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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. 1)
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / 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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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:
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2) Form, Schedule or Registration Statement No.:
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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
May , 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 card 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 card promptly.
Sincerely,
NYLIFE REALTY INC.,
GENERAL PARTNER
May , 1996
YOUR VOTE IS IMPORTANT, PLEASE SIGN AND RETURN THE ENCLOSED
CONSENT CARD PROMPTLY IN THE ENCLOSED ENVELOPE
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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 May , 1996. This Definitive Solicitation
Statement modifies and supersedes the Preliminary Solicitation Statement for the
Partnership dated March 29, 1996. Only Unitholders of record at the close of
business on May 14, 1996 (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 June 25, 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 cards
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 card 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 , 1996.
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TABLE OF CONTENTS
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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......................................................... 5
The Lawsuit.............................................................................. 5
Denial of Claims......................................................................... 5
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........................................ 12
Consent of Unitholders to the Proposal..................................................... 13
Effect on Partnership and Unitholders If the Proposal Is Not Approved...................... 13
Summary of Potential Payments to Unitholders If Settlement Is Approved..................... 14
No Dissenters' Rights...................................................................... 14
Board Determination........................................................................ 15
Considerations with Respect to the Proposal................................................ 15
Material Advantages and Disadvantages of the Proposal to the Partners...................... 15
Advantages to Unitholders................................................................ 15
Disadvantages to Unitholders............................................................. 16
Advantages to General Partner............................................................ 16
Estimated Financial Effects of Immediate Liquidation Versus Continued Operation of the
Partnership............................................................................... 16
LITIGATION AND PROPOSED SETTLEMENT........................................................... 16
The Lawsuit and the Class Members.......................................................... 16
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Denial of Claims........................................................................... 17
Payment Under the Settlement Agreement to the Unitholders.................................. 18
The Hearing Order and the Settlement Hearing............................................... 18
Potential Termination of the Settlement Agreement.......................................... 18
Potential Termination of the Settlement Agreement with Respect to the Partnership.......... 19
Release.................................................................................... 19
Final Approval and Final Order and Judgment................................................ 19
REGULATORY APPROVALS......................................................................... 19
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP............................................... 20
General.................................................................................... 20
General Partner and Management............................................................. 20
Rights and Powers of Unitholders........................................................... 20
Term and Dissolution of the Partnership.................................................... 21
The Mortgages.............................................................................. 22
Cross Creek.............................................................................. 22
Participating Insured Mortgage......................................................... 22
Participating Guaranteed Loan.......................................................... 23
Participation Payments................................................................. 24
Property Description................................................................... 24
The Highlands............................................................................ 24
Participating Insured Mortgage......................................................... 24
Participating Guaranteed Loan.......................................................... 25
Sale of the Highlands.................................................................. 25
Recent Developments.................................................................... 25
Signature Place.......................................................................... 26
Participating Insured Mortgage......................................................... 26
Participating Guaranteed Loan.......................................................... 27
Participation Payments................................................................. 28
Property Description................................................................... 28
Guarantee of PGLs.......................................................................... 28
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...................................................................... 32
March 31, 1996 Compared to March 31, 1995................................................ 33
1995 Compared to 1994.................................................................... 33
1994 Compared to 1993.................................................................... 33
1993 Compared to 1992.................................................................... 33
FEDERAL INCOME TAX CONSEQUENCES.............................................................. 34
General...................................................................................... 34
Cash Payment................................................................................. 34
Liquidation Advance........................................................................ 34
Refund..................................................................................... 34
Enhancement................................................................................ 34
Special Rules for Tax-Exempt Unitholders................................................... 34
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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......................................................... 36
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
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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"). 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 accordance with the terms of the Partnership
Agreement. The assets of the Partnership will be sold for
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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 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. The first part of this 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 a defined 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 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
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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."
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 June 25, 1996, unless extended by the
General Partner. 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 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
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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" 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 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. Settling Unitholders will, however, 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.
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MATERIAL ADVANTAGES AND DISADVANTAGES OF THE PROPOSAL TO THE PARTNERS
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 Settlement is also approved, a Settling Unitholder who was an
original purchaser will receive the Enhancement in addition to a return of
such Unitholder's total invested capital.
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).
If the Proposal is approved, the General Partner will receive the benefit of
the Release (as defined below).
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.
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."
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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 -- Cash Payments to
Settling Unitholders if the Proposal and Settlement are Approved."
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 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."
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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").
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."
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INTERESTS OF GENERAL PARTNER AND AFFILIATES
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 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, 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" 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." 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. The General Partner
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.
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 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.
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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;
(iii) third, to the General Partner until the positive balance in its
capital account is equal to its invested capital;
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(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 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 when 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 a 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 the Settling
Unitholder. In no event will a Settling Unitholder receive less than
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$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
of claims that is provided under the Settlement. 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 when it was first offered for
sale will receive the Enhancement. Based on current estimates, a Settling
Unitholder who is such an original purchaser of $10,000 worth of Units would
receive a Liquidation Advance of $2,101.38 and an Enhancement of $200.00 as a
Cash Payment. These estimates are based on assumptions the General Partner
believes to be reasonable but which are inherently uncertain and unpredictable.
The assumptions to the estimates may be incomplete and inaccurate and
unanticipated events and circumstances are likely to occur. Furthermore, the
estimated payment does NOT include an estimate of a Settling Unitholder's pro
rata share of the Partnership's Distributable Working Capital. The Liquidation
Advance that a Settling Unitholder would receive would include such an amount.
The estimates of Cash Payments are likely to change between now and the Final
Settlement Date as a result of distributions from the Partnership, loan
principal payments and other factors. The actual Cash Payment received by a
Settling Unitholder also will depend upon the amount paid for the Units and the
distributions received as of the Final Settlement Date.
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.
Notwithstanding the foregoing, if a Settling Unitholder is a defined 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 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.
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 Distribution, 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.
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.
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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.
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 Units outstanding. Therefore, Unitholders holding at least
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 vote 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 card 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
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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.
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, 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.
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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.
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
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. If the Settlement is also
approved, a Setting Unitholder who was an original purchaser will receive the
Enhancement in addition to a return of such Unitholder's total invested capital.
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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" for a summary of the types of payments a Unitholder
might receive under various alternatives in connection with the proposed
Settlement and the Proposal.
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, a
Settling Unitholder will release and discharge the Defendants and certain of
their affiliates, agents and various other persons and entities from, INTER
ALIA, 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
"Litigation and Proposed Settlement -- Release," and the Class Notice that was
previously sent to the Unitholders included in the Class.
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.
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
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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 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.
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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."
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
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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 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 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, INTER ALIA, 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. 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.
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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 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. An audited balance sheet of the General Partner as
of December 31, 1995 is set forth in the Financial Statements attached hereto.
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;
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(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";
(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
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(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").
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
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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
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
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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.
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").
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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, 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
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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.
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
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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.
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.
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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 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
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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."
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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>
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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 as if the liquidation of the
Partnership commenced on March 31, 1996. 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
--------------- ---------------- ---------------
--------------- ---------------- ---------------
</TABLE>
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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.
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. Additionally, management has
assumed the disposition of the Mortgages at par, consequently 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.
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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.
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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
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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 its his, her or 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
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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
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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,
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 [ ] 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 Units) outstanding on the Record Date. A duly executed consent card
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 card 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.
This Definitive Solicitation Statement is accompanied by a separate consent
card. Consent cards should be completed, signed and returned promptly to New
York Life Limited Partnership Class
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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 cards with respect to the Proposal. The consent
solicitation will expire at 5:00 p.m., New York time, on June 25, 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 card 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
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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
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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 Realty Inc........... F-29
Balance Sheets as of December 31, 1995 and 1994 of NYLIFE Realty
Inc............................................................. F-30
Notes to Balance Sheets of NYLIFE Realty Inc..................... F-31
</TABLE>
F-1
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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
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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
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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
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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
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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
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PRELIMINARY COPY
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
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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
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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
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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
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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
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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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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>
PRELIMINARY COPY
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. (96-01189) 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 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 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>
NYLIFE REALTY INC.
REPORT OF INDEPENDENT ACCOUNTANTS AND
BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
REPORT OF INDEPENDENT ACCOUNTANTS
April 3, 1996
To the Board of Directors and Stockholder of
NYLIFE Realty Inc.
In our opinion, the accompanying consolidated statement of financial position
presents fairly, in all material respects, the financial position of NYLIFE
Realty Inc. and its subsidiary at December 31, 1995 and 1994 in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Company's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
in accordance with generally accepted auditing standards which 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 audit provides a reasonable basis
for the opinion expressed above.
As explained in Note 2, the Company has recorded a loss of $8,562,500 related to
an announced plan of liquidation offering unitholders of the Real Estate
Partnership and Mortgage Partnership full repayment of their total investment.
In addition, the financial statements include a capital contribution of
$5,565,625 to reflect the decision of the Company's parent to fund the costs,
net of related tax benefits, associated with the liquidations.
Price Waterhouse LLP
F-29
<PAGE>
NYLIFE REALTY INC. AND SUBSIDIARY
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Current assets
Cash and cash equivalents.................................................... $ 3,441,662 $ 2,981,027
Due from affiliates.......................................................... 39,075 200,336
Interest receivable.......................................................... 1,967 1,407
Federal income taxes receivable.............................................. 34,283 --
--------------- ---------------
Total current assets....................................................... 3,516,987 3,182,770
--------------- ---------------
Deferred taxes............................................................... 36,822 67,588
Investments in limited partnerships.......................................... 84,717 88,870
Fixed assets, net of accumulated depreciation of $997,445 and $950,856 at
December 31, 1995 and 1994, respectively.................................... 108,867 128,874
--------------- ---------------
Total assets............................................................... $ 3,747,393 $ 3,468,102
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued liabilities..................................... $ 143,615 $ 78,826
Federal income taxes payable -- New York Life................................ -- 32,764
Due to affiliate............................................................. 24,697 5,396
Due to New York Life......................................................... 517,497 73,304
--------------- ---------------
Total liabilities.......................................................... 685,809 190,290
--------------- ---------------
Commitments and contingencies (Notes 2 and 8)
Stockholder's equity
Common stock, par value $1.00 per share ($10,000 shares authorized, 1,000
shares issued and outstanding).............................................. 1,000 1,000
Additional paid-in capital................................................... 17,765,625 12,200,000
Accumulated deficit.......................................................... (14,705,041) (8,923,188)
--------------- ---------------
Total stockholder's equity................................................. 3,061,584 3,277,812
--------------- ---------------
Total liabilities and stockholder's equity................................. $ 3,747,393 $ 3,468,102
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-30
<PAGE>
NYLIFE REALTY INC. AND SUBSIDIARY
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND BUSINESS
NYLIFE Realty Inc. ("NYLIFE Realty" or the "Company") is a wholly owned
subsidiary of NYLIFE Inc., which is a wholly owned subsidiary of New York Life
Insurance Company ("New York Life"). NYLIFE Realty was established to act as a
general partner in public and private real estate offerings. Additionally,
NYLIFE Realty is the recipient of certain fees and residual interests for
services rendered in connection with various public programs in which NYLIFE
Securities Inc. ("NYLIFE Securities"), a wholly owned subsidiary of NYLIFE Inc.,
acted as broker-dealer.
NYLIFE Realty and its subsidiary, CNP Realty Investments Inc. ("CNP"), are
co-general partners in a public real estate limited partnership, NYLIFE Realty
Income Partners I, L.P. (the "Real Estate Partnership"). The proceeds of the
offering were invested in commercial and industrial real estate properties in a
series of joint ventures (individually, a "Joint Venture," collectively, the
"Joint Ventures") with New York Life as the co-venturer.
In addition, NYLIFE Realty is the sole general partner of NYLIFE Government
Mortgage Plus Limited Partnership (the "Mortgage Partnership"), a publicly
offered limited partnership which has invested in federally co-insured mortgages
on multi-family residential properties issued in connection with the housing
programs of the United States Department of Housing and Urban Development
("HUD") and Government National Mortgage Association ("GNMA").
The Real Estate Partnership and the Mortgage Partnership are collectively
referred to as "the Partnerships".
2. PLAN OF LIQUIDATION
On April 1, 1996, in connection with the proposed settlement of the lawsuits
described below, New York Life announced that the general partners of the
Partnerships would be soliciting the consents of the Limited Partners for the
dissolution of the Partnerships. The costs of such liquidation and the
resolution of certain claims (including those relating to the lawsuit described
below) are to be allocated to the Company, as general partner of the
Partnerships. However, the Company's parent, NYLIFE Inc., has agreed to fund the
liability associated with the liquidation and the resolution of the claims.
In accounting for the plan of partnership liquidation and the resolution of
the claims, a loss of $8,562,500 and related tax benefit of $2,996,875 was
recognized by the Company. In recognition of the decision by the Company's
parent to fund the liability associated with the liquidation and the resolution
of the claims, $5,565,625, the amount of loss net of tax, was recorded as a
constructive capital contribution to the Company. The resulting payable and
deferred tax asset in connection with the plan of liquidation were recorded by
NYLIFE Inc.
The amounts recorded represent management's best estimate of the total costs
associated with the plan of liquidation and the resolution of the claims.
Two class action lawsuits were filed against the co-general partners and
certain other affiliates of the General Partners 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). The 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. The suits allege misconduct in connection with the
original sale of investment units in various partnerships, including violation
of various federal and state laws and regulations and claims of continuing
fraudulent conduct. In the federal action, the plaintiffs added the Company as a
defendant and included allegations concerning the Partnerships. The plaintiffs
have asked for compensatory
F-31
<PAGE>
NYLIFE REALTY INC. AND SUBSIDIARY
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO STATEMENT OF FINANCIAL POSITION
2. PLAN OF LIQUIDATION (CONTINUED)
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. All of the
partnerships that are the subject of the lawsuit will be collectively referred
to as the "Proprietary Partnerships."
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 certain of the Proprietary Partnerships,
including the Real Estate 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.
Under the terms of the Settlement Agreement, settling limited partners will
receive an amount that, together with distributions received prior to the final
settlement date, will, at least, equal their original investment in the
partnership, in exchange for a release of any and all claims.
Notice of the Settlement Agreement was given to class members pursuant to an
order entered by the Court on March 19, 1996. The Settlement Agreement is
conditioned upon final approval by the Court as well as certain other conditions
and is subject to certain rights of termination detailed in the notice sent to
class members.
If the necessary consents of limited partners 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.
3. SIGNIFICANT ACCOUNTING POLICIES
The preparation of a statement of financial position 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 date of the statement of
financial position and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain reclassifications to the 1994 balances and presentation have been
made in order to conform with the 1995 presentation.
CONSOLIDATION AND FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of NYLIFE Realty
and CNP. Intercompany transactions between NYLIFE Realty and CNP have been
eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents are short-terms, 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.
F-32
<PAGE>
NYLIFE REALTY INC. AND SUBSIDIARY
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO STATEMENT OF FINANCIAL POSITION
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN LIMITED PARTNERSHIPS
NYLIFE Realty accounts for its investment in the Real Estate Partnership and
the Mortgage Partnership (collectively, the "Partnerships") under the equity
method of accounting. Under this method, NYLIFE Realty's share of the
Partnerships' net earnings or losses is included in NYLIFE Realty's net earnings
currently.
FIXED ASSETS
Computer equipment and furniture and fixtures are recorded at cost and
depreciated using the straight line method over an estimated useful life of five
years.
ASSET MANAGEMENT FEE
For services rendered in managing the business of the Mortgage Partnership,
NYLIFE Realty, as general partner, receives on a quarterly basis an asset
management fee equal to .5% per annum of the value of the total invested assets
of the Mortgage Partnership, or such lesser amount necessary to ensure that the
aggregate of the asset management fee paid since the organization of the
Mortgage Partnership and the aggregate distributions paid to NYLIFE Realty shall
not exceed 10% of the aggregate distributable cash flow of the Mortgage
Partnership. NYLIFE Realty may subcontract all or a portion of the asset
management services rendered as discussed in Note 7, "Related Parties."
GENERAL AND ADMINISTRATIVE EXPENSES
NYLIFE Realty is entitled to certain reimbursements by the Real Estate
Partnership and the Mortgage Partnership for the actual cost to NYLIFE Realty of
goods and materials used for and by the Real Estate Partnership, the Mortgage
Partnership or any Joint Ventures, which are obtained from unaffiliated parties
and for any adminstrative services provided to the Partnerships by NYLIFE
Realty. During 1995, NYLIFE Realty received reimbursements of $100,000 from each
of the Partnerships. NYLIFE Realty incurred $63,933 and $228,026 of general and
administrative expenses in excess of such reimbursements relating to the Real
Estate and Mortgage Partnerships, respectively, for the years ended December 31,
1995 and 1994, respectively.
Since the inception of the Real Estate Partnership and the Mortgage
Partnership, NYLIFE Realty has incurred general and administrative expenses in
excess of reimbursements from these Partnerships of $898,211 and $2,224,872,
respectively.
REVENUES AND EXPENSES
Revenue and expenses are recognized when earned or incurred under the
accrual basis of accounting.
INCOME TAXES
Current income taxes are provided on taxable earnings at the appropriate
statutory rate applicable to such earnings. Deferred income taxes are provided
for the temporary difference between the financial reporting and tax basis of
assets and liabilities.
4. INCOME TAXES
The Company is a member 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. Although not
specifically provided for in the tax allocation agreement, the Company has in
effect
F-33
<PAGE>
NYLIFE REALTY INC. AND SUBSIDIARY
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO STATEMENT OF FINANCIAL POSITION
4. INCOME TAXES (CONTINUED)
received a current tax benefit arising in connection with the loss on
partnership liquidation and related constructive capital contribution. See Note
2. Estimated payments for taxes are made between members of the consolidated
group during the year.
Deferred tax assets (liabilities) as of December 31, 1995 and 1994 are
attributable to the following temporary differences:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets
Investment in limited partnership and joint ventures........................... $ 42,397 $ 66,293
Fixed assets, net.............................................................. -- 1,295
--------- ---------
Gross deferred tax asset....................................................... 42,397 67,588
--------- ---------
Deferred tax (liability)
Fixed asset, net............................................................... (5,575) --
--------- ---------
Gross deferred tax (liability)................................................. (5,575) --
--------- ---------
Net deferred tax asset........................................................... $ 36,822 $ 67,588
--------- ---------
--------- ---------
</TABLE>
The Company's management has concluded that the deferred tax assets are more
likely than not to be realized. Therefore, no valuation allowance has been
provided.
5. INVESTMENT IN LIMITED PARTNERSHIPS
Investments in limited partnerships are comprised of the following:
<TABLE>
<CAPTION>
SHARE OF NET
EARNINGS
NET INVESTMENT NET INVESTMENT FOR THE YEARS
AT 12/31/95 AT 12/31/94 1995 AND 1994
-------------- -------------- -----------------
<S> <C> <C> <C>
Real Estate Partnership................................. $ 25,881 $ 30,588 1%
Mortgage Partnership.................................... 57,313 56,596 2%
Other................................................... 1,523 1,686 --
-------------- --------------
Total............................................... $ 84,717 $ 88,870
-------------- --------------
-------------- --------------
</TABLE>
NYLIFE Realty's investment in other limited partnerships represents less
than a one percent interest in such partnerships.
6. FIXED ASSETS
NYLIFE Realty jointly owns computer equipment and furniture and fixtures
with NYLIFE Equity Inc. and NAFCO Inc., both of which are affiliates. As of
December 31, 1995 and 1994, the recorded net book values of the computer
equipment and furniture and fixtures as allocated to NYLIFE Realty were as
follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Computer equipment, cost.................................................. $ 886,848 $ 860,266
Furniture and fixtures, cost.............................................. 219,464 219,464
------------- -------------
1,106,312 1,079,730
------------- -------------
Accumulated depreciation.................................................. 997,445 950,856
------------- -------------
Net book value........................................................ $ 108,867 $ 128,874
------------- -------------
------------- -------------
</TABLE>
F-34
<PAGE>
NYLIFE REALTY INC. AND SUBSIDIARY
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO STATEMENT OF FINANCIAL POSITION
7. RELATED PARTIES
NYLIFE Realty is a party to a service agreement with New York Life, whereby
New York Life provides services to NYLIFE Realty, including office space, legal,
accounting, administrative, personnel and other services for which NYLIFE Realty
is billed. NYLIFE Realty is 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
NYLIFE Realty matters. Additionally, New York Life pays NYLIFE Realty's invoices
on behalf of NYLIFE Realty and is then reimbursed by NYLIFE Realty. The total
amounts billed under this agreement were $732,164 and $814,439 for the years
ended December 31, 1995 and 1994, respectively.
NYLIFE Securities and certain other syndicated broker-dealers authorized by
NYLIFE Securities sold units of the various limited partnerships for which they
received commissions and fees of up to 8%. NYLIFE Securities and NYLIFE Realty
are affiliated under common control by NYLIFE Inc.
NYLIFE Realty is a party to an asset management agreement with the Mortgage
Finance Department of New York Life ("Mortgage Finance"), whereby Mortgage
Finance provides architectural and engineering and property management oversight
services and acquisition services relating to the Mortgage Partnership. Mortgage
Finance receives from NYLIFE Realty .04% and .10% of the value of the Total
Invested Assets as defined by the Partnership Agreement of the Mortgage
Partnership's. Such fees are payable quarterly by NYLIFE Realty from its asset
management fee. During the year 1995 and 1994, $24,337 and $44,287,
respectively, was paid to Mortgage Finance for the aforementioned services.
NYLIFE Realty acts as paying agent for cash distributions by the
Partnerships. Upon receipt of cash from the Partnerships, NYLIFE Realty
disburses the cash to the investors on a quarterly basis. During 1995 and 1994,
$9,352,749 and $4,416,944, respectively, was received and disbursed. As of
December 31, 1995 and 1994, investor distribution checks of $65,816 and $71,408,
respectively, remained outstanding. Such amounts are included in accounts
payable and accrued liabilities in the financial statements.
8. COMMITMENTS AND CONTINGENCIES
As general partner, NYLIFE Realty is liable for all obligations of the
Mortgage and Real Estate Partnerships if the assets of those Partnerships are
insufficient to meet their liabilities.
NYLIFE Realty guarantees (the "Guarantee") the full repayment of principal
with respect to any Participating Guaranteed Loans ("PGLs") made by the Mortgage
Partnership pursuant to its Partnership Agreement. In February 1990, the
Mortgage Partnership agreed to make a collateralized PGL in an amount up to
$600,000 in connection with the construction of Halcyon at Cross Creek (formerly
Cross Creek Apartments), a multi-family residential apartment complex in
Greenville, South Carolina. In December 1990, the Mortgage Partnership agreed to
make a collateralized PGL in an amount up to $1,595,800 in connection with the
construction of The Highlands (formerly Highland Oaks Apartments), a
multi-family residential apartment complex in Tampa, Florida. In May 1991, the
Mortgage Partnership agreed to make a collateralized PGL in an amount up to
$1,200,000 in connection with the construction of Signature Place, a
multi-family residential apartment complex in Hampton, Virginia. The
aforementioned PGL's are each collateralized by the individual ownership
interests in the borrower itself (constituting a second lien on such ownership
interests).
During 1995, the Mortgage Partnership received $2,463,060 with respect to
the sale of the Highlands PGL. Included in such amount were $1,095,800 of
principal, $210,798 of accrued interest, a prepayment fee of $324,000 and
$832,462 representing participation in the appreciation and cash
F-35
<PAGE>
NYLIFE REALTY INC. AND SUBSIDIARY
(AFFILIATES OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO STATEMENT OF FINANCIAL POSITION
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
generated by operations of The Highlands. This amount received by the Mortgage
Partnership exceeds the aggregate amount invested in PGLs of $1,495,900.
Therefore, NYLIFE Realty has satisfied its obligation with respect to the
Guarantee.
As of December 31, 1995, the Mortgage Partnership has funded the Halcyon at
Cross Creek and Signature Place PGL's in the amounts of $400,000 and $100,
respectively. The Mortgage Partnership has no further obligations to loan
additional funds under any of the aforementioned PGL agreements.
NYLIFE Realty is required to maintain a minimum net worth of $1,000,000
under the terms of the Mortgage and Real Estate Partnerships' partnership
agreements.
F-36
<PAGE>
PRELIMINARY COPY
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
purchaser of $10,000 worth of Units 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, after giving effect to first quarter
distributions which are expected to occur 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 payments set forth below are forward looking statements and ESTIMATES
ONLY. The actual amount that a Unitholder would receive would depend on a number
of factors, including the date on and price at which Units were purchased, the
net proceeds received in connection with the sale of the Mortgages, the facts
and circumstances of court approval, and any additional distributions paid to
Unitholder after May 15, 1996. If additional principal is repaid between March
31, 1996 and the date the Settlement becomes final and is no longer subject to
appeal, the amount paid to UH pursuant to the Settlement will be reduced by UH's
allocable portion of the principal so repaid. The estimated payment does NOT
include UH's pro rata share of his, her or its working capital as of March 31,
1996. The actual payment that UH would receive would include such an amount.
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) The Partnership will pay the first quarter distribution on May 15,
1996 ($1.66 per Unit). Partnership activity after March 31, 1996 is not
reflected in this schedule.
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.
5) The estimated Liquidation Advances do NOT include UH's share of the
Partnership's Distributable Working Capital.
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 $2,101.38 plus
(ii) Enhancement of $200 plus (iii) Excess of
Liquidating Distribution over Liquidation
Advance of $0. Total: $2,301.38
Proposal Approved Non-Settling Unitholder Liquidating Distribution of $2,101.38
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-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 17,165,065
<CASH> 13,937,222
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 873,295
<TOTAL-ASSETS> 32,113,831
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,113,831
0
<INVESTMENT-INCOME> 569,360
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 57,098
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 558,873
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 558,873
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
