of depreciation.
PREMIUM REVENUE RECOGNITION AND COST OF PRESCRIPTION SALES:
Premium revenue for prepaid health care is recognized as income in the month
in which the enrollees are entitled to health care services. Consulting and
management fees are recognized in income as services are rendered. Revenue on
premiums collected in advance is deferred.
Revenues from dispensing prescription and non-prescription medical products
from ESI's mail service pharmacies are recorded upon shipment. Revenue from
sales of prescription drugs by pharmacies in ESI's nationwide network and
pharmacy claims processing revenues are recognized when the claims are
adjudicated. When ESI has an independent contractual obligation to pay its
network pharmacy providers for benefits provided to members of its clients'
pharmacy benefit plans, ESI includes payments from plan sponsors for these
benefits as prescription sales and fees and payments to these pharmacy providers
in cost of prescription sales. If ESI is only administering the plan sponsors'
network pharmacy contracts, ESI records fees derived from ESI's contracts with
plan sponsors as net revenue.
Cost of prescription sales include product costs, pharmacy claims payments
and other direct costs associated with dispensing prescription and
non-prescription medical products and claims processing operations, offset by
fees received from pharmaceutical manufacturers in connection with ESI's drug
purchasing and formulary management programs.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
The carrying value of accounts payable and accrued expenses at December 31,
1995 and 1994 approximates fair value.
MEDICAL GROUPS' RISK SHARING:
Primary care physicians are compensated on a capitation basis and
participating specialists on a fee-for-service basis. In 1995, Sanus instituted
an incentive compensation program whereby primary care physicians are eligible
to receive a bonus based on quality and cost utilization criteria. As part of
this program, Sanus retains a portion of the amounts due to the participating
specialists. These amounts are payable to the specialists based upon cost
utilization criteria. Prior to 1995, Sanus retained a portion of the amounts due
to both primary care physicians and participating specialists and amounts paid
were based upon cost utilization criteria. An accrual is made for the estimate
of the amount of incentive withheld and bonus which will be paid to medical care
providers based upon actual medical costs incurred during the year.
F-35
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS RISKS AND UNCERTAINTIES:
The preparation of financial statements in conformity with generally
accepted accounting principals 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 date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
At December 31, 1995, the Company's investments were comprised of common
stock, bonds, real estate properties and mortgage loans. Significant changes in
prevailing interest rates and geographic conditions may adversely affect the
timing and amount of cash flows on such investments, as well as their related
values. In addition, the value of these investments is often derived from an
appraisal, an estimate or opinion of value. A significant decline in the market
value of these investments could have an adverse affect on the Company's balance
sheet.
The Company through its limited partnership investments in the oil and gas
industry is subject to extensive and rapidly changing federal and state
environmental regulations governing air emissions, waste discharges, and solid
and hazardous waste management activities. When it is both probable that a
liability has been incurred and the amount can be reasonably estimated, the
Company accrues environmental and clean up related costs. Such estimates may be
subject to revision in the future as regulations and other conditions change.
The Company's revenues from the oil and gas industry are derived principally
from uncollateralized sales to customers in the oil and gas industry. Market
prices for oil and gas may fluctuate; accordingly, a significant decline in
market prices could adversely affect the Company's net operating revenues and
cash flow from operating activities. Additionally, the concentration of credit
risk in a single industry affects the Company's overall exposure to credit risk
because customers may be similarly affected by changes in economic and other
conditions. As described in Note 10, the Company has recorded a loss of
$137,000,000 related to an announced plan of liquidating its limited partnership
programs.
During 1993, New York Life received authorization from the New York State
Insurance Department to adopt approximate market value as the carrying value for
its investment in ESI. Accordingly, the Company recorded adjustments of
$406,834,000 and $289,713,000 for the statutory valuation of ESI in excess of
its GAAP net equity at December 31, 1995 and 1994, respectively. These
adjustments are included as a component of stockholder's equity. Based upon the
market value of ESI's common stock at April 11, 1996, the amount of the
statutory valuation of subsidiary in excess of GAAP net equity was approximately
$389,021,000. A significant decline in the value of this stock could have an
adverse effect on the Company's stockholders' equity.
As providers of life insurance products, the operating results of certain
subsidiaries in any given period depend upon estimates of policy reserves
required to provide for future policyholder benefits. The development of policy
reserves for the products of these companies requires management to make
estimates and assumptions regarding mortality, morbidity, lapse, expense and
investment experience. Such estimates are primarily based on historical
experience and the specific requirements of local insurance regulators. Actual
results could differ materially from these estimates. Management monitors actual
experience, and where circumstances warrant, revises its assumptions and the
related estimates of policy reserves.
F-36
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Medical claims include estimates of payments to be made on individual claims
for medical specialists, drugs and hospital costs for which services have been
performed. The cost of claims incurred but not reported is estimated based on
current membership statistics, current utilization and historical data. The
estimates for claims incurred but not reported are continually reviewed and
revised as changes in these factors occur and revisions are reflected in the
current year's statement of income. Capitation costs represent monthly charges
paid to participating physicians as compensation for providing continuing
medical care.
Intangible assets primarily consist of goodwill arising from acquisitions.
Goodwill, which represents the cost in excess of the value assigned to net
assets acquired in connection with acquisitions, is being amortized over 10
years. The Company's investment in alarm monitoring contracts is amortized over
the estimated lives of the contracts of approximately 12 years as adjusted for
terminated contracts. Actual amortization of the intangible assets may vary from
the amortization schedule.
CONTRACTUAL AGREEMENTS:
ESI enters into corporate alliances with certain of its clients whereby
shares of ESI's Class A Common Stock are awarded as advance discounts to the
client. The stock is valued utilizing the quoted market value at the date the
agreement is consummated if the number of shares to be issued is known. If the
number of shares to be issued is contingent upon the occurrence of future
events, the stock is valued utilizing the quoted market value at the date the
contingency is satisfied and the number of shares is determinable. The value of
the shares of stock awarded as advance discounts is recorded as a deferred cost
and included in other assets. The deferred cost is recognized in selling
expenses over the period of the contract.
RECLASSIFICATIONS:
Certain reclassifications have been made to 1994 and 1993 amounts to conform
with the 1995 presentation.
NOTE 2 -- CHANGES IN ACCOUNTING PRINCIPLES
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-lived Assets to be Disposed Of," which is effective for the
fiscal years beginning after December 15, 1995. SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. If the
Company adopts GAAP in 1996 (See Note 1) it will be required to adopt SFAS 121
in 1996. The Company does not expect that adoption of SFAS 121 would have a
significant effect on the consolidated financial position of the Company.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
NYLIFE HEALTHCARE
During 1995 and 1994, Sanus completed four acquisitions for cash, as
described below. Each transaction was accounted for as a purchase and
accordingly, the purchase price was allocated to the fair values of assets
acquired and liabilities assumed. The remaining excess of the purchase price
over such fair values was allocated to goodwill. The operating results of each
acquisition have been included in consolidated net income of the Company from
the date of acquisition.
F-37
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In July 1995, Sanus acquired the minority shareholder's interest in
Lonestar Holding Company for approximately $4,100,000 in cash. As a result
of the transaction, the Houston HMO became a wholly owned subsidiary of
Sanus. Goodwill related to the purchase of approximately $2,700,000 is being
amortized over an estimated useful life of 10 years.
In November 1994, Sanus purchased 100% of the outstanding stock of The
Ethix Corporation, which included the 13% owned by NYLIFE, for a purchase
price of approximately $32,900,000. The fair values of assets acquired and
liabilities assumed were $25,800,000 and $16,200,000, respectively. Goodwill
of approximately $23,300,000 related to the purchase is being amortized over
an estimated useful life of 10 years. The acquisition agreement provides for
additional consideration to be paid based on membership increases over the
five year period ending November 1999. No such amounts were due in 1995.
In June 1994, Sanus acquired certain assets and assumed certain
liabilities of two partnerships which performed administrative services for
a physician group in the New York City metropolitan area. Cash paid totaled
$10,000,000 plus the assumption of an excess of the fair value of
liabilities over assets acquired of $17,200,000. Goodwill associated with
the acquisition of $27,200,000 is being amortized over an estimated useful
life of 10 years.
In May 1994, Sanus purchased the remaining 12% minority interest in
Avanti Health Systems. The entire purchase price of $10,000,000 was
allocated to goodwill, which is being amortized over an estimated useful
life of 10 years.
During 1995, NYLIFE Inc. paid $10,800,000 to two of the three original
Founders of NYLIFE HealthCare to purchase their remaining HealthCare shares in
accordance with their Termination, Severance and Stock Buyback Agreements.
Subsequent to the purchase of these shares, NYLIFE's ownership of NYLIFE
HealthCare increased to 98.78%.
On June 9, 1992, ESI, previously an indirectly 96% owned subsidiary of
NYLIFE, completed an initial public offering of 4,000,000 shares of its Class A
common stock at $6.50 per share, thereby decreasing NYLIFE's percentage
ownership to 69%. NYLIFE recognized a pre-tax gain of approximately $15,800,000
from this transaction, representing the difference between the value of NYLIFE's
interest in ESI immediately after the public offering and the historical book
value of its interest in ESI. NYLIFE's percentage of ownership at December 31,
1995 is 69%. The common stock owned by the Company controlled approximately 96%
and 93% of the voting stock of ESI as of December 31, 1995 and 1994,
respectively. The portion of ESI's equity relating to the shares not owned by
NYLIFE and the earnings relating thereto are included in "Minority Interest" in
the accompanying financial statements.
WORLDWIDE HOLDING
UNITED KINGDOM:
On December 22, 1994, NYLUK sold 68.75% of the common stock of Windsor Life
to outside investors for consideration amounting to $77,596,000. NYLUK's gain
arising from this transaction amounted to $27,788,000 and was credited to
realized gains on investments. This gain is net of excess of purchase price over
statutory net assets acquired of $47,311,000 and Section 49 gains of $25,055,000
previously charged or credited directly to stockholder's equity, respectively.
Also on December 22, 1994, NYLUK and the new stockholders of Windsor Life
exchanged all of their common
F-38
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS (CONTINUED)
stock for common stock of Life Assurance Holding Corporation Limited ("LAHC"), a
new holding company. As of December 22, 1994, NYLUK adopted the equity method of
accounting for its 31.25% interest in LAHC.
The total income, total benefits and expenses and realized gains on
investments of Windsor Life presented in the Consolidated Statement of
Operations during 1994 amounted to $212,326,000, $259,151,000 and $58,617,000,
respectively.
NYLUK is party to the Warranty Indemnity Deed (guaranteed by Worldwide)
relating to the sale of the common stock of Windsor Life. Under the terms of
this deed, NYLUK has undertaken to indemnify the outside investors against
liabilities, costs and expenses incurred with regard to specified matters. Any
claims under the deed require NYLUK to subscribe for deferred shares in LAHC at
par value. Management believes that adequate provision has been made for
potential claims that may arise.
ARGENTINA:
On June 3, 1994, Worldwide acquired 17% of the common stock of Maxima S.A.
AFJP from Roberts S.A. de Inversiones and 26% of the common stock of La Buenos
Aires Seguros de Vida S.A. and La Buenos Aires Seguros de Retiro S.A. from La
Buenos Aires Compania Argentina de Seguros S.A.
Maxima S.A. AFJP is licensed to conduct pension fund management business in
Argentina. La Buenos Aires Seguros de Vida S.A. and La Buenos Aires Seguros de
Retiro S.A. are licensed to conduct personal and annuity insurance business in
Argentina, respectively. La Buenos Aires Seguros de Vida S.A. and La Buenos
Aires Seguros de Retiro S.A. were renamed La Buenos Aires-New York Life Seguros
de Vida S.A. and La Buenos Aires-New York Life Seguros de Retiro S.A.,
respectively.
Capital contributions to fund operating activities were made by all of the
stockholders into each of these companies in their respective ownership
percentages. Worldwide's share to Maxima S.A. AFJP, La Buenos Aires-New York
Life Seguros de Vida S.A. and La Buenos Aires-New York Life Seguros de Retiro
S.A. was $972,000, $1,320,000 and $0 respectively, for the year ended December
31, 1995, and was $6,528,000, $3,270,000 and $329,000, respectively, for the
year ended December 31, 1994.
NYL BENEFIT SERVICES COMPANY, INC.
Effective June 6, 1994, NYLIFE's acquired Benefit Services, a provider of
consulting, administrative, actuarial, communications and investment advisory
services for employee benefit plan sponsors, with an up-front cash payment of
$8,000,000, plus a series of future cash payments, exercisable from the fifth to
tenth year. The future cash payments are based on the joint assets of New York
Life and its affiliates related to the 401(k) Complete product. Approximately
$6,640,000 of the purchase price was allocated to goodwill, which is being
amortized over an estimated useful life of 10 years. The comparative statement
of operations and statement of cash flows for the prior year included in these
financial statements cover the period from June 6, 1994 (date of acquisition)
through December 31, 1994.
MSC HOLDING, INC.
During 1995, the assets of the Health and Investment Divisions were sold to
Meritech, a subsidiary of Summit Technologies and Melson Technologies, an
indirect subsidiary of Aegon Insurance, respectively. Meritech purchased the
Health Division assets for approximately $750,000 which included contracts,
licenses, equipment and various receivables. Melson Technologies purchased the
Investment Division assets for a contingent purchase price of $3,500,000. One
million dollars of the purchase price is guaranteed and is expected to be
received by MSC within three years. The remaining
F-39
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS (CONTINUED)
$2,500,000 is contingent upon the amount of licensing fees the buyers receive
over the next 10 years relating to the SMS Investment System, which is currently
under development. A total gain of approximately $1,695,000 was recognized on
these transactions.
NEW YORK LIFE CAPITAL CORP.
New York Life Capital Corp. was incorporated in Delaware in June 1995.
Capital Corp's activities will primarily consist of issuing commercial paper and
borrowing from other sources for the purpose of making loans to New York Life
and its affiliates. Capital Corp. did not commence operations during 1995.
NYL TRUST COMPANY
NYL Trust was incorporated in New York on February 2, 1995 as a limited
purpose trust company chartered by the New York State Banking Department to act
as a fiduciary for pension, profit sharing and other employee benefit plans. NYL
Trust's responsibilities include acting as a passive trustee or custodian for
401(k) plans and Individual Retirement Accounts.
NOTE 4 -- INVESTMENTS
COMMON STOCK:
The common stock portfolio, which is stated at market value, primarily
consists of securities issued in the United Kingdom which are denominated in
British Pounds Sterling at December 31, 1995 and 1994.
BONDS:
At December 31, 1995 the maturity distribution of bonds was as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE LIFE INSURANCE
-------------------- OPERATIONS
ESTIMATED ----------------------
AMORTIZED FAIR STATEMENT ESTIMATED
COST VALUE VALUE FAIR VALUE
--------- --------- --------- -----------
Due in one year or less.................... $ 75,551 $ 75,857 $ 2,101 $ 2,101
Due in years two through five.............. 79,566 81,449 6,714 6,955
Due in years six through ten............... 5,704 5,868 13,637 14,845
Due after ten years........................ 466 474 6,749 7,355
--------- --------- --------- -----------
Total...................................... $ 161,287 $ 163,648 $ 29,201 $ 31,256
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
F-40
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 4 -- INVESTMENTS (CONTINUED)
At December 31, 1995 and 1994, the distribution of unrealized gains and
losses on bonds was as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- - ----------------------------------------- --------- ----------- ----------- ---------
U.S. Treasury and other U.S.
Governmental Agencies................. $ 71,868 $ 584 $ 33 $ 72,419
Commercial paper and Corporate notes... 89,228 1,861 51 91,038
Certificates of deposit................ 191 -- -- 191
--------- ----------- ----------- ---------
Total.................................. $ 161,287 $ 2,445 $ 84 $ 163,648
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
<CAPTION>
ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
INSURANCE OPERATIONS: VALUE GAINS LOSSES VALUE
- - ----------------------------------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Foreign Governments.................... $ 12,240 $ 869 $ 4 $ 13,105
Corporate.............................. 16,961 1,548 358 18,151
--------- ----------- ----------- ---------
Total.................................. $ 29,201 $ 2,417 $ 362 $ 31,256
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
<CAPTION>
DECEMBER 31, 1994
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- - ----------------------------------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Corporate.............................. $ 28,000 $ -- $ 221 $ 27,779
--------- ----------- ----------- ---------
Total.................................. $ 28,000 $ -- $ 221 $ 27,779
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- - ----------------------------------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Governmental Agencies................. $ 98,404 $ 20 $ 1,130 $ 97,294
Commercial paper and Corporate notes... 53,647 -- 437 53,210
Certificates of deposit................ 185 -- -- 185
--------- ----------- ----------- ---------
Total.................................. $ 152,236 $ 20 $ 1,567 $ 150,689
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
<CAPTION>
ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
INSURANCE OPERATIONS: VALUE GAINS LOSSES VALUE
- - ----------------------------------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Foreign Governments.................... $ 45,659 $ 318 $ 60 $ 45,917
Corporate.............................. 11,874 -- 318 11,556
--------- ----------- ----------- ---------
Total.................................. $ 57,533 $ 318 $ 378 $ 57,473
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
Proceeds from investments in bonds sold, matured, or repaid were
$282,649,000, $402,126,000, and $133,095,000 for 1995, 1994 and 1993,
respectively. Realized gains from investments in bonds sold, matured, or repaid
were $898,000, $6,551,000 and $2,230,000 for 1995, 1994 and 1993, respectively,
and realized losses were $744,000, $912,000 and $182,000 for 1995, 1994 and 1993
respectively.
Investment in bonds include $58,585,000 and $51,229,000 of restricted
securities on deposit to meet statutory solvency requirements, for 1995 and
1994, respectively.
F-41
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 4 -- INVESTMENTS (CONTINUED)
MORTGAGE LOANS:
Mortgage loans, which are generally stated at the aggregate principal due,
are secured by first liens on real estate properties. The loans carry interest
rates ranging from 8.75% to 9.75% and maturity dates which range from 1995 to
1999. At December 31, 1995 and 1994 the geographic diversification of the
mortgage loan portfolio was as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
United States:
Pacific............................................................... $ 12.6 $ 48.2
Middle Atlantic....................................................... 2.0 14.5
South Atlantic........................................................ 3.6 32.8
East North Central.................................................... -- 12.4
West South Central.................................................... -- 9.0
United Kingdom........................................................ -- .1
--------- ---------
$ 18.2 $ 117.0
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995, mortgage loans are comprised of office buildings
($7,700,000) and shopping centers ($10,500,000). During 1995, several loans were
sold to New York Life, see Note 7.
The fair value of the mortgage loan portfolio was $17,633,000 and
$115,241,000 at December 31, 1995 and 1994, respectively, estimated based on
discounted cash flow analyses prepared for each loan using interest rates
approximating the current rates for new mortgages with similar remaining
maturities. Fair values do not necessarily represent the values for which these
loans could have been sold at December 31, 1995 or 1994; therefore, care should
be exercised in drawing any conclusions from these fair values.
Write downs related to declines in the appraised value of properties
underlying mortgage loans totaled $9,335,000 and $2,984,000 in 1995 and 1994,
respectively.
REAL ESTATE:
At December 31, 1995 and 1994, real estate included the following properties
which were acquired through foreclosure (in millions):
<TABLE>
<CAPTION>
CARRYING VALUE
YEAR --------------------
PROPERTY TYPE STATE ACQUIRED 1995 1994
- - --------------------------------------------- ----- ----------- --------- ---------
<S> <C> <C> <C> <C>
Apartment.................................... VA 1991 $ -- $ 35.0
Office....................................... MD 1991 74.5 70.5
Shopping Center.............................. FL 1991 -- 5.2
Office....................................... NY 1992 17.6 17.6
--------- ---------
$ 92.1 $ 128.3
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995 and 1994, real estate also included $2,100,000 and
$2,300,000 associated with Worldwide operations.
In January 1995, the apartment property was sold to New York Life for cash,
see Note 7.
In April 1995, the shopping center property was sold. NYLIFE Funding
recorded a realized gain of $867,000 as a result of this transaction.
F-42
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 4 -- INVESTMENTS (CONTINUED)
MAINSTAY FUNDS:
At December 31, 1995 the total investment in the MainStay Funds includes
investments in individual funds as follows (in thousands):
<TABLE>
<CAPTION>
FUND COST FAIR VALUE
----------------------------------------- --------- -----------
<S> <C> <C>
California Tax Free.................................................... $ 4,646 $ 4,582
Capital Appreciation................................................... 55 115
Convertible............................................................ 71 103
Equity Index........................................................... 109 186
International Equity................................................... 10,000 10,051
International Bond..................................................... 10,129 10,560
High Yield Corporate Bond.............................................. 79 96
Tax Free............................................................... 503 494
New York Tax Free...................................................... 7,007 6,945
Total Return........................................................... 51 79
Value.................................................................. 434 551
--------- -----------
Total 1995......................................................... $ 33,084 $ 33,762
--------- -----------
--------- -----------
Total 1994......................................................... $ 47,466 $ 46,709
--------- -----------
--------- -----------
</TABLE>
TIME DEPOSITS:
Time deposits, included in cash and cash equivalents, at December 31, 1995
and 1994 amounted to $8,155,000 and $28,541,000, respectively.
OTHER INVESTMENTS:
Other investments include interests in limited partnerships which consist
primarily of an oil refinery and oil and gas producing properties valued at
$38,966,000 and $44,423,000 at December 31, 1995 and 1994, respectively.
NOTE 5 -- FIXED ASSETS
At December 31, 1995 and 1994 fixed assets, at cost, are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Furniture........................................................... $ 22,021 $ 13,127
Equipment........................................................... 41,737 35,530
Computer hardware................................................... 30,315 21,847
Computer software................................................... 7,646 14,720
Leasehold improvements.............................................. 19,084 16,564
Other............................................................... 11,166 11,049
----------- -----------
131,969 112,837
Less accumulated depreciation and amortization...................... 59,044 48,981
----------- -----------
Total............................................................... $ 72,925 $ 63,856
----------- -----------
----------- -----------
</TABLE>
F-43
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 6 -- NOTES PAYABLE
Notes payable, generally carried at the unpaid principal balance, consisted
of the following at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
9.25% Guaranteed Notes due May 15, 1995................................................. $ -- $ 300,000
Worldwide-Loan from Windsor Life........................................................ 6,434 9,573
Series A and B, Floating Rate Secured Five Year Notes................................... 20,628 23,874
Series C 9% Fixed Rate Secured Five Year Notes.......................................... 32,218 38,503
Loans payable to New York Life.......................................................... 59,842 93,788
Bank borrowings and revolving line of credit with financial institutions................ 15,732 4,149
Other (including current portion)....................................................... 6,227 14,257
----------- -----------
$ 141,081 $ 484,144
----------- -----------
----------- -----------
</TABLE>
The fair value of notes payable was approximately $141,081,000 and
$485,698,000 at December 31, 1995 and 1994, respectively.
On May 15, 1995, NYLIFE Funding repaid the principal and remaining interest
on the 9.25% Guaranteed Notes which totaled $300,000,000 and $9,250,000,
respectively. At December 31, 1994 the fair value of the Notes was $302,531,000
estimated based on the quoted market price. The notes were unconditionally
guaranteed by New York Life as to the payment of principal and interest.
New York Life Capital Corp. is party to a credit agreement with a group of
relationship banks consisting of a $150,000,000 364 day committed revolving
credit facility ("Facility A"), and a $350,000,000 5 year committed revolving
credit facility ("Facility B"). Annual facility fees are .04% and .06%, for
Facility A and B respectively, and borrowing rates are capped at spreads of .16%
and .14% over LIBOR, respectively. In addition, the credit agreement contains
various covenants pertaining to allowable activities of Capital Corp. No amounts
were drawn down or outstanding on these agreements at December 31, 1995.
The $20,628,000 of Series A and B Floating Rate Secured Five Year Notes are
collateralized by security alarm monitoring contracts, and pay interest
quarterly at a per annum floating rate based on the minimum denomination
five-year certificate of deposit average rate as reported by Bank Rate Monitor.
Principal is paid down on a quarterly basis. At December 31, 1995, the rate on
these Notes was 9%. In addition, $1,721,000 of these notes are payable during
1996.
The $32,218,000 of Series C 9% Fixed Rate Secured Five Year Notes are
collateralized by security alarm monitoring contracts, and pay interest
quarterly at the fixed rate. Principal is paid down on a quarterly basis. In
addition, $2,250,000 of these notes are payable during 1996.
In January 1995, NYLIFE entered into a credit agreement, expiring January 1,
1996, with New York Life whereby NYLIFE can borrow up to an aggregate principal
amount of $200,000,000 at any one time. This agreement and any loans made shall
be automatically extended and renewed for additional one year periods, unless
either NYLIFE or New York Life notifies the other of its desire to terminate the
agreement. At December 31, 1995 the total principal borrowed under this
agreement was $27,358,000. Interest expense amounted to $94,000.
On December 11, 1992, NAFCO entered into a revolving credit agreement (the
"Credit Agreement") with Barclays Bank PLC ("Barclays"). The Credit Agreement
allows NAFCO to borrow an aggregate principal amount not to exceed $15,000,000
at any one time. Interest on any borrowing accrues at a rate equal to either (i)
the rate of interest per annum declared by Barclays as its prime
F-44
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 6 -- NOTES PAYABLE (CONTINUED)
rate in effect at its branch in New York City or (ii) LIBOR plus 1%. During
1995, NAFCO recorded interest expense of approximately $204,000 to Barclays
pursuant to the Credit Agreement. At December 31, 1995, borrowings under the
credit agreement are $15,000,000. There were no borrowings at December 31, 1994.
On November 1, 1993, NAFCO entered into a loan agreement with New York Life.
The agreement allows NAFCO to borrow money pursuant to one or more master notes
(individually, a "Master Note", collectively, "Master Notes") each of which will
not exceed one year in maturity and for amounts, in aggregate, not to exceed
$35,000,000 at any one time. Interest on any Master Note borrowings accrues at
the rate which is the annual simple interest equivalent (computed on the actual
daily principal balance based on a 360 day year of 12 30-day months) of 225
basis points above the one month LIBOR published in the Wall Street Journal on
the 15th day of the proceeding calendar month (or if such day is not a day on
which such newspaper is published, the next succeeding day of such publication).
In 1995, the loan agreement between NAFCO and New York Life was amended to
accommodate the acquisition of prime auto loans. The amendment provides for the
following: (i) an increase in the maximum borrowings to $70,000,000, (ii) an
interest rate of 200 basis points above the one month LIBOR for borrowings
related to prime auto loan acquisitions, and (iii) a change in the monthly
interest payment date to the 20th of each month. During 1995 and 1994, NAFCO
made interest payments totaling $2,636,600 and $379,651, respectively, to New
York Life pursuant to the Master Notes. At December 31, 1995 and 1994, the
amounts outstanding under the Master Note are $32,484,000 and $11,922,000,
respectively. Accrued interest at December 31, 1995 and 1994 is $278,000 and
$67,000, respectively.
Sanus had a loan agreement with New York Life under which Sanus borrowed
amounts as mutually agreed. Under the provisions of this agreement, interest was
payable at the end of each calendar quarter at a rate of 1% over the prime rate
as announced by a specified New York money center bank. The applicable interest
rates during 1995 ranged from 9.5% to 10.0% and 1994 ranged from 7.00% to 9.50%.
Sanus borrowed an additional $4,000,000 during 1995 and $57,889,000 during 1994,
primarily to finance acquisitions. Effective December 31, 1995 the loan balance,
along with accrued interest, in the total amount of $82,898,000 was contributed
to Sanus as additional paid-in-capital and the loan agreement, which was to
mature on October 1, 1997, was terminated. Interest expense on such borrowings
during 1995 and 1994 were $7,854,000 and $3,051,000, respectively.
NOTE 7 -- RELATED PARTY TRANSACTIONS
NYLIFE and several of its subsidiaries are party to a service agreement with
New York Life, whereby New York Life provides services to NYLIFE and such
subsidiaries, including office space, legal, accounting, administrative,
personnel and other services for which NYLIFE and its subsidiaries are billed.
NYLIFE and its subsidiaries are charged for these services based upon (a) actual
costs incurred, where they are separately identifiable and (b) allocation of
costs incurred by New York Life developed through analyses of time spent on
matters relating to NYLIFE and its subsidiaries.
Investment management fees of $35,089,000, $32,684,000, and $25,970,000 were
received from New York Life and certain of its affiliates during the years ended
December 31, 1995, 1994 and 1993, respectively.
Sanus and New York Life offer a product (Sanus Plus) to members which
combines HMO coverage from Sanus and indemnity insurance coverage from New York
Life. The member pays a single premium for this coverage and elects either HMO
or major medical coverage at the time of service. Sanus collects the full
premium and allocates a portion to New York Life. Under the terms of
F-45
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 7 -- RELATED PARTY TRANSACTIONS (CONTINUED)
the agreement between the parties, a final allocation of premiums is made one
year after the close of the coverage period, whereby a transfer is completed
between Sanus and New York Life which will cause each to have an identical ratio
of medical expenses to premium for coverage provided under this product. Sanus
classifies New York Life's estimated share of premiums during the period as a
reduction of its premium income. New York Life's estimated share of premiums was
$45,092,000 and $43,089,000 at December 31, 1995 and 1994, respectively.
Additionally, at December 31, 1995, Sanus has accrued approximately $331,000 due
from New York Life ($7,395,000 due to New York Life at December 31, 1994)
related to Sanus Plus.
Certain subsidiaries earned premiums and fees related to health care
services provided to New York Life of $54,489,000, $48,016,000 and $28,953,000
in 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994, New York
Life owed $5,455,000 and $4,496,000, respectively, for such services.
During 1995 and 1994, one of Sanus' HMO subsidiaries paid hospital service
claims of approximately $7,000,000 and $12,000,000, respectively, to its
minority shareholders.
NYLACOR has eight "dedicated offices" to market the New York Life long-term
care product. Beginning in 1995, all the expenses incurred by the dedicated
offices are paid by NYLACOR and reimbursed by New York Life. These expenses and
the associated reimbursements totaled $3,200,000 in 1995.
At December 31, 1995 and 1994, New York Life owned approximately 8.7% and
8.6%, respectively, of the outstanding common stock of American Exploration
Company ("American"), the parent of NYLIFE Equity's co-general partner (American
Exploration Production Company) and had invested approximately $18,954,400 and
$54,747,000, respectively, in partnerships it managed. In addition, New York
Life provided a $40,000,000 bridge facility for American through February 1995
to finance the consolidation of its institutional oil and gas limited
partnerships.
On January 3, 1994, NYLIFE Distributors assumed the mutual fund underwriting
and certain administrative functions previously performed by NYLIFE Securities,
an affiliate, on behalf of the MainStay Funds and the MainStay Institutional
Funds Inc. In connection with this transfer, NYLIFE received a distribution of
certain assets and liabilities valued at book value from NYLIFE Securities in
the net amount of $96,966,000, as well as $250,000 cash. The distribution
resulted in a return of capital to NYLIFE and reduced NYLIFE Securities'
stockholder's equity by $97,216,000. NYLIFE then contributed these assets,
liabilities and cash, as capital, to NYLIFE Distributors.
As distributor, NYLIFE Distributors has entered into agreements with the
MainStay Funds, pursuant to Rule 12b-1 under the Investment Act of 1940, to
compensate it for the distribution expenses it incurs. At December 31, 1995 and
1994 receivables from the MainStay Funds approximated $6,493,000 and $5,365,000,
respectively for distribution, services and administration fees.
NYLIFE Securities earned commission revenue of approximately $29,910,000 and
$16,855,000 on transactions with affiliates during 1995 and 1994, respectively.
In June 1994, New York Life and Greystone, as co-defendants, settled
litigation brought in connection with the alleged formation of a joint venture
to acquire an office building located in Miami, Florida. Greystone, in its
capacity as Portfolio investment advisor, had represented New York Life in
evaluating this proposed transaction at various times during 1989 and 1990.
While denying plaintiff's allegations, New York Life and Greystone determined to
limit potential financial exposure and further
F-46
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 7 -- RELATED PARTY TRANSACTIONS (CONTINUED)
costs of protracted legal proceedings by settling this suit. The full and final
settlement amount of $5,000,000 and legal expenses of $369,000 were paid by New
York Life and subsequently charged to Greystone. At December 31, 1995, Greystone
and New York Life have adopted a plan of liquidation of the intercompany account
related to this charge. In December, Greystone paid an installment of
$1,279,000; installments of $250,000 will be made in subsequent years until the
balance of the account is liquidated. Such liability is non-interest bearing.
During 1995, NYLIFE Funding sold fourteen mortgage loans and one foreclosed
property with a total statement value of $119,314,000 to New York Life and
received a capital infusion of $115,000,000 from New York Life through NYLIFE.
The cash received in these two transactions was used to repay the principal and
interest obligations on the 9.25% Guaranteed Notes. In December 1994, NYLIFE
Funding transferred a $6,660,000 mortgage loan to New York Life in exchange for
a participating interest in a loan with the same statement value. No gain or
loss was recorded on this transfer.
In August 1994, NYLIFE Funding refinanced a $19,690,000 third party mortgage
loan by replacing it with a NYLIFE Funding loan for $4,930,000 and a New York
Life loan for $14,760,000.
NOTE 8 -- FOREIGN OPERATIONS
NYLIFE subsidiaries conduct insurance and investment management operations
in the United Kingdom, Argentina, Bermuda, Hong Kong, Japan, Korea, Indonesia
and Mexico. The assets and liabilities of these foreign operations at December
31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARIES: 1995 1994
- - --------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Assets............................................................... $ 90,614 $ 127,782
Liabilities.......................................................... $ 70,326 $ 115,332
</TABLE>
NON-CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets...................................... $3,261,163 $1,567,569
Liabilities................................. $3,178,398 $1,517,562
</TABLE>
The sale of the majority of UK operations in 1994 (Note 3) primarily
contributed to the change in the consolidated subsidiary figures.
The cumulative translation adjustment for 1995 is $1,123,000.
NOTE 9 -- INCOME TAXES
NYLIFE and its subsidiaries are members of an affiliated group which joins
in the filing of a consolidated federal income tax return with New York Life.
The consolidated income tax provision or benefit is allocated among the members
of the group in accordance with a tax allocation agreement. The tax allocation
agreement provides that each member of the group is allocated its share of the
consolidated tax provision or benefit determined generally on a separate return
basis, but may, where applicable, recognize the tax benefits of net operating
losses or capital losses utilizable in the consolidated group. Estimated
payments for taxes are made between the members of the consolidated group during
the year. State, local, and foreign tax returns are filed separately.
The income tax receivable included $5,141,000 and $7,586,000 due from New
York Life as of December 31, 1995 and 1994, respectively pursuant to the tax
allocation agreement.
F-47
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 9 -- INCOME TAXES (CONTINUED)
The net deferred tax asset (liability) as of December 31, 1995 and 1994,
respectively is attributable to the following temporary differences (in
thousands):
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
DEFERRED TAX ASSET:
Non-deductible reserves............................................ $ 71,022 $ 25,431
Net operating losses............................................... 6,244 3,935
Deferred compensation.............................................. 13,483 11,598
Impairments........................................................ 5,787 3,734
Investments in affiliates and partnerships......................... 410 632
Leasehold improvements............................................. 1,935 1,350
Deferred rent...................................................... 2,943 2,257
Depreciation....................................................... 1,046 1,354
Unrealized investment losses....................................... -- 591
Other.............................................................. 1,519 803
----------- ----------
Gross deferred tax asset......................................... $ 104,389 $ 51,685
----------- ----------
----------- ----------
DEFERRED TAX LIABILITY:
Deferred distribution costs........................................ $ (60,919) $ (53,115)
Unrealized appreciation of subsidiary.............................. (1,713) --
Investments in affiliates and partnerships......................... (6,736) (5,339)
Depreciation....................................................... (1,363) (1,804)
Unrealized net appreciation........................................ (7,780) (7,380)
Software development costs......................................... (322) (1,336)
Unrealized investment gains........................................ (882) --
Other.............................................................. (615) (1,114)
----------- ----------
Gross deferred tax (liability)................................... (80,330) (70,088)
Valuation allowance................................................ (6,236) (3,935)
----------- ----------
Net deferred tax asset (liability)............................... $ 17,823 $ (22,338)
----------- ----------
----------- ----------
</TABLE>
The December 31, 1995 and 1994 valuation allowance principally relates to
foreign net operating losses, the utilization of which is subject to limitations
in the United Kingdom, and net operating loss limitations.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
LEASES:
The subsidiaries lease office space, a telephone system, and certain
computer and office equipment under agreements with various expiration dates.
The leases contain provisions for payment of real estate taxes, building
maintenance, electricity, and other escalations. Effective January 1, 1990, a
subsidiary of Worldwide entered into a $10,282,000 capital lease expiring in
2002 on its head office development in the United Kingdom.
F-48
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 10 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under capital and noncancelable operating
leases with original or remaining lease terms in excess of one year at December
31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL
LEASES OPERATING LEASES
------------- ----------------
<S> <C> <C>
1996........................................................ $ 757 $ 24,347
1997........................................................ 680 25,233
1998........................................................ 1,077 24,768
1999........................................................ 1,077 24,272
2000........................................................ 1,077 22,111
2001 & thereafter........................................... 2,549 93,149
------------- ----------------
Total....................................................... 7,217 213,880
------------- ----------------
Less amount representing interest........................... 3 --
future sublease rental receipts........................... -- 3,785
------------- ----------------
Present value of future minimum lease payments.............. 7,214 --
------------- ----------------
Less amount due in one year................................. 757 --
------------- ----------------
Total....................................................... $ 6,457 $ 210,095
------------- ----------------
------------- ----------------
</TABLE>
Assets recorded under capital leases and the related accumulated
depreciation are listed below. Amortization of these assets is included in
depreciation and amortization expense (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Assets recorded under leases..................................... $ 12,871 $ 13,261
Accumulated depreciation......................................... (2,794) (3,218)
--------- ---------
Total............................................................ $ 10,077 $ 10,043
--------- ---------
--------- ---------
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
approximately $32,848,000, $28,315,000 and $16,405,000, respectively.
Windsor Construction Company Limited, a wholly owned subsidiary of NYLUK,
entered into two contracts with Balfour Beatty Limited on January 11, 1994, for
the construction of phases II and III of NYLUK's head office development in the
United Kingdom amounting to $3,945,000 for Phase II and $4,190,000 for Phase
III. The contract for Phase II must begin by January 8, 1997, and the contract
for Phase III must begin by December 31, 1999.
LIQUIDATION OF LIMITED PARTNERSHIP:
In December of 1995, NYLIFE Inc. announced a plan to evaluate the economics
of continuing the operation of its New York Life Oil and Gas Producing
Partnership Programs, its NYLIFE Realty Income Partnership Programs, and its
NYLIFE Government Mortgage Plus Limited Partnership Programs. In early 1996,
class action lawsuits were filed against New York Life, NYLIFE, Inc. and several
of its subsidiaries by various investors in the partnership programs seeking
damages for alleged fraudulent activities in connection with the marketing and
sale of interests in the partnership programs and in the subsequent operation
thereof.
On March 19, 1996, New York Life, NYLIFE Inc., and certain other affiliated
and unaffiliated entities, entered into a Stipulation of Settlement of the class
action lawsuit. The settlement is subject
F-49
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 10 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
to final court approval and certain other conditions. In 1995, NYLIFE Inc.
recorded a provision of $137,000,000 to reflect the estimated costs of
discontinuing the proprietary partnership operations and settling certain claims
in connection therewith, including settlement of the class action lawsuit.
NYLIFE Inc. has agreed to indemnify its subsidiaries and certain other
unaffiliated entities named in the class action lawsuit. Accordingly NYLIFE Inc.
will fund any settlement payments to the partnership program investors.
OFFICE OF PERSONNEL MANAGEMENT:
Sanus, through its subsidiaries, contracts with the Office of Personnel
Management ("OPM") to provide or arrange health services under the Federal
Employees Health Benefits Program ("FEHBP") for federal employees, annuitants
and their dependents. These contracts with OPM and applicable government
regulations establish premium rating requirements for the FEHBP. OPM conducts
periodic audits of its contractors to, among other things, verify that the
premiums charged under the OPM contracts were established in compliance with the
community rating and other requirements under the FEHBP. OPM auditors concluded
periodic audits in 1995 and 1994 of two of Sanus' subsidiaries and released
final audit reports alleging certain defects in that subsidiary's rating
practices under applicable regulatory and contractual requirements. The OPM
Audit Resolution Division is responsible for resolving the audit findings. As
part of the resolution process, the Audit Resolution Division may reconsider the
findings of the auditors and the information provided by the subsidiaries.
At this time, management and legal counsel are unable to determine the
amounts that may be required to be refunded to OPM to resolve the audit
findings. Management currently believes, however, that after application of
established reserves, amounts ultimately required to be refunded to OPM will not
have a material adverse effect on the financial condition of Sanus. In addition,
management does not believe that the audit will have a material effect on future
relations with OPM.
CREDIT AGREEMENTS:
Effective May 31, 1995, ESI negotiated an amendment to extend its existing
unsecured line of credit of $25,000,000 for another year. This amendment expires
May 29, 1996. On November 1, 1995, ESI negotiated a second $25,000,000 revolving
loan agreement with another bank, expiring on October 31, 1996. Terms of both
lines are as follows: interest is charged on the principal amount outstanding at
a rate equal to any of the following options which ESI, at its option shall
select: (1) the bank's "prime rate", (ii) a floating rate equal to the bank's
cost of funds rate plus 50 basis points, or (iii) a fixed rate for periods of
30, 60, 90 or 180 days equal to the LIBOR rate plus 50 basis points. Fees under
these agreements on any unused portion are charged at ten hundredths of one
percent per year. At December 31, 1995, ESI had no outstanding borrowings under
these agreements.
REINSURANCE:
Certain subsidiaries enter into reinsurance agreements in the normal course
of their insurance business. Reinsurance on certain individual lives is ceded to
reduce the risk on any one life. Additionally, Sanus maintains reinsurance under
which it is insured for eligible hospital expenses incurred for each member
which exceed a specified dollar amount during a year. These subsidiaries remain
liable for the reinsurance ceded, if the reinsurer fails to meet its
obligations. Premiums ceded by these subsidiaries for the years ended December
31, 1995, 1994 and 1993 in connection with reinsurance agreements totaled
$3,201,000, $75,971,000 and $34,244,000, respectively. Benefit reserves have
been reduced for reinsurance at December 31, 1995 and 1994 by $649,000 and
$499,000, respectively.
F-50
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 10 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
NYLUK assumed credit life and mortgage life risk business from third
parties. Premiums assumed and the commissions incurred in connection with these
reinsurance agreements for the year ended December 31, 1994 amounted to
$58,758,000 and $48,419,000, respectively, and for the year ended December 31,
1993 amounted to $29,017,000 and $26,971,000, respectively.
INTEGRATION COSTS:
During 1995, Sanus recorded a pretax charge of $10,000,000 relating to
expenses incurred for the integration of Sanus' operations and certain of New
York Life's group operations. Such costs related primarily to consulting, public
relations and relocation charges. A remaining liability of $5,000,000 is
included in accounts payable and accrued expenses as of December 31, 1995 and
the related charge was included in selling, administrative and other costs for
1995.
OTHER:
During 1990, NYLIFE entered into an agreement to provide a guarantee for the
benefit of the shareholders of the MainStay Equity Index Fund. The guarantee
provides that if, in ten years from the date of purchase, the net asset value is
less than the original offering price, then NYLIFE will reimburse the
shareholders for their loss of principal and restore the net asset value to the
original offering price.
The Company is also a defendant in other individual and alleged class
actions arising from its operations. Most of these actions also seek substantial
or unspecified compensatory and punitive damages. The Company is also from time
to time involved as a party in various governmental, administrative and
investigative proceedings and inquiries. Given the uncertain nature of
litigation and regulatory inquiries, the outcome of the above and other actions
pending against the Company cannot be predicted. The Company nevertheless
believes that the ultimate outcome of all pending litigation should not have a
material adverse effect on the Company's financial position; however, it is
possible that settlements or adverse determinations in one or more actions or
other proceedings in the future could have a material adverse effect on the
Company's operating results for a given year.
Additionally, certain subsidiaries are subject to minimum net worth
restrictions pursuant to regulatory requirements and the terms of limited
partnership and debt agreements. At December 31, 1995 and 1994, the net worth of
these subsidiaries exceeded the related requirements.
From January 1, 1995 through November 30, 1995, approximately 70% of ESI's
pharmaceutical purchases were through one wholesaler. As of December 1, 1995,
ESI has entered into a new primary wholesale relationship with another supplier.
ESI anticipates that it will purchase a similar percentage of its
pharmaceuticals from the new supplier. ESI believes that other alternative
sources of pharmaceuticals are readily available.
NOTE 11 -- EMPLOYEE BENEFIT PLANS
LONG TERM PERFORMANCE PLAN:
MacKay-Shields adopted a Long-Term Performance Plan ("the Plan") in 1988
pursuant to which key professionals earn an annual performance award or, at such
time MacKay-Shields attains specified goals set forth in the Plan, the
participants may elect to receive 20% of the market value of MacKay-Shields. At
December 31,1994, MacKay-Shields achieved the specified goals set forth in the
Plan and pursuant to Plan provisions, the participants elected to receive an
amount equal to 20% of the fair market value of MacKay-Shields. Based on an
independent valuation, such amount was determined to be $21,000,000 which was
recorded as a liability at December 31, 1994. In accordance with the provisions
of the plan, participants are also entitled to income on the unpaid amount of
their
F-51
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 11 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
award. Interest expense and the related amount payable to participants have been
accrued as of December 31, 1995. Approximately $16,600,000 of the obligation
plus income related to this amount will be paid to the participants in three
annual installments commencing in 1996. The remaining amount of the obligation
will be paid in the years 1998 through 2000. For certain individuals, a portion
of this amount may be adjusted based upon the investment performance of certain
registered investment companies managed by MacKay-Shields.
OTHER:
Certain subsidiaries sponsor defined contribution retirement, 401(k) and
profit sharing plans for employees. Contributions to these plans during 1995,
1994 and 1993 totalled $1,794,000, $548,000 and $459,000, respectively.
NOTE 12 -- SUBSEQUENT EVENTS
On January 1, 1996 New York Life combined the majority of its Group
Department operations with those of Sanus and contributed its wholly-owned
subsidiary, New York Life and Health Insurance Company ("NYLHIC"), to Sanus.
NYLHIC, as of that date, had a tangible net worth of approximately $69,000,000.
Effective on that date, the combined company began operations under the name
NYLCare Health Plans, Inc., which continues to be a wholly-owned subsidiary of
the company.
Effective January 1, 1996, ESI and its wholly owned subsidiary ESI Canada,
acquired certain assets, software licenses and the claims processing business of
Eclipse Claims Services, Inc. ("Eclipse") for $1,015,000. Eclipse was a
processor of Canadian pharmacy claims and was owned by The Manufacturers Life
Insurance Company, the Prudential Insurance Company of America Canadian
Operations ("Prudential"), Aetna Life Insurance Company of Canada ("Aetna"), and
Metropolitan Life Insurance Company. The acquisition has been accounted for
under the purchase method of accounting. The purchase price has been allocated
to the assets acquired, based on their estimated fair values at the date of
acquisition. Effective January 1, 1996, and in connection with the acquisition
of certain assets and software licenses of Eclipse described above, ESI Canada
signed an agreement with each of Aetna and Prudential pursuant to which ESI
Canada will provide electronic drug claim processing and other pharmacy benefit
management services in Canada for a period of five years. In addition, ESI,
Canada is providing services to Crown Life Insurance Company, and is negotiating
a formal contract.
On January 2, 1996, NYLIFE paid $7,076,000 to purchase the shares owned by a
remaining Founder of the Company, in accordance with his Termination, Severance
and Stock Buyback agreement. Subsequent to this purchase, NYLIFE owned 100% of
HealthCare.
On February 13, 1996, The New York Life Irrevocable Trust of 1996, (the
"Trust") was created to hold the stock of New York Life Settlement Corporation
("NYLSET"). NYLIFE, as Grantor of the Trust, transferred its 100% ownership of
NYLSET to the Trust, making NYLIFE the beneficiary. The Trust has three
trustees, two of whom are independent parties. The trustees are prohibited from
voting in favor of any amendment to the certificate of incorporation of NYLSET
or permitting NYLSET to incur any debt other than Structured Settlement
obligations created by qualified assignments, sell, transfer, or otherwise
dispose of any assets, merge or consolidate with any other entity or change its
corporate purpose.
F-52
<PAGE>
NYLIFE INC. AND SUBSIDIARIES
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 12 -- SUBSEQUENT EVENTS (CONTINUED)
In December 1995, the Aegis' Board of Directors approved a plan to close the
business and dissolve Aegis in the event a suitable buyer could not be found. On
March 5, 1996, the decision to dissolve Aegis and its subsidiary, Personal
Financial Assistant Financial Centers was announced. Dissolution costs of
approximately $4,437,000 have been accrued in 1995.
In March 1996, Express Scripts filed a Form S-3 registration statement for
an offering of 1,000,000 (1,150,000 if the underwriters' over allotment option
is exercised) shares of its Class A Common Stock. The proceeds from this
offering will be used for general corporate purposes. NYLIFE HealthCare will
offer for sale 2,600,000 (2,990,000 if the underwriters' over allotment option
is exercised) shares of Class A Common Stock upon conversion from Class B Common
Stock owned by NYLIFE HealthCare.
On February 15, 1996, SAMCO distributed $4,033,000 to the series A, B, and C
holders, which included interest, quarterly principal repayment and additional
principal repayment.
NAFCO continues to borrow under the credit agreement with Barclays Bank PLC.
As of April 11, 1996, $15,000,000 is outstanding pursuant to the Credit
Agreement.
NAFCO continues to borrow under the Master Note agreement with New York
Life. As of April 11, 1996, $50,474,000 is outstanding pursuant to the Master
Note Agreement.
As of April 11, 1996, NYLIFE has received $30,076,000 of cash contributions
from New York Life.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
Pursuant to the S-3 registration statement filed in March 1996, Express
Scripts sold 1,000,000 and 150,000 shares of its Class A Common Stock on April
16, 1996 and April 23, 1996, respectively for a total of $53,268,000 (net of
underwriting and commission costs). NYLIFE HealthCare recognized a gain before
taxes of approximately $16,000,000. In addition, NYLIFE HealthCare sold
2,600,000 and 390,000 shares of Class A Common Stock of its previously owned
Express Scripts stock on April 16, 1996 and April 23, 1996, respectively for a
total of $138,497,000 (net of underwriting and commission costs). As a result of
the sale of its shares, NYLIFE HealthCare Management decreased its ownership of
Express Scripts from 70% to 46% and its voting stock from 96% to 90%. The sale
of shares by NYLIFE HealthCare resulted in a realized gain before taxes of
approximately $131,000,000 and a reduction in the statutory valuation account,
reflected in Stockholder's Equity, approximately $110,000,000.
F-53
<PAGE>
APPENDIX A
NUMERICAL EXAMPLES OF ALTERNATIVE PAYMENTS IF SETTLEMENT IS APPROVED
(AS OF MARCH 31, 1996)
The following schedule sets forth estimates, based on information available
to the General Partner, of the payments that a Unitholder who is the original
purchased $10,000 worth of Units in August 1989 could expect to receive under
each of the four alternatives listed under "The Proposal and Considerations With
Respect to the Proposal -- Summary of Potential Payments to Unitholders If the
Settlement Is Approved" as of March 31, 1996, before giving effect to first
quarter distributions which occurred on May 15, 1996. This Unitholder is
referred to in this appendix as "UH." See that section for a more detailed
description of each of the alternatives. The estimated payments set forth in
this schedule are based upon numerous assumptions. Unitholders are urged to
review the assumptions set forth below.
The estimates are based on the pro forma liquidation balance sheet of the
Partnership dated as of March 31, 1996 and the assumptions stated therein, as
well as the additional assumptions set forth below. While the General Partner
believes that these assumptions are reasonable, the assumptions are inherently
uncertain and unpredictable. In addition, the actual Cash Payment received by a
Settling Unitholder will differ from these estimates as a result of
distributions made by the Partnership after March 31, 1996 (including the May
15, 1996 quarterly distribution), revenues earned and expenses incurred by the
Partnership after March 31, 1996, and loan principal payments and may also be
affected by other factors. The actual Cash Payment received by a Settling
Unitholder will also depend upon the amount paid for the Units and prior
distributions received by the Settling Unitholder as of the Final Settlement
Date.
ASSUMPTIONS:
1) UH is assumed to be an original purchaser of 1,000 Units which he,
she or it purchased for $10 per Unit, or a total of $10,000, and has
continuously held such Units since their purchase.
2) Partnership activity after March 31, 1996 is not reflected in this
schedule. The Partnership paid a quarterly distribution of $1,658.64 per
$10,000 worth of Units on May 15, 1996.
3) The Loan Balance is calculated based on the aggregate unpaid
principal value as of December 31, 1995, less any payments of principal
between December 31, 1995 and March 31, 1996, of all mortgages and loans
held by the Partnership, adjusted to March 31, 1996 to account for the
disposition of the assets from between December 31, 1995 and March 31, 1996.
4) The Liquidating Distribution is calculated based on the pro forma
liquidation balance sheet as of March 31, 1996 and the assumptions set forth
therein, and has not been adjusted to reflect the quarterly distribution of
$1,658.64 per $10,000 worth of Units paid on May 15, 1996. The amounts which
Settling Unitholders could anticipate receiving pursuant to the Settlement,
as indicated on the Eligibility Statement previously distributed to
Unitholders with the Preliminary Consent Solicitation Statement, were
calculated based upon the Partnership's financial statements as of December
31, 1995 and distributions to Unitholders through March 29, 1996.
Nevertheless, the General Partner's estimates of the aggregate amount which
each Settling Unitholder will receive pursuant to the terms of the
Settlement has not been adjusted.
5) Although the estimated Liquidation Advances include UH's share of
the Partnership's Distributable Working Capital as of March 31, 1996, the
actual Liquidation Advance will differ because Distributable Working Capital
will be (a) adjusted by revenues earned and expenses incurred after March
31, 1996 and (b) reduced by distributions made to Unitholders after March
31, 1996, including the quarterly distribution paid on May 15, 1996.
A-1
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
ACTION TAKEN UNITHOLDER'S
REGARDING PROPOSAL CLASS ACTION STATUS PAYMENTS TO BE RECEIVED
- - ------------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Proposal Approved Settling Unitholder (i) Liquidation Advance of $3,819.35 plus
(ii) Enhancement of $200 plus (iii) Excess of
Liquidating Distribution over Liquidation
Advance of $0. Total: $4,019.35
Proposal Approved Non-Settling Unitholder Liquidating Distribution of $3,819.35
Proposal Not Approved Settling Unitholder Distributions as provided under the
Partnership Agreement plus at the New York
Life Defendants' option, the Enhancement of
$200
Proposal Not Approved Non-Settling Unitholder Distributions as provided under the
Partnership Agreement
</TABLE>
A-2
<PAGE>
[APPENDIX]
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
CONSENT FORM
THIS CONSENT IS SOLICITED ON BEHALF OF NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP BY ITS GENERAL PARTNER, NYLIFE REALTY INC. THIS SOLICITATION
OF CONSENTS EXPIRES ON JULY 1, 1996 UNLESS EXTENDED OR TERMINATED EARLIER.
The Units represented by this Consent, when properly executed, will be
recorded as directed by the Unitholder. IF NO DIRECTION IS GIVEN, UNITS WILL BE
COUNTED AS GIVING CONSENT TO THE PROPOSAL (AS DEFINED BELOW). However, a Consent
returned by a broker or nominee on which such person expressly indicates lack of
discretionary authority to CONSENT to the Proposal will be treated as being
AGAINST the Proposal. Please note that an abstention will be counted as being
AGAINST the Proposal.
The undersigned, acting with regard to all Units of depositary receipts held
in NYLIFE Government Mortgage Plus Limited Partnership (the "Partnership") with
respect to which the undersigned is entitled to give his, her or its consent on
the Record Date, hereby consents, denies consent or abstains from consenting,
all as indicated on the reverse side hereof, to approve the proposal (the
"Proposal") to dissolve, terminate and wind up the Partnership as described in
the Definitive Solicitation Statement dated May , 1996, receipt of which,
together with all amendments and supplements thereto, if any, is hereby
acknowledged. Delivery of this Consent, when properly executed, will revoke any
consent, failure to consent or abstention heretofore given with respect to such
Units.
(Please Date and Sign on Reverse Side)
<PAGE>
CONSENT FORM
(Side 2)
<TABLE>
<S> <C>
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
</TABLE>
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER MAKES NO
RECOMMENDATION TO THE UNITHOLDERS AS TO THE PROPOSAL
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
CONSENT AGAINST ABSTAIN
1. TO APPROVE THE DISSOLUTION,
TERMINATION AND WINDING UP OF THE PARTNERSHIP / / / / / /
(check one box).
</TABLE>
<TABLE>
<S> <C>
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMTPLY USING
THE ENCLOSED PRE-PAID ENVELOPE OR DELIVER TO: NYLIFE Realty
Inc., c/o New York Life Limited Partnership Class Action
Administrator, P.O. Box 9224, Boston, Massachusetts 02205-8622
if sent by United States mail, or New York Life Limited
Partnership Class Action Administrator, c/o Boston Financial
Data Services, Inc., 1250 Hancock Street, Quincy, Massachusetts
02169 if sent by hand delivery or delivery service. If you have
any questions, please call 1-800-278-4117. Facsimile copies of
the Consent Form, properly completed and duly executed, will be
accepted at 1-617-774-5623.
YOU MAY REVOKE THIS CONSENT AT ANY TIME PRIOR TO THE EARLIER OF
THE APPROVAL DATE (AS DEFINED IN THE DEFINITIVE SOLICITATION
STATEMENT) OR THE EXPIRATION DATE (AS DEFINED IN THE DEFINITIVE
SOLICITATION STATEMENT).
</TABLE>
<TABLE>
<S> <C> <C>
Please be sure to sign and
date this Consent. Date
Please sign exactly as your name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in corporate name by
President or other authorized officer. If a partnership, please
sign in partnership name by authorized person.
Unitholder sign here Co-owner sign here
</TABLE>
DETACH FORM
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1. Letter to Investors from President.
</TABLE>
<PAGE>
EXHIBIT 1
COVER LETTER TO ACCOMPANY DEFINITIVE PROXY OR
CONSENT SOLICITATION STATEMENT FOR INVESTORS
Dear Investor:
Enclosed please find a copy of the Definitive Consent or Proxy Solicitation
Statements (the "Statements") for each of the proprietary limited partnerships
(NYLOG I, II and III, NYLIFE Energy Investors, NYLIFE Realty Income Partners,
NYLIFE Government Mortgage Plus) in which you are the owner as of the Record
Date (May 14, 1996). IT IS IMPORTANT THAT YOU READ CAREFULLY EACH OF THE
ENCLOSED STATEMENTS IN ITS ENTIRETY AND PROMPTLY RETURN THE ENCLOSED CONSENT OR
PROXY FORMS. The enclosed statements supersede the Preliminary Consent or Proxy
Solicitation Statements sent to you at the end of March. Those Statements were
accompanied by a Notice of a Proposed Settlement of a Class Action in relation
to these Partnerships.
Each of these limited partnerships is soliciting your consent or vote to
dissolve, wind up, liquidate and terminate the respective partnerships, and with
respect to NYLOG I partnerships to approve certain amendments to the partnership
agreements in connection with such liquidation. The proposals are set forth in
greater detail in the Statements. In order for the class members to receive the
full monetary benefits of the class action settlement, approval of the proposals
is necessary.
Also enclosed is a consent or proxy form for each partnership in which you own
units. Liquidation of each partnership requires the approval by the requisite
vote of limited partners of record on the Record Date, as more fully described
in the Statements. REGARDLESS OF THE NUMBER OF UNITS HELD, IT IS IMPORTANT THAT
YOU VOTE YOUR UNITS BY SIGNING, DATING AND MAILING THE ENCLOSED CONSENT OR PROXY
FORM(S) PROMPTLY IN THE ENCLOSED ENVELOPES. TO ENSURE THAT YOUR VOTE IS COUNTED,
YOUR CONSENT OR PROXY FORM(S) MUST BE RECEIVED NO LATER THAN JULY 1, 1996. IN
ADDITION, IF YOU OWN UNITS IN MORE THAN ONE PARTNERSHIP, YOU WILL NEED TO SIGN,
DATE AND MAIL A WRITTEN CONSENT OR PROXY FOR EACH LIMITED PARTNERSHIP IN WHICH
YOU HOLD UNITS.
If you have questions, please call the toll-free number at 1-800-278-4117.
Sincerely,
/s/ KEVIN M. MICUCCI
Kevin M. Micucci
President
