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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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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).
/X/ 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
/ / 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
March 29, 1996
To the Unitholders of
NYLIFE Government Mortgage Plus Limited Partnership:
Enclosed is a copy of the preliminary consent solicitation statement (the
"Preliminary 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.
THIS IS A PRELIMINARY SOLICITATION STATEMENT. ACCORDINGLY, A CONSENT CARD IS
NOT INCLUDED HEREWITH. A DEFINITIVE VERSION OF THE SOLICITATION STATEMENT (THE
"DEFINITIVE SOLICITATION STATEMENT") WILL BE SENT TO YOU IN THE NEAR FUTURE,
ALONG WITH A CONSENT CARD. AT THAT TIME, YOU WILL BE REQUESTED TO FORWARD YOUR
CONSENT CARD TO THE PARTNERSHIP.
Due to the importance of the actions for which consent is solicited, you
should read the entire Preliminary Solicitation Statement carefully.
Furthermore, before returning the consent card to be mailed to you later with
the Definitive Solicitation Statement, you should read the Definitive
Solicitation Statement, in its entirety, carefully.
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 consent card promptly.
Sincerely,
NYLIFE REALTY INC.,
GENERAL PARTNER
March 29, 1996
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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 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 Preliminary Solicitation Statement is
first being mailed to Unitholders is March 29, 1996. The Definitive Solicitation
Statement will be mailed to the Unitholders at a later date. Only Unitholders of
record at the close of business on the date specified in the Definitive
Solicitation Statement (the "Record Date") will be entitled to submit consent
cards with respect to the Proposal. The deadline for the receipt of consent
cards (the "Expiration Date") will be specified in the Definitive Solicitation
Statement. 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 a negative vote with
respect to the Proposal.
This Preliminary Solicitation Statement is dated March 29, 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 Proposal Is Not Approved.................... 3
No Dissenters' Rights................................................................ 3
Considerations with Respect to the Proposal.......................................... 4
Determination of Liquidation Advance................................................. 4
Litigation and Proposed Settlement................................................... 4
The Lawsuit........................................................................ 4
Denial of Claims................................................................... 5
Terms of Proposed Settlement Payments.............................................. 5
Release............................................................................ 5
Conditions to Settlement........................................................... 5
Class Notice and Final Order....................................................... 6
Federal Income Tax Consequences...................................................... 6
Interests of General Partner and Affiliates.......................................... 7
Solicitation Costs................................................................... 7
THE PROPOSAL AND CONSIDERATIONS WITH RESPECT TO THE PROPOSAL........................... 8
The Proposal......................................................................... 8
General............................................................................ 8
Liquidation Procedures............................................................. 8
Sale of the Partnership's Assets................................................... 8
Provision for Liabilities.......................................................... 8
Liquidating Distributions.......................................................... 9
Allocation of Profits and Losses................................................... 9
Effect of Approval of the Proposal and the Settlement................................ 10
Cash Payments to Settling Unitholders.............................................. 10
Effect of Settlement on Liquidating Distributions.................................. 11
Consent of Unitholders............................................................... 11
Effect on Partnership and Unitholders if Proposal Is Not Approved.................... 11
No Dissenters' Rights................................................................ 12
Board Determination.................................................................. 12
Considerations with Respect to the Proposal.......................................... 12
LITIGATION AND PROPOSED SETTLEMENT..................................................... 13
The Lawsuit and the Class Members.................................................... 13
Denial of Claims..................................................................... 13
Payment Under the Settlement Agreement to the Unitholders............................ 14
The Hearing Order and the Settlement Hearing......................................... 14
Potential Termination of the Settlement Agreement.................................... 14
Potential Termination of the Settlement Agreement with Respect to the Partnership.... 15
Release.............................................................................. 15
Final Approval and Final Order and Judgment.......................................... 15
Regulatory Approvals................................................................. 15
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP......................................... 16
General.............................................................................. 16
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General Partner and Management....................................................... 16
Rights and Powers of Unitholders..................................................... 16
Term and Dissolution of the Partnership.............................................. 17
The Mortgages........................................................................ 18
Cross Creek........................................................................ 18
Participating Insured Mortgage................................................... 18
Participating Guaranteed Loan.................................................... 19
Participation Payments........................................................... 19
Property Description............................................................. 20
The Highlands...................................................................... 20
Participating Insured Mortgage................................................... 20
Participating Guaranteed Loan.................................................... 21
Sale of the Highlands............................................................ 21
Recent Developments.............................................................. 21
Signature Place.................................................................... 22
Participating Insured Mortgage................................................... 22
Participating Guaranteed Loan.................................................... 23
Participation Payments........................................................... 24
Property Description............................................................. 24
Guarantee of PGLs.................................................................... 24
Competition.......................................................................... 25
Legal Proceedings.................................................................... 25
SELECTED FINANCIAL DATA................................................................ 26
PRO FORMA FINANCIAL DATA............................................................... 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................ 31
Liquidity and Capital Resources...................................................... 31
Results of Operations................................................................ 31
1995 Compared to 1994.............................................................. 31
1994 Compared to 1993.............................................................. 32
1993 Compared to 1992.............................................................. 32
FEDERAL INCOME TAX CONSEQUENCES........................................................ 32
General................................................................................ 32
Cash Payment........................................................................... 33
Liquidation Advance.................................................................. 33
Refund............................................................................... 33
Enhancement.......................................................................... 33
Special Rules for Tax-Exempt Unitholders............................................. 33
Winding Up and Liquidation of Partnership.............................................. 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 34
INTERESTS OF CERTAIN PERSONS IN TRANSACTION............................................ 35
MARKET FOR UNITS AND RELATED MATTERS................................................... 35
VOTING PROCEDURES...................................................................... 36
ADDITIONAL INFORMATION................................................................. 37
INCORPORATION BY REFERENCE............................................................. 38
INDEX TO FINANCIAL STATEMENTS.......................................................... F-1
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SUMMARY
THE FOLLOWING SUMMARY IS INTENDED TO ASSIST UNITHOLDERS IN REVIEWING THE
MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PRELIMINARY 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 $4.82 per Unit.
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 solicited in conjunction with the
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"). However, the Proposal is not conditioned upon approval by the
Court of the Settlement or upon the Settlement becoming final. If the
Unitholders approve the Proposal, 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 cash at the best price available
therefor and the cash remaining after satisfaction of the Partnership's
liabilities will generally be distributed
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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. If the Proposal is
approved by the Unitholders, and the Settlement is approved by the Court and
becomes final, a Unitholder who participates in the Settlement (a "Settling
Unitholder") will receive from the General Partner within 30 days of the date on
which the Court enters a Final Order and Judgment approving the Settlement and
the period for appeal of the Final Order and Judgment has expired or, if the
Final Order and Judgment is appealed, the date on which all such appeals have
been finally adjudicated in a manner that affirms the Final Order and Judgment
(the "Final Settlement Date"), or as soon as practicable thereafter, a cash
payment (the "Cash Payment") that, together with prior distributions to such
Settling Unitholder from the Partnership, will result in such Settling
Unitholder having received, in the aggregate, an amount at least equal to his,
her or its total investment in the Partnership. The Cash Payment to each
Settling Unitholder will include an amount (the "Liquidation Advance") that will
be equal to such Settling Unitholder's proportionate share in the sum of (i) the
aggregate unpaid principal amount as of December 31, 1995, less any payments of
principal since that date, of all mortgages and loans held by the Partnership,
adjusted to account for the disposition of any assets of the Partnership through
the Final Settlement Date (the "Loan Balance"), and (ii) the excess of the
Working Capital (as defined herein) for the Partnership remaining as of the
Final Settlement Date after the General Partner estimates the amount of Working
Capital that may be needed to meet other outstanding liabilities, contingencies
or operating expenses or costs associated with winding up the Partnership
("Distributable Working Capital"). "Working Capital," as used herein, means the
amount, as determined by the General Partner, which is equal to the sum of the
cash, cash equivalents and accounts receivable, less payables and accrued
liabilities, and excluding the value of any assets included in the Loan Balance
as of the end of the fiscal quarter immediately preceding the Final Settlement
Date.
The Liquidation Advance will be deemed an advance by the General Partner to
the Settling Unitholder that is repayable solely out of any liquidating
distribution (a "Liquidating Distribution") made by the Partnership to such
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. The Liquidating Distribution will consist of the
assets of the Partnership, including proceeds from liquidation of the Mortgages
as well as cash and cash equivalents, remaining after sale of the Partnership's
assets and discharge of its liabilities. To the extent a Settling Unitholder's
Liquidating Distribution exceeds his, her or its Liquidation Advance, such
Settling Unitholder will receive the excess amount in up to two installments as
the Partnership is liquidated and sales proceeds and liabilities are determined.
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.
Each Cash Payment also will include either a Refund (as defined below) or an
Enhancement (as defined below). If payment of the Liquidation Advance to a
Settling Unitholder plus all prior distributions to such Settling Unitholders
from the Partnership would not result in such Settling Unitholder having
received in the aggregate an amount at least equal to his, her or its total
investment in the Partnership, the Cash Payment will include an amount (the
"Refund") that will be equal to an amount that, together with the Liquidation
Advance and the prior distributions to the Settling Unitholder from the
Partnership, will result in the Settling Unitholder having received in the
aggregate an amount at least equal to his, her or its total investment in the
Partnership. If payment of the Liquidation Advance plus all prior distributions
to the Settling Unitholder from the Partnership would result in such Settling
Unitholder having received in the aggregate an amount equal to or greater than
his, her or its total investment in the Partnership, the Cash Payment will
include an
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amount (the "Enhancement") that will be equal to $.20 multiplied by the number
of Units of the Partnership held by such Settling Unitholder. In no event will
the Refund or the Enhancement be less than $200 for any Settling Unitholder. For
payments that may be made pursuant to the Settlement to a Settling Unitholder
that is a defined benefit plan, see "The Proposal and Considerations with
Respect to the Proposal -- The Proposal -- Effect of Approval of the Proposal
and the Settlement."
A Unitholder who does not participate in the Settlement (a "Non-Settling
Unitholder") will not receive a Cash Payment in connection with the Settlement,
and instead will receive only a Liquidating Distribution, which will be less
than the amount the Non-Settling Unitholder would have received had he, she or
it participated in the Settlement. See "The Proposal and Considerations with
Respect to the Proposal -- Effect of Approval of the Proposal and the Settlement
- - - -- Cash Payments to Settling Unitholders."
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 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."
EFFECT ON PARTNERSHIP AND UNITHOLDERS IF 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.
Consistent with the Partnership's investment objectives, the General Partner may
consider offers for the sale of the Mortgages as opportunities arise. In any
such sale, the Partnership may benefit from any increase in the value of the
Mortgages. 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.
Under the terms of the Settlement Agreement (as defined below), if the
consents necessary to dissolve, terminate and wind up the Partnership have not
been obtained by the Final Settlement Date, the New York Life Defendants (as
defined below) will have the option of either (a) terminating the Settlement as
it applies to the Partnership and the Settling Unitholders or (b) paying to each
Settling Unitholder the Refund or the Enhancement, as the case may be, but not
the Liquidation Advance, in exchange for a Release (as defined below) from such
Settling Unitholder. In the latter event, the Refund or the Enhancement, as the
case may be, will be calculated as if the Liquidation Advance had been paid.
There can be no assurance that the future performance of the Partnership or the
outcome of the Lawsuit (as defined above) or any possible future settlement
thereof would result in the Unitholders receiving as much or more than they
would receive if the Proposal is approved and the Settlement is approved and
becomes final. See "The Proposal and Considerations with Respect to the Proposal
- - - -- Effect on Partnership and Unitholders if Proposal Is Not Approved."
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."
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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.
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
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Partnership, created, sponsored, marketed, sold, operated or managed by the New
York Life Defendants from January 1, 1985 through March 18, 1996. In the
Lawsuit, Plaintiffs allege generally that the Defendants engaged in fraudulent
activities in connection with the marketing and sale of interests in the
Proprietary Partnerships and the subsequent operation of such partnerships,
breached implied covenants and fiduciary duties owed to investors in the
Proprietary Partnerships and violated various federal securities and state laws
and rules. See "Litigation and Proposed Settlement -- The Lawsuit and the Class
Members."
DENIAL OF CLAIMS. The Defendants have denied and continue to deny any
wrongdoing or liability alleged in the Lawsuit. The Defendants have,
nevertheless, agreed to the proposed Settlement of the Lawsuit for the reasons
described in more detail elsewhere in this Solicitation Statement. See
"Litigation and Proposed Settlement -- Denial of Claims and Defendants' Reasons
for Proposed Settlement."
TERMS OF PROPOSED SETTLEMENT PAYMENTS. On March 19, 1996, the Plaintiffs
and Defendants filed with the Court a Stipulation of Settlement (the "Settlement
Agreement") that sets forth the terms of the proposed Settlement of the Lawsuit.
With respect to the Partnership, the proposed Settlement generally provides that
each Settling Unitholder who is a Class Member and who has not excluded himself,
herself or itself from the Class by following the procedures outlined by the
Court will receive the Liquidation Advance and either the Refund or the
Enhancement, as the case may be, as described more fully elsewhere in this
Solicitation Statement. See "Litigation and Proposed Settlement -- Payment Under
the Settlement Agreement to Unitholders" and "The Proposal -- 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. 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
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would impair their ability to consummate the Settlement or to provide the
contemplated relief; or (e) if a final order dismissing the Texas State Court
actions with prejudice, which is no longer appealable, has not been entered by
the Final Settlement Date. See "Litigation and Proposed Settlement -- Potential
Termination of the Settlement Agreement." Furthermore, the Settlement Agreement
provides that if the Unitholders do not approve the Proposal, the New York Life
Defendants may either (i) unilaterally terminate the Settlement Agreement as it
applies to the Partnership and the Settling Unitholders or (ii) pay each
Settling Unitholder the Refund or the Enhancement, as the case may be, but not
the Liquidation Advance, in exchange for a Release from such Settling Unitholder
as described below. In the latter event, the Refund or the Enhancement, as the
case may be, will be calculated as if the Liquidation Advance had been paid. See
"Litigation and Proposed Settlement -- Potential Termination of Settlement
Agreement with Respect to the Partnership."
CLASS NOTICE AND FINAL ORDER. The Court has certified the Class for
settlement purposes only and directed the New York Life Defendants, or their
designee(s), to cause a notice (the "Class Notice") to be mailed to all
potential members of the Class at their last known address no later than 90 days
before the Settlement Hearing. The Class Notice accompanies this Preliminary
Solicitation Statement 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, 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 his, her
or its Units, such a Unitholder should not recognize unrelated business taxable
income as a result of his, her or 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 (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 characterized 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
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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.
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."
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 ("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.
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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, if the Proposal is
approved, the Settlement will be approved and become final.
Summarized in this Preliminary 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
will engage an independent investment banking firm to conduct the sale of the
Mortgages and to render a fairness opinion 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 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. The General Partner will set
aside a specified amount to meet anticipated liabilities of the Partnership.
Under applicable Massachusetts law, distributions to limited partners,
including liquidating distributions, are subject to satisfaction of the
liabilities of the dissolving limited partnership. In general, a limited
partnership is prohibited from making a distribution to its partners to the
extent that, after giving effect to the distribution, the partnership's
liabilities exceed the fair value of its
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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.
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;
(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.
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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. If the Unitholders approve the
Proposal and the Court approves the Settlement and the Settlement becomes final,
a Settling Unitholder will receive from the General Partner within 30 days of
the Final Settlement Date, or as soon as practicable thereafter, the Cash
Payment that, together with prior distributions to such Settling Unitholder from
the Partnership, will result in the Settling Unitholder having received, in the
aggregate, an amount at least equal to his, her or its total investment in the
Partnership. The Cash Payment to each Settling Unitholder will include the
Liquidation Advance, which will be equal to the Settling Unitholder's
proportionate share of the sum of (i) the Loan Balance, plus (ii) the
Distributable Working Capital. The Liquidation Advance will be deemed an advance
by the General Partner to a Settling Unitholder that is repayable solely out of
any Liquidating Distribution made 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. The
Liquidating Distributions will consist of net assets of the Partnership,
including proceeds from liquidation of partnership properties as well as cash
and cash equivalents, remaining after sale of the Partnership's assets and
discharge of its liabilities.
If payment of the Liquidation Advance to a Settling Unitholder plus all
prior distributions to the Settling Unitholder from the Partnership would not
result in such Settling Unitholder having received in the aggregate an amount at
least equal to his, her or its total investment in the Partnership, the Cash
Payment will include the Refund, which will be equal to an amount that, together
with the Liquidation Advance and the prior distributions to the Settling
Unitholder from the Partnership, will result in the Settling Unitholder having
received in the aggregate an amount at least equal to his, her or its total
investment in the Partnership. A Unitholder's total investment in the
Partnership is the total amount paid by the Unitholder to acquire his, her or
its total Units of the Partnership, regardless of whether the Unitholder
acquired the Units from the General Partner or its affiliates or an unrelated
party. If payment of the Liquidation Advance plus all prior distributions to a
Settling Unitholder from the Partnership would result in such Settling
Unitholder having received in the aggregate an amount equal to or greater than
his, her or its total investment in the Partnership, the Cash Payment will
include the Enhancement that will be equal to $.20 multiplied by the number of
Units of the Partnership held by such Settling Unitholder. In no event will the
Refund or the Enhancement be less than $200 for any Settling Unitholder.
If the Proposal is approved by the Unitholders and the Settlement becomes
final, it is anticipated that, along with the Liquidation Advance, Settling
Unitholders would receive the Enhancement with respect to such Units. However,
the payment received by each Settling Unitholder will depend upon the amount
paid for the subject Units by such 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
receives.
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 would be a prohibited
transaction under ERISA, then such Settling Unitholder will be entitled to
receive the Refund or the Enhancement, as the case may be, but not the
Liquidation
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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 Non-Settling Unitholder will not receive a Cash Payment in connection with
the Settlement, and instead will receive only a Liquidating Distribution, which
will be less than the amount the Non-Settling Unitholder would have received had
he, she or it participated 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.
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
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. An abstention from voting on the Proposal will effectively count as
a negative vote with respect to the Proposal. Broker non-votes expressly
indicating a lack of discretionary authority to consent also will effectively
count as a negative vote with respect to the Proposal.
EFFECT ON PARTNERSHIP AND UNITHOLDERS IF 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. Consistent with the
Partnership's investment objectives, the General Partner may consider offers for
the sale of the Mortgages as opportunities arise. In any such sale, the
Partnership may benefit from any increase in the value of the Mortgages.
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.
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
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such Settling Unitholder. See "Litigation and Proposed Settlement -- Potential
Termination of the Settlement Agreement with Respect to the Partnership."
Whether the Settling Unitholder would be entitled to receive the Refund or the
Enhancement depends upon the amount paid for the subject Units by the Settling
Unitholder, the distributions received as of the Final Settlement Date on such
Units by the Settling Unitholder, and the amount of the Liquidation Advance the
Settling Unitholder would have received had the Proposal been approved and the
Settlement become final. There can be no assurance that the future performance
of the Partnership or the outcome of the Lawsuit or any possible future
settlement thereof will result in a return on investment to the Unitholders that
equals or exceeds the return facilitated by the approval of the Proposal and the
Settlement becoming final.
NO DISSENTERS' RIGHTS
The Unitholders will not be entitled to any dissenters' or appraisal rights
under either the Partnership Agreement or Massachusetts law with respect to the
transactions described in this Solicitation Statement.
BOARD DETERMINATION
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER MAKES NO RECOMMENDATION TO THE
UNITHOLDERS AS TO THE DISSOLUTION, TERMINATION AND WINDING UP OF THE
PARTNERSHIP. EACH UNITHOLDER MUST MAKE HIS, HER OR ITS OWN DECISION WITH RESPECT
TO THE PROPOSAL AFTER CONSULTING WITH HIS, HER OR ITS OWN ADVISORS BASED ON HIS,
HER OR ITS OWN FINANCIAL POSITION AND REQUIREMENTS.
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.
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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.
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.
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
each entity, the "New York Life Defendants"), and American Exploration
Production Company and American Exploration Company (collectively, the "American
Defendants"). The New York Life Defendants and the American Defendants are
sometimes collectively referred to as the "Defendants." The Plaintiffs'
allegations against the Defendants included fraud, breach of fiduciary duties,
violation of the National Association of Securities Dealers, Inc. Rules of Fair
Practice by NYLIFE Securities Inc., negligent misrepresentation, breach of
implied covenants and violation of Texas state securities laws.
On March 18, 1996 Plaintiffs filed a complaint in the United States District
Court for the Southern District of Florida captioned SHEA, ET AL. V. NEW YORK
LIFE INSURANCE CO., ET AL. (the "Lawsuit"), amplifying the claims alleged in the
complaint filed in Texas State Court, alleging violations of 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").
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.
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
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Proprietary Partnerships on a schedule favorable to the Class, but also to
resolve the issues presented by the Lawsuit with respect to the sale of
interests in and operation of the Proprietary Partnerships; and (iii) put
Plaintiffs' claims and the underlying matters to rest without undue expense to
the Class while reducing the burdens and uncertainties associated with
protracted litigation of the claims underlying the Lawsuit.
PAYMENT UNDER THE SETTLEMENT AGREEMENT TO THE UNITHOLDERS
The terms of the Settlement Agreement with respect to the Partnership
generally provide that each Settling Unitholder who is a Class Member, and who
has not excluded himself, herself or itself from the Class by following the
procedures outlined by the Court, will receive the Liquidation Advance and
either the Refund or the Enhancement, as the case may be, as described more
fully under "The Proposal and Considerations with Respect to the Proposal -- The
Proposal -- Liquidating Distributions."
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 accompanies this Preliminary
Solicitation Statement, and you should refer to the Class Notice for further
information regarding the Lawsuit, the Settlement and the Settlement Hearing.
Among other things, the Hearing Order preliminarily enjoins all Class
Members who have not excluded themselves from the Class from selling,
transferring, pledging, encumbering, hypothecating or assigning any Unit they
own or in which they have an interest, PROVIDED THAT (i) the Court may for good
cause shown by a Class Member allow a transfer notwithstanding the injunction
and (ii) any Class Member may transfer a Unit where such Class Member agrees in
writing to be bound by the Release described in the Class Notice and to waive
any right to receive benefits under the proposed Settlement, in which case the
person to whom the Unit(s) are transferred will be entitled to the benefits that
the Class Member would have received but for the transfer.
POTENTIAL TERMINATION OF THE SETTLEMENT AGREEMENT
The Settlement Agreement is not yet final and could be terminated for
various reasons. The Settlement will become final only after the Court enters a
Final Order and Judgment approving the Settlement and the period for appeal
thereof has expired or, if the Final Order and Judgment is appealed, on the date
on which all appeals have been finally disposed of in a manner that affirms the
Final Order and Judgment. There can be no assurance that such approval will be
obtained or that the Settlement will become final.
Plaintiffs have the right to terminate the Settlement Agreement under the
circumstances specified therein. In addition, the Defendants may unilaterally
terminate the Settlement Agreement if: (a) with respect to all the Proprietary
Partnerships taken together, those persons who elect to exclude themselves from
the Class (i) together number more than 3% of all Class Members or (ii) have
ownership interests in the Proprietary Partnerships that together account for
more than 3% of all capital invested by limited partners or unitholders in the
Proprietary Partnerships; (b) with respect to a particular Proprietary
Partnership, if those persons who elect to exclude themselves from the Class
with respect to such Proprietary Partnership (i) together number more than 3% of
all those who are Class Members with respect to such Proprietary Partnership or
(ii) have ownership interests in such partnership that together account for more
than 3% of all capital invested by limited partners or unitholders in such
partnership; (c) if the votes, consents or authorizations necessary to dissolve
and liquidate four or more of the Proprietary Partnerships are not obtained; (d)
if any state or federal regulator, self-regulatory organization or other
administrative body or official (i) objects either to any aspect or term of the
Settlement Agreement or to the transactions to be entered into to facilitate the
proposed Settlement and takes or threatens to take any regulatory or legal
action that would impair
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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 accompanying this Preliminary
Solicitation Statement 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 $4.82 per
Unit.
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.
RIGHTS AND POWERS OF UNITHOLDERS
Upon dissolution and winding up of the Partnership, the Unitholders will no
longer have an interest in the Partnership's assets and business and will be
giving up all their rights under the Partnership Agreement. The Unitholders may
not take part in the control of the business or affairs of the Partnership and
have no voice in the management or operations of the Partnership. Their lack of
a voice in management and control is necessary to limit liability in excess of
their investment in the Partnership and their share of undistributed profits
from the Partnership. The Unitholders:
(i) share all profits, losses and distributions of the Partnership in
accordance with the Partnership Agreement;
(ii) have their liability for operations of the Partnership limited to
the amount of their capital contributions and to their shares of Partnership
capital and undistributed net revenues of the Partnership, if any; provided,
however, that under applicable partnership law the Unitholders may under
certain circumstances be required to repay to the Partnership amounts
previously distributed to them by the Partnership (see "The Proposal and
Considerations with Respect to the Proposal -- The Proposal -- Provision for
Liabilities");
(iii) have the right to inspect and copy the records relating to the
activities of the Partnership during ordinary business hours;
(iv) obtain from the General Partner from time to time upon reasonable
demand (i) true and full information regarding the status of the business
and financial condition of the Partnership, (ii) promptly after becoming
available, a copy of the Partnership's federal, state and local income tax
returns for each year, and (iii) other information regarding the affairs of
the Partnership as provided in the Partnership Agreement;
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(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 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
(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.
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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 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)
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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 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
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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").
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
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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 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.
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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 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
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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.
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
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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 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
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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 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.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993 1992 1991
-------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total income.......................... $ 3,268,459 $ 2,705,003 $ 2,550,740 $ 3,739,883 $ 3,905,073
Total expenses........................ $ 315,427 $ 458,288 $ 407,966 $ 440,041 $ 266,511
Net income............................ $ 2,953,032 $ 2,246,715 $ 2,142,774 $ 3,299,842 $ 3,638,562
NET INCOME ALLOCATED:
Corporate Limited Partner............. $ 71 $ 55 $ 51 $ 79 $ 106
General Partner....................... $ 43,654 $ 44,934 $ 42,856 $ 65,997 $ 72,771
Unitholders........................... $ 2,909,307 $ 2,201,726 $ 2,099,867 $ 3,233,766 $ 3,565,685
Weighted Average net income per
Unit................................. $ .36 $ .27 $ .26 $ .40 $ .54
OTHER OPERATING DATA:
Net cash provided by operating
activities........................... $ 3,514,222 $ 2,286,337 $ 2,189,890 $ 3,208,517 $ 3,767,352
Cash provided by (used in) investing
activities........................... $ 1,221,263 $ 108,069 $ (297,709) $ (6,864,431) $ (17,971,142)
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........................ $ 2,463,060 $ -- $ -- $ -- $ --
Cash distributions to Unitholders..... $ (4,771,535) $ (4,275,142) $ (2,283,906) $ (3,944,595) $ (3,481,225)
Cash distributions to General
Partner.............................. $ (47,114) $ (87,250) $ (46,612) $ (80,504) $ (71,049)
Cash distribution to Corporate Limited
Partner.............................. $ (117) $ (105) $ (56) $ (97) $ (118)
Total cash distributions.............. $ (4,818,766) $ (4,362,497) $ (2,330,574) $ (4,025,196) $ (3,552,392)
Net (decrease) increase in cash and
cash equivalents..................... $ (83,281) $ (1,968,091) $ (438,393) $ (46,397,150) $ 10,284,516
Cash and cash equivalents at end of
period............................... $ 867,686 $ 950,967 $ 2,919,058 $ 3,357,451 $ 49,754,601
BALANCE SHEET DATA:
Total assets.......................... $ 32,117,943 $ 34,070,778 $ 36,102,009 $ 36,259,215 $ 75,765,875
Total liabilities..................... $ 101,152 $ 188,253 $ 103,702 $ 73,108 $ 138,374
Partners capital:
General Partner..................... $ (43,281) $ (39,821) $ 2,495 $ 6,251 $ 20,758
Corporate Limited Partner........... $ 869 $ 915 $ 965 $ 970 $ 2,024
Unitholders......................... $ 32,059,203 $ 33,921,431 $ 35,994,847 $ 36,178,886 $ 75,604,719
Total Partners capital.............. $ 32,016,791 $ 33,882,525 $ 35,998,307 $ 36,186,107 $ 75,627,501
Number of Units outstanding........... 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 $ 4.15 $ 4.41 $ 4.43 $ 9.26
</TABLE>
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PRO FORMA FINANCIAL DATA
The Pro Forma Balance Sheet as of September 30, 1995 and the Pro Forma
Statements of Operations for the nine months ended September 30, 1995 and the
year ended December 31, 1994, have been prepared to reflect the sale of the
Highlands GNMA and the adjustments described in the accompanying notes. The pro
forma financial data 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 September 30,
1995 and the Partnership's annual report on Form 10-K for the fiscal year ended
December 31, 1994. The Pro Forma Balance Sheet was prepared as if the sale of
the Highlands GNMA occurred on September 30, 1995. The Pro Forma Statements of
Operations were prepared as if the sale occurred on January 1, 1994. The pro
forma financial data is unaudited and not necessarily indicative of the results
that would have actually occurred had the sale been consummated at the beginning
of 1994, nor does it purport to represent the financial position and results of
operations for future periods.
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AMOUNTS (AS
HISTORICAL 1995 ADJUSTMENTS ADJUSTED)
--------------- -------------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 900,367 $ 13,105,373(A) $ 14,005,740
Interest receivable...................................... 221,107 -- 221,107
Investments in PIMs...................................... 30,677,598 (12,998,673)(A) 17,678,925
Investments in PGLs...................................... 400,100 -- 400,100
--------------- -------------------- ---------------
Total assets......................................... $ 32,199,172 $ 106,700 $ 32,305,872
--------------- -------------------- ---------------
--------------- -------------------- ---------------
LIABILITIES AND PARTNERS' CAPITAL
Due to affiliates........................................ $ 75,000 $ -- $ 75,000
Accrued liabilities...................................... 44,384 -- 44,384
--------------- -------------------- ---------------
Total liabilities.................................... 119,384 -- 119,384
--------------- -------------------- ---------------
Partners' capital:
Capital contributions net of public offering
expenses.............................................. 36,028,557 -- 36,028,557
Accumulated earnings................................... 16,859,159 106,700(A) 16,965,859
Cumulative distributions............................... (20,807,928) -- (20,807,928)
--------------- -------------------- ---------------
Total partners' capital.................................. 32,079,788 106,700 32,186,488
--------------- -------------------- ---------------
Total liabilities and partners' capital.................. $ 32,199,172 $ 106,700 $ 32,305,872
--------------- -------------------- ---------------
--------------- -------------------- ---------------
</TABLE>
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PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AMOUNTS (AS
HISTORICAL 1995 ADJUSTMENTS ADJUSTED)
--------------- -------------------- ---------------
<S> <C> <C> <C>
INCOME
Interest -- cash and cash equivalents.................... $ 55,437 $ -- $ 55,437
Interest -- Mortgages (net of amortization of acquisition
costs).................................................. 2,282,186 (751,501)(B) 1,530,685
Other income............................................. 324,000 -- 324,000
--------------- -------------------- ---------------
Total income (loss).................................. 2,661,623 (751,501) 1,910,122
--------------- -------------------- ---------------
EXPENSES
General and administrative............................... 150,671 -- 150,671
Asset Management Fees.................................... 71,125 -- 71,125
--------------- -------------------- ---------------
Total expenses....................................... 221,796 -- 221,796
--------------- -------------------- ---------------
Net income (loss).................................. $ 2,439,827 $ (751,501) $ 1,688,326
--------------- -------------------- ---------------
--------------- -------------------- ---------------
NET INCOME (LOSS) ALLOCATED
General Partner.......................................... $ 33,390 $ (15,030)(E) $ 18,360
Corporate Limited Partner................................ 59 (18)(E) 41
Unitholders.............................................. 2,406,378 (736,453)(E) 1,669,925
--------------- -------------------- ---------------
$ 2,439,827 $ (751,501) $ 1,688,328
--------------- -------------------- ---------------
--------------- -------------------- ---------------
Net income (loss) per Unit............................... $ .29 $ (.09) $ .20
--------------- -------------------- ---------------
--------------- -------------------- ---------------
Number of Units.......................................... 8,168,457.7 8,168,457.7 8,168,457.7
--------------- -------------------- ---------------
--------------- -------------------- ---------------
</TABLE>
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PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA AMOUNTS (AS
1995 ADJUSTMENTS ADJUSTED)
------------- ------------------ -------------
<S> <C> <C> <C>
INCOME
Interest -- cash and cash equivalents......................... $ 83,971 $ -- $ 83,971
Interest -- Mortgages (net of amortization of acquisition
costs)....................................................... 2,620,032 (642,195)(B) 1,977,837
Other income.................................................. 1,000 -- 1,000
------------- ------------------ -------------
Total income (loss)....................................... 2,705,003 (642,195) 2,062,808
------------- ------------------ -------------
EXPENSES
General and administrative.................................... 300,121 -- 300,121
Asset Management Fees......................................... 158,167 (71,252)(C) 86,915
------------- ------------------ -------------
Total expenses............................................ 458,288 (71,252) 387,036
------------- ------------------ -------------
Income (loss) before gain on sale of investment in
Highlands GNMA......................................... 2,246,715 (570,943) 1,675,772
Gain on sale of investment in Highlands GNMA.................. -- 17,165(D) 17,165
------------- ------------------ -------------
Net income (loss)......................................... $ 2,246,715 $ (553,778) $ 1,692,937
------------- ------------------ -------------
------------- ------------------ -------------
NET INCOME (LOSS) ALLOCATED
General Partner............................................... $ 44,934 $ (11,419)(E) 33,515
Corporate Limited Partner..................................... 55 (13)(E) 42
Unitholders................................................... 2,201,726 (542,346)(E) 1,659,380
------------- ------------------ -------------
$ 2,246,715 $ (553,778) $ 1,692,937
------------- ------------------ -------------
------------- ------------------ -------------
Net income (loss) per Unit.................................... $ .27 $ (.07) $ .20
------------- ------------------ -------------
------------- ------------------ -------------
Number of Units............................................... 8,168,457.7 8,168,457.7 8,168,457.7
------------- ------------------ -------------
------------- ------------------ -------------
</TABLE>
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NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
NOTE 1 -- BASIS OF PRESENTATION
The accompanying Pro Forma Balance Sheet as of September 30, 1995 is
presented as if the sale of the Highlands GNMA occurred on September 30, 1995.
The accompanying Pro Forma Statements of Operations are presented as if the
sale of the Highlands GNMA occurred on January 1, 1994.
These pro forma financial statements should be read in conjunction with the
historical financial statements and notes thereto as of September 30, 1995 and
December 31, 1994, filed as part of the Partnership's quarterly report on Form
10-Q for the quarter ended September 30, 1995 and the Partnership's annual
report on Form 10-K for the fiscal year ended December 31, 1994, respectively.
In management's opinion, all adjustments necessary to reflect the effects of the
sale of the Highlands GNMA by the Partnership have been made.
The unaudited pro forma financial statements are not necessarily indicative
of the actual financial position as of September 30, 1995 or what the actual
results of operations would have been assuming the disposition of the Highlands
GNMA had been consummated on January 1, 1994, nor do they purport to represent
the financial position and results of operations for future periods.
NOTE 2 -- ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
(A) To reflect the liquidation proceeds from the sale of the Highlands GNMA at
September 30, 1995.
(B) To eliminate the Partnership's share of interest earned on the Highlands
GNMA and the Highlands PGL for the nine months ended September 30, 1995 and
the year ended December 31, 1994, respectively.
(C) To eliminate the Asset Management Fees paid in connection with the Highlands
PGL and the PIM related to the Highlands for the year ended December 31,
1994.
(D) To reflect the gain on the sale of the Highlands GNMA at January 1, 1994.
(E) To reflect the partners' allocation of the effect of the sale of the
Highlands GNMA at January 1, 1994.
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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 December 31, 1995 of
$867,686 includes $426,266 of working capital reserves and $441,420 of cash
generated from operations net of accrued interest. The Partnership's working
capital reserves were invested in short-term obligations of the United States
government and other cash equivalents.
The Partnership 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, quarterly investor distribution processing, investor K-1 processing,
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 Mortgage and Signature Place
Mortgage. 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 forego 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 related to Cross Creek and Signature Place entitle the
Partnership to participate in the cash flow of the properties above certain
levels and in any appreciation upon sale or refinancing. As a result of the
repayment of the Highlands PGL upon the sale of the Highlands, which is more
fully described above, the Partnership received $2,463,060 representing
principal and accrued interest on the PGL as well as a prepayment fee and
participations in net cash flow and appreciation, The Partnership distributed
such proceeds to Unitholders on May 15, 1995.
Net cash provided by operating activities for 1995 was $3,514,222. In 1994,
net cash provided by operating activities was $2,286,337. As discussed below,
this increase was the result of proceeds received in conjunction with the sale
of the Highlands as offset by decreased interest income resulting from the
repayment of the PGL and the interest rate reduction on the Modified Mortgage.
Going forward, the Partnership's cash flow is expected to decline due to the
sale of the Highlands GNMA as discussed in "Certain Information Concerning the
Partnership -- The Mortgages -- The Highlands." Interest income on MBSs will
decrease due to the sale of the Highlands GNMA. Additionally, interest income on
cash and cash equivalents will decrease as the Partnership will no longer
receive funds associated with the Highlands GNMA which would have been invested
in United States Government obligations before being distributed to investors
quarterly.
RESULTS OF OPERATIONS
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.
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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.
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.
32
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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 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 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 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.
33
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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 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 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.
34
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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 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 December 31, 1995, the Partnership had 5,912 Unitholders.
Pursuant to a preliminary injunction issued by the
35
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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.
The Definitive Solicitation Statement will be accompanied by a separate
consent card. Consent cards should be completed, signed and returned promptly to
the address specified in the Definitive Solicitation Statement. A
self-addressed, prepaid envelope for return of the consent cards will be
included with the Definitive Solicitation Statement.
Any Unitholder delivering a consent card pursuant to the Definitive
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
. 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 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.
36
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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.
37
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INCORPORATION BY REFERENCE
The following documents are incorporated by reference in this Preliminary
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.
The Partnership will provide without charge to each person to whom a copy of
this Preliminary 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
Government Mortgage Plus Limited Partnership, 51 Madison Avenue, Suite 1710, New
York, New York 10010, Attention: Kevin M. Micucci.
By Order of the General Partner
NYLIFE REALTY INC.
38
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Report of Independent Accountants................................ F-2
Balance Sheets as of December 31, 1995 and 1994.................. F-3
Statements of Income for the Years Ended December 31, 1995, 1994
and 1993........................................................ F-4
Statements of Partners' Capital for the Years Ended December 31,
1995, 1994 and 1993............................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993................................................... F-6
Notes to Financial Statements.................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners and Unitholders
of NYLIFE Government Mortgage
Plus Limited Partnership:
We have audited the accompanying balance sheets of NYLIFE Government Mortgage
Plus Limited Partnership (a Massachusetts limited partnership, the
"Partnership") as of December 31, 1995 and 1994, and the related statements of
income, partners' capital and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the General Partner. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As further discussed in Note 9, in connection with the settlement of litigation
involving the General Partner of the Partnership, the general partner will
solicit consents of the limited partners for the dissolution of the Partnership.
The financial statements do not include any adjustments that might result should
the Unitholders consent to liquidate the Partnership.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NYLIFE Government Mortgage Plus
Limited Partnership as of December 31, 1995 and 1994 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 22, 1996
F-2
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
Cash and cash equivalents.............................. $ 867,686 $ 950,967
Interest receivable.................................... 208,392 280,773
Investments in Participating Insured Mortgages......... 29,765,800 29,891,263
Investments in Participating Guaranteed Loans.......... 400,100 1,495,900
Deferred acquisition fees and expenses -- net.......... 875,965 1,451,875
------------ ------------
Total assets....................................... $ 32,117,943 $ 34,070,778
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Due to affiliates...................................... $ 21,729 $ 100,000
Accrued liabilities.................................... 79,423 88,253
------------ ------------
Total liabilities.................................. 101,152 188,253
------------ ------------
Commitments and contingencies
Partners' capital:
Capital contributions net of public offering
expenses............................................ 36,028,557 36,028,557
Accumulated earnings................................. 17,372,364 14,419,332
Cumulative distributions............................. (21,384,130) (16,565,364)
------------ ------------
Total partners' capital............................ 32,016,791 33,882,525
------------ ------------
Total liabilities and partners' capital............ $ 32,117,943 $ 34,070,778
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Interest -- cash and cash equivalents.................. $ 64,991 $ 83,971 $ 79,410
Interest -- Mortgages (net of write-off and
amortization of deferred acquisition costs)........... 2,047,006 2,620,032 2,463,163
Other income........................................... 1,156,462 1,000 8,167
---------- ---------- ----------
Total income....................................... 3,268,459 2,705,003 2,550,740
---------- ---------- ----------
EXPENSES
General and administrative............................. 222,572 300,121 250,000
Asset Management Fees.................................. 92,855 158,167 157,966
---------- ---------- ----------
Total expenses..................................... 315,427 458,288 407,966
---------- ---------- ----------
Net income....................................... $2,953,032 $2,246,715 $2,142,774
---------- ---------- ----------
---------- ---------- ----------
NET INCOME ALLOCATED
General Partner........................................ $ 43,654 $ 44,934 $ 42,856
Corporate Limited Partner.............................. 71 55 51
Unitholders............................................ 2,909,307 2,201,726 2,099,867
---------- ---------- ----------
$2,953,032 $2,246,715 $2,142,774
---------- ---------- ----------
---------- ---------- ----------
Net income per Unit.................................... $ .36 $ .27 $ .26
---------- ---------- ----------
---------- ---------- ----------
Number of Units........................................ 8,168,457.7 8,168,457.7 8,168,457.7
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
CORPORATE TOTAL
LIMITED GENERAL PARTNERS'
UNITHOLDERS PARTNER PARTNER CAPITAL
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993............................... $ 36,178,886 $ 970 $ 6,251 $ 36,186,107
Net income............................................... 2,099,867 51 42,856 2,142,774
Distributions............................................ (2,283,906) (56) (46,612) (2,330,574)
-------------- ----------- ---------- --------------
Balance at December 31, 1993............................. $ 35,994,847 $ 965 $ 2,495 $ 35,998,307
Net income............................................... 2,201,726 55 44,934 2,246,715
Distributions............................................ (4,275,142) (105) (87,250) (4,362,497)
-------------- ----------- ---------- --------------
Balance at December 31, 1994............................. 33,921,431 915 (39,821) 33,882,525
Net income............................................... 2,909,307 71 43,654 2,953,032
Distributions............................................ (4,771,535) (117) (47,114) (4,818,766)
-------------- ----------- ---------- --------------
Balance at December 31, 1995............................. $ 32,059,203 $ 869 $ (43,281) $ 32,016,791
-------------- ----------- ---------- --------------
-------------- ----------- ---------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 2,953,032 $ 2,246,715 $ 2,142,774
----------- ----------- -----------
Adjustments to reconcile net income to net cash flows
from operating activities:
Amortization of acquisition costs.................... 575,910 17,948 16,494
Changes in assets and liabilities:
Decrease (increase) in interest receivable......... 72,381 (62,877) 28
(Decrease) increase in due to affiliates........... (78,271) 100,000 --
(Decrease) increase in accrued liabilities......... (8,830) (15,449) 30,594
----------- ----------- -----------
Total adjustments................................ 561,190 39,622 47,116
----------- ----------- -----------
Net cash provided by operating activities........ 3,514,222 2,286,337 2,189,890
----------- ----------- -----------
Cash flows from investing activities:
Repayment of Participating Insured Mortgages......... 125,463 108,069 94,191
Investment in Participating Insured Mortgages........ -- -- (391,900)
Repayment of Participating Guaranteed Loans.......... 1,095,800 -- --
----------- ----------- -----------
Net cash provided by (used in) investing
activities...................................... 1,221,263 108,069 (297,709)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners............................ (4,818,766) (4,362,497) (2,330,574)
----------- ----------- -----------
Net cash used in financing activities............ (4,818,766) (4,362,497) (2,330,574)
----------- ----------- -----------
Net decrease in cash and cash equivalents.............. (83,281) (1,968,091) (438,393)
Cash and cash equivalents at beginning of period....... 950,967 2,919,058 3,357,451
----------- ----------- -----------
Cash and cash equivalents at end of period............. $ 867,686 $ 950,967 $ 2,919,058
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
NYLIFE Government Mortgage Plus Limited Partnership (the "Partnership") is a
limited partnership which was formed on November 21, 1988 pursuant to the
provisions of the Massachusetts Uniform Limited Partnership Act. The
Partnership's general partner, NYLIFE Realty Inc. (the "General Partner"), an
indirect wholly-owned subsidiary of New York Life Insurance Company ("New York
Life"), was issued all of the general partner interests in exchange for a
capital contribution of $3,000. The Partnership also issued all of the limited
partner interests to NYLIFE Depositary Corporation, an indirect wholly-owned
subsidiary of New York Life (the "Corporate Limited Partner"), in exchange for a
capital contribution of $2,000.
Limited partner interests ("Limited Partner Interests") are defined as the
interests of any partner having an ownership interest representing an initial
capital contribution of $10 together with the obligations of such partner to
comply with all terms and provisions of the Partnership Agreement, but excluding
any claims which the partner may have as a creditor.
A unit is defined as the interest of a unitholder in the Partnership
(hereafter referred to as "Units" and "Unitholders"). Upon the purchase of Units
by Unitholders, the Corporate Limited Partner contributed to the Partnership
cash in the amount of the subscription prices paid by the Unitholders and the
Unitholders received Limited Partner Interests in return. In addition, the
Corporate Limited Partner assigned all of the economic rights attributable to
the Limited Partner Interests to the Unitholders to the extent permitted by
Massachusetts law, and exercised all rights with respect to such Limited Partner
Interests as directed by the Unitholders, pursuant to the Partnership Agreement.
The offering period for the Partnership's Units expired on September 30,
1991.
The Partnership Agreement authorizes the Partnership to acquire guaranteed
or federally insured or coinsured mortgages on multi-family residential
properties or residential care facilities directly or through the purchase of
mortgage-backed securities ("MBSs") guaranteed as to principal and Basic
Interest issued or originated under or in connection with the housing programs
of the department of Housing and Urban Development ("HUD"), or Government
National Mortgage Association ("GNMA"). The Partnership may also acquire
uninsured participation interests secured by subordinated mortgages
("Participation Interests"), which may provide for Partnership participation in
the operating revenues and residual value, if any, of the underlying properties.
In addition, the Partnership may invest in uninsured loans ("Participating
Guaranteed Loans" or "PGLs") with respect to the same properties underlying the
MBSs, which may also provide for such participations. Although the Participation
Interests are not guaranteed or insured by any government agency and the PGLs
are not secured by any real estate mortgage, for ease of reference, the MBSs and
the Participation Interests are collectively referred to herein as the
"Participating Insured Mortgages" or "PIMs" and PIMs and PGLs are collectively
referred to herein as the "Mortgages."
Since its formation, the Partnership has invested in three PIMs consisting
of (i) MBSs collateralized by federally coinsured mortgages on multi-family
residential properties pursuant to the coinsurance programs of Section 221(d)(4)
of the National Housing Act and (ii) participating interests evidenced by
additional interest agreements and secured by subordinated mortgages on those
properties. Each MBS is guaranteed as to principal and Basic Interest by GNMA.
As described in Note 9, one such MBS was sold on February 27, 1996. The Cross
Creek and Signature Place PIMs also provide for the Partnership to participate
in 50% of the underlying property's net cash flow and appreciation, if any. The
Partnership has funded three PGLs with respect to the same properties underlying
the
F-7
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
Partnership's PIMs. The General Partner has guaranteed a return to the
Partnership, upon liquidation, of funds invested in PGLs, if any, in excess of
cash payments received by the Partnership from all mortgages and loans (other
than cash payments of principal and Basic Interest on MBSs). The PIMs and PGLs
are further described in Note 5.
"Basic Interest" is defined as interest which is generally payable monthly,
and is calculated on the unpaid balance of the underlying mortgage loan or PGL
at an annual percentage rate (the "Basic Interest Rate") specified in the
documents establishing such mortgage loan or PGL.
The Partnership terminates on December 31, 2028, unless terminated earlier
by the occurrence of certain events as set forth in the Partnership Agreement.
At January 1, 1992, the Partnership had committed $33,580,000 for investment
in MBSs and Participation Interests related to three properties, known as Cross
Creek, the Highlands and Signature Place. This represented 48.2% of the funds
available for investment by the Partnership. Since it was unable to invest its
remaining available net proceeds, the Partnership returned $42,312,611 of its
capital to investors during 1992. This amount included $37,020,024 of proceeds
which were not committed for Mortgages, as well as $5,292,587 of fees and
expense reimbursements previously paid to the General Partner and its
affiliates, of which $3,596,572 were credited to capital and $1,696,015 reduced
deferred acquisition costs. This distribution represented a $5.18 per unit
return of capital. Accordingly, subsequent to such distribution, the Partnership
has 8,168,457.7 Units with a capital value of $4.82 per unit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership uses the following accounting policies for financial
reporting purposes:
CASH AND CASH EQUIVALENTS
Highly liquid debt instruments (including short-term obligations of the
United States government) purchased with a maturity of three months or less, are
considered cash equivalents and are stated at cost, which approximates market
value. Included in cash and cash equivalents is a working capital reserve of
$426,266 which may be used to meet the Partnership's operating expenses and
liabilities.
PARTICIPATING INSURED MORTGAGES
In 1995, mortgage-backed permanent loan certificates ("PLCs") are carried at
current market value and are classified as available-for-sale. PLCs were carried
at amortized cost in 1994 and were classified as held to maturity (See Note 5).
PARTICIPATING GUARANTEED LOANS ("PGLS")
In 1995, PGLs are carried at current market value and are classified as
available-for-sale. PGLs were carried at amortized cost and were classified as
held to maturity in 1994 (See Note 5). Although interest accrues on the PGLs,
the Partnership does not recognize such income on its books until it is
realizable.
DEFERRED ACQUISITION FEES AND EXPENSES
Acquisition expenses, which were paid upon the receipt of gross offering
proceeds, 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 paid to the
F-8
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Partnership as origination fees relating to the acquisition of Mortgages were
netted against acquisition costs, and are also currently being amortized over
the term of the PLC using the effective interest method.
INCOME TAXES
No provision for income taxes has been made in the financial statements
because these taxes are the responsibility of the individual partners rather
than the Partnership.
PUBLIC OFFERING EXPENSES
Reimbursement to the General Partner for organization and offering expenses
and amounts paid to NYLIFE Securities Inc. ("NYLIFE Securities"), pursuant to a
sales agent agreement, were charged directly to the capital accounts upon the
admission of Unitholders through September 30, 1991. Organization and offering
expenses included costs of preparing the Partnership for registration, and
thereafter offering and selling Units to the public, and included advertising
expenses and any sales commissions paid to broker-dealers relating to the sale
of the Units. In 1992 a portion of these public offering expenses were returned
to the Partnership (See Note 1).
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. CAPITAL CONTRIBUTIONS AND ALLOCATION OF NET INCOME TO THE CORPORATE LIMITED
PARTNER AND UNITHOLDERS
As of December 31, 1995, the Partnership had 8,168,457.7 Units outstanding
which originally sold for $81,684,577 and which reflected purchase volume
discounts of $143,319.
4. THE PARTNERSHIP AGREEMENT
In accordance with the Partnership Agreement, Distributable Cash Flow, as
defined below, of the Partnership remaining after payment of the Asset
Management Fee, as defined, is distributed quarterly, 98% to the class comprised
of the Unitholders (which includes the Corporate Limited Partner) and 2% to the
General Partner.
"Distributable Cash Flow" is defined as i) the net cash provided by the
Partnership's normal operations for each fiscal year, or portion thereof,
including, without limitation, Basic Interest, Minimum Additional Interest and
Shared Income Interest from Mortgages, points, interest from interim investments
and from funds held in escrow and amounts released from operating reserve
accounts available for distribution, after the general expenses and current
liabilities of the Partnership for such period (other than the Asset Management
Fee) are paid, less ii) amounts set aside for reserves.
"Asset Management Fee" is defined as an amount paid by the Partnership to
the General Partner on a quarterly basis equal to .5% per annum of the value of
the Total Invested Assets of the Partnership. Under no circumstances may the
aggregate of the Asset Management Fee paid since the organization of the
Partnership and the distributions to the General Partner of Distributable Cash
Flow paid since the organization of the Partnership exceed 10% of the aggregate
Distributable Cash Flow since the organization of the Partnership. The General
Partner may subcontract all or a portion of the services rendered for the Asset
Management Fee.
F-9
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. THE PARTNERSHIP AGREEMENT (CONTINUED)
"Total Invested Assets" is defined as the portion of the net proceeds of the
offering which is invested in Mortgages.
Upon the occurrence of a Capital Transaction, as defined below, the General
Partner will apply the proceeds first to the payment of all debts and
liabilities of the Partnership then due, and then fund any reserves for
contingent liabilities which it deems appropriate. "Capital Transaction" is
defined as a principal repayment or Mortgage prepayment to the extent that it is
classified as a return of capital for federal income tax purposes.
The remaining Net Cash Proceeds if any, as defined below, will be
distributed as follows: FIRST, to the class comprising the Unitholders until
they have received a return of their total Invested Capital; SECOND, to the
General Partner until it has received a return of its total Invested Capital;
THIRD, 99% to the class comprising the Unitholders and 1% to the General Partner
until the class comprising the Unitholders have received any deficiency in their
12% per annum Cumulative Return on Invested Capital through fiscal years ended
prior to the date of the Capital Transaction; and FOURTH, as to any remaining
proceeds, 90% to the class comprised of the Unitholders and 10% to the General
Partner.
"Net Cash Proceeds" is defined as cash received by the Partnership as a
result of a Capital Transaction, less any reinvested amounts, all debts and
liabilities of the Partnership required to be paid as a result of the
Transaction, and any reserves for contingent liabilities, to the extent deemed
reasonable by the General Partner. This is provided that, at the expiration of
such period as the General Partner shall deem advisable, the balance of such
reserves remaining after payment of such contingencies shall be distributed in
the manner provided in this Agreement for Net Cash Proceeds. If the Partnership
takes back a mortgage note in connection with a Capital Transaction, all
payments received with respect to it shall be included in the Net Cash Proceeds
of that Transaction.
"Invested Capital" means, with respect to the General Partner, its capital
contributions (other than capital contributions represented by any Guarantee
Payments, as described in Note 5) and, with respect to the Limited Partners and
Unitholders, $10.00 for each Limited Partner Interest or Unit, in either case
reduced by any amounts received as distributions of Distributable Cash Flow.
The Cumulative Return is defined as a 12% return per annum on the invested
capital of the class made up of the Unitholders calculated from the respective
dates on which the Units are deemed to be outstanding through the most recent
fiscal year completed prior to the Capital Transaction giving rise to the
computation.
Net income or loss from operations for any fiscal year is allocated 98% to
the class comprised of the Unitholders and 2% to the General Partner.
F-10
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES
The Partnership's net proceeds of $33,580,000 had been committed for
investment in Mortgages. Of this total amount committed, $1,946,594 had been
included in the Partnership's working capital reserve and subsequently
distributed to its Partners on November 15, 1994 and the following amounts have
been funded as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 (1) 1994 (1)
-------------- -----------
<S> <C> <C> <C>
Halcyon at Cross Creek........................ -PIM $ 7,226,406 $ 7,226,406
-PGL 400,000 400,000
The Highlands................................. -PIM 13,037,676(2) 13,154,200
-PGL -- (2) 1,095,800
Signature Place............................... -PIM 9,756,900 9,756,900
-PGL 100 100
-------------- -----------
$ 30,421,082 $31,633,406
-------------- -----------
-------------- -----------
</TABLE>
- - - ------------------------
(1) As of December 31, 1995 and 1994 cumulative principal repayments on the PIMS
of $371,707 and $246,244 have been received, respectively.
(2) Effective January 31, 1995, as part of the sale of the Highlands, as
described below, the participation feature of the Highlands PIM was
released, a new MBS was issued to the Partnership and the related PGL was
repaid. As described in Note 9, the MBS was subsequently sold in 1996.
MORTGAGE BACKED SECURITIES
Effective January 1, 1994, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). The Partnership had
considered its PIMs and PGLs to be held-to-maturity as defined by SFAS No. 115
in 1994.
SFAS No. 115 addresses the definition of, accounting for and disclosure of
debt and equity securities. In accordance with the statement, securities are
classified when purchased as either securities held to maturity, securities
available for sale or trading securities.
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." Concurrent with the initial
adoption of this implementation guidance, but no later than December 31, 1995,
the FASB permitted a one-time opportunity to reassess the appropriateness of the
classification of all securities. Accordingly, on December 31, 1995, the
Partnership reclassified its held-to-maturity investments to available-for-sale,
based on a one-time assessment of the portfolio. The impact of the assessment
was to transfer securities with an amortized cost of approximately $30,200,000
(which approximates market value of $30,700,000) from held-to-maturity to
available-for-sale. Market value has been calculated by management by
discounting future cash flows using interest rates based on treasury bills with
similar maturities.
A) CROSS CREEK
In 1990, the Partnership acquired a PIM (the "Cross Creek PIM") consisting
of (i) a MBS collateralized by a first mortgage loan in the principal amount of
up to $7,230,000 (the "Cross Creek Mortgage") with respect to a 152 unit garden
style apartment complex in Greenville, South Carolina known as Halcyon at Cross
Creek ("Cross Creek") and (ii) a participation interest in Cross Creek evidenced
by an additional interest agreement and secured by a subordinated mortgage on
Cross
F-11
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
Creek. The borrower is Boiling Springs Apartments Limited (the "Cross Creek
Borrower"). In addition, the Partnership agreed to make a PGL to the Cross Creek
Borrower's partners ("Individual Cross Creek Borrowers") of up to $600,000.
PARTICIPATING INSURED MORTGAGE
To fund the construction of Cross Creek, the Partnership purchased from Love
Funding Corporation ("LFC") mortgage-backed pass-through construction loan
certificates ("CLCs"), guaranteed as to timely payment of principal and Basic
Interest by GNMA, in the maximum principal amount of $7,230,000.
Upon the maturity of the CLCs at the conclusion of the construction period
and upon final endorsement ("Final Endorsement") of the Cross Creek Mortgage
Note by HUD, which occurred on January 8, 1992, the Partnership received a
mortgage-backed permanent loan certificate ( the "Cross Creek PLC"), guaranteed
as to the timely payment of principal and Basic Interest by GNMA. The Cross
Creek PLC has a face amount of $7,226,406, and an issue date of February 1,
1992.
The Cross Creek Mortgage Note bears interest at a Basic Interest Rate of
8.50% during the permanent term. One quarter of one percent (.25%) of the
foregoing amount is retained by LFC and GNMA as a servicing and guarantee fee;
accordingly, the Cross Creek PLC bears an interest rate of 8.25% per annum. The
Cross Creek Borrower is required to make equal monthly payments of principal and
interest on the Cross Creek Mortgage Note until maturity on December 15, 2031.
The Cross Creek Mortgage is coinsured by LFC and HUD under Section 221(d)(4)
of the National Housing Act for new construction of multi-family residential
properties. The Cross Creek Mortgage Note, which is non-recourse to the Cross
Creek Borrower, except under limited circumstances, including fraud, is
collateralized by a first mortgage on Cross Creek.
The Cross Creek Mortgage Note may be prepaid upon 30 days written notice
after, but not prior to, the tenth anniversary of the date of Initial
Endorsement, with a prepayment charge equal to 1% of the outstanding principal
on the Cross Creek Mortgage. Notwithstanding the foregoing, if HUD determines
that prepayment will avoid a mortgage insurance claim and is in the best
interest of the federal government, the Cross Creek Mortgage Note may be prepaid
at any time without the Partnership's consent and without any prepayment charge.
The Partnership has the option, upon six months written notice, to require
prepayment in full on or after the tenth anniversary of the date of the Initial
Endorsement. No prepayment fee shall be imposed if the Partnership exercises
this option. Enforcement of this option would require the termination of the
coinsurance contract and the surrender of the Cross Creek PLC.
The Partnership is entitled under the Cross Creek PIM to participations, in
addition to monthly pass-through payments of principal and Basic Interest, of:
(i) 50% of any increase in the value of Cross Creek in excess of its base value
(i.e., the outstanding principal amounts of the Cross Creek Mortgage and PGL);
the increase in value is measured from February 22, 1990 until the sale of Cross
Creek, or until the maturity, refinancing or prepayment of the Cross Creek
Mortgage; and (ii) 50% of Cross Creek's monthly net cash flow (subject to
certain HUD restrictions and reserve requirements) beginning with the first
month after completion of construction. The obligation of the Cross Creek
Borrower to pay these participations is evidenced by an additional interest
agreement, which is collateralized by a subordinated mortgage on Cross Creek and
is non-recourse to the Cross Creek Borrower, except under limited circumstances,
including fraud. This obligation is further collateralized by a collateral
assignment by the Individual Cross Creek Borrowers of their interests in the
Cross Creek Borrower.
F-12
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
PARTICIPATING GUARANTEED LOAN
The Partnership agreed to make a PGL of up to $600,000 to the Individual
Cross Creek Borrowers who are jointly and severally liable for this obligation.
The PGL, which is non-recourse debt, is collateralized by a collateral
assignment by the Individual Borrowers of their partnership interests in the
Cross Creek Borrower, constituting a second lien thereon. The promissory note
evidencing the PGL provides that the Individual Borrowers will use the proceeds
thereof to satisfy obligations of the Cross Creek Borrower.
Of the maximum loan proceeds to be available under the PGL, $400,000 has
been advanced as of December 31, 1995. In addition, up to $200,000 of the
maximum loan proceeds was to be advanced at the rate of $10.00 for each $1.00 of
net operating income in excess of $750,000 earned by Cross Creek at any time up
to and including one year after Final Endorsement of the Cross Creek Mortgage.
The one year anniversary of Final Endorsement was January 8, 1993 and no
additional amounts were advanced under the PGL. The unfunded loan proceeds of
$200,000, which had been included in the Partnership's working capital reserve,
were distributed to its Partners on November 15, 1994.
The PGL bears interest at the rate of 10% per annum, payable semi-annually,
and provides that interest shall be accrued up to $100,000 to the extent Surplus
Cash distributions (as defined by HUD) to the Individual Borrowers are
insufficient to fully pay the interest obligation. Any such accruals will be
added to the outstanding principal balance of the PGL and shall bear interest at
the same rate. At such time as accruals of interest (including semi-annually
compounded interest) exceed $100,000, the Individual Borrowers shall pay
interest on the outstanding principal amount semi-annually, whether or not
Surplus Cash is available. Accrued interest reached $100,000 on September 25,
1993. Accordingly, accrued interest became due and payable on October 1, 1993.
Semi-annual interest payments of $25,000 will be due and payable on each April 1
and October 1. Principal and unpaid interest, if any, shall be due and payable
on February 21, 2005.
No prepayments of the PGL will be permitted prior to the tenth anniversary
of the Initial Endorsement of the Cross Creek Mortgage. Thereafter, the PGL may
be prepaid in whole, but not in part, subject to a prepayment fee equal to 1% of
the principal amount prepaid. Also, commencing on the tenth anniversary date,
the Partnership will have the right to call the PGL, in which case no prepayment
fee shall be paid.
The terms of the PGL entitle the Partnership to participations in addition
to Basic Interest equal to: (i) 15% of any increase in the value of the
Individual Borrowers' partnership interest in the Cross Creek Borrower
(determined by reference to the value of Cross Creek) over the base value of the
Individual Borrowers' partnership interest (based on the outstanding principal
amount of the Cross Creek Mortgage and the PGL), such increase to be determined
upon the sale of Cross Creek or upon the refinancing, prepayment or maturity of
the PGL; and (ii) 15% of the Individual Borrowers' interest in Cross Creek's net
cash flow (subject to certain HUD restrictions and reserve requirements). The
aforesaid 15% participations in the PGL are over and above the 50%
participations in the Cross Creek Mortgage. The obligation of the Individual
Borrowers to pay these participations is evidenced by a supplemental interest
agreement, and is non-recourse to the Individual Borrowers, except under limited
circumstances, including fraud. These obligations are collateralized by a
collateral assignment by the Individual Borrowers of their partnership interests
in the Cross Creek Borrower (constituting a second lien thereon).
F-13
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
B) THE HIGHLANDS
In 1990, the Partnership acquired a PIM consisting of (i) an MBS
collateralized by a mortgage loan in the principal amount of up to $13,154,200
(the "Highlands Mortgage") secured by a first mortgage on a 272 unit garden
style apartment complex located outside Tampa, Florida (the "Highlands") and
(ii) a participation interest in the Highlands evidenced by an additional
interest agreement and secured by a subordinated mortgage on the Highlands. The
original borrower under the Highlands Mortgage was Highland Oaks Associates
Limited (the "Original Highlands Borrower").
PARTICIPATING INSURED MORTGAGE
To fund the construction of the Highlands, the Partnership entered into a
purchase agreement with Related Mortgage Corporation ("RMC"), pursuant to which
it agreed to purchase CLCs, guaranteed as to timely payment of principal and
Basic Interest by GNMA, in the maximum principal amount of up to $13,154,200.
Upon the maturity of the CLCs at the conclusion of the construction period
and upon Final Endorsement of the Highlands Mortgage Note by HUD, which occurred
on May 31, 1992, the Partnership received a PLC guaranteed as to the timely
payment of principal and Basic Interest by GNMA. The PLC had a face amount of
$13,154,200 and an issue date of June 1, 1992.
Effective January 31, 1995, the Original Highlands Borrower sold the
Highlands to Richland Properties, Inc. (the "New Highlands Borrower") for
$16,300,000 in accordance with the terms and conditions of the Purchase and Sale
Agreement dated October 14, 1994. The sale closed in escrow pending the receipt
by the Partnership of a new GNMA certificate in the principal amount of
$13,037,676, and bearing interest at 7.625% per annum. The new GNMA certificate
was received by the Partnership on February 15, 1995, at which time the sale was
completed and the Partnership received the payments described below, together
with the other closing documents. In addition, a mutual release was delivered,
effective January 31, 1995, pursuant to which all obligations of, and claims
against, the Highlands Borrower and its general partners were released by the
Partnership and Related Mortgage Corporation ("RMC"), and all obligations of,
and claims against, the Partnership and RMC were released by the Highlands
Borrower and its general partners.
The Partnership retained its beneficial interest in the Highlands Mortgage
("Modified Mortgage") and related promissory note ("Modified Note"), which were
modified to provide for (a) prepayment at any time with a prepayment charge
payable to RMC, equal to 1% of the outstanding principal, and (b) a reduction in
the interest rate from 8.5% to 7.875% per annum, one-quarter of one percent of
which is retained by RMC and GNMA as a servicing and guarantee fee. Accordingly,
the Partnership earns an interest rate of 7.625% per annum. The New Highlands
Borrower is required pursuant to the Modified Note and Modified Mortgage to make
equal monthly payments of principal and interest until maturity on May 15, 2032.
The Modified Mortgage is coinsured by RMC and HUD under Section 221(d)(4), of
the National Housing Act for new construction of multi-family residential
properties.
The Partnership has the option, upon six months written notice, to require
prepayment in full of the Modified Note on or after January 31, 2005. No
prepayment fee will be imposed if the Partnership exercises this option.
Enforcement of this option would require the termination of the coinsurance
contract and the surrender of the new GNMA certificate.
The Additional Interest Agreement has been amended and restated ("Amended
and Restated Agreement") to provide that the Partnership will no longer be
entitled to any participations in net cash flow or net appreciation in value of
the Highlands.
F-14
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
Concurrent with the sale of the Highlands as described above, the Highlands
PGL was repaid as the Partnership received $2,463,060, which included $1,095,800
of principal, $210,798 of accrued interest, a prepayment fee of $324,000 and
participations of $832,462. Such prepayment fee and participation are included
in other income for the year ended December 31, 1995. The Partnership
distributed these proceeds to its partners on May 15, 1995. In addition, the
Supplemental Interest Agreement was terminated, and the Partnership and the New
Highlands Borrower entered into an Amended and Restated Subordinated Mortgage
and Security Agreement to secure the Partnership's call option, as described
above.
As described in Note 9, the Highlands GNMA was sold on February 27, 1996.
Also on January 31, 1995, the Partnership and the Original Highlands
Borrower (together with its partners) entered into a Special Closing Agreement,
pursuant to which two letters of credit held by the Partnership were each
reduced from $75,000 to $17,500. The two letters of credit were being held as
security for the obligations of the Original Highlands Borrower and its partners
under the Special Closing Agreement, pursuant to which the Original Highlands
Borrower agreed to pay a portion of any additional taxes determined to be due in
connection with the recording of the original loan documents to the State of
Florida. In 1996, the recording tax claim was settled with the State of Florida
as described in Note 9.
During the year ended December 31, 1995, the Partnership received interest
totaling $999,170.10 related to the Highlands GNMA, which has been distributed
to investors in connection with the Partnership's regular quarterly
distributions in accordance with the Partnership's partnership agreement.
C) SIGNATURE PLACE
On May 8, 1991, the Partnership agreed to acquired a PIM (the "Signature
Place PIM") consisting of (i) an MBS collateralized by a federally coinsured
mortgage loan in the maximum principal amount of up to $9,800,000 (the
"Signature Place Mortgage") and (ii) a Participation Interest evidenced by an
additional interest agreement and secured by a subordinated mortgage on
Signature Place. The borrower of the Signature Place Mortgage is HG Partners
Limited Partnership (the "Signature Place Borrower"), which used the funds to
finance the construction of a 232-unit multi-family residential apartment
complex in Hampton, Virginia known as Signature Place ("Signature Place"). In
addition, the Partnership agreed to make a PGL to each of the Individual
Borrowers in the aggregate amount of up to $1,200,000.
PARTICIPATING INSURED MORTGAGES
The Partnership entered into a GNMA purchase agreement with LFC, pursuant to
which it agreed to purchase CLCs, guaranteed as to timely payment of principal
and Basic Interest by GNMA, in the maximum principal amount of $9,800,000. The
proceeds of the Signature Place Mortgage were disbursed to the Signature Place
Borrower in stages during the construction of Signature Place.
Upon the maturity of the CLCs at the conclusion of the construction period
and upon Final Endorsement of the Signature Place Mortgage note by HUD, which
occurred on February 9, 1993, the Partnership received a PLC (the "Signature
Place PLC"), guaranteed as to timely payment of principal and Basic Interest by
GNMA. The Signature Place PLC has a face amount of $9,756,900, and an issue date
of February 1, 1993.
The Signature Place Mortgage Note bears interest at a Basic Interest Rate of
8.25% during the permanent term. One quarter of one percent (.25%) of the
foregoing amount is retained by LFC and
F-15
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
GNMA as a servicing and guarantee fee; accordingly the Signature Place PLC bears
an interest rate of 8% per annum. The Signature Place Borrower will make equal
monthly payments of principal and interest until maturity on January 15, 2033.
The Signature Place Mortgage is coinsured by LFC and HUD under Section
221(d)(4) of the National Housing Act for new construction of multi-family
residential properties. The Signature Place Mortgage note, which is non-recourse
to the Signature Place Borrower, except under limited circumstances, including
fraud, is secured by a first mortgage on Signature Place.
The Signature Place Mortgage Note may be prepaid in full upon 45 days
written notice after (but not prior to) the tenth anniversary of Initial
Endorsement with a prepayment charge equal to 1% of the principal amount
prepaid, plus any additional interest due thereon. Notwithstanding the
foregoing, if HUD determines that prepayment will avoid a mortgage insurance
claim and is in the best interest of the federal government, the Signature Place
Mortgage Note may be prepaid at any time without the Partnership's consent and
without any prepayment charge. The Partnership has the option, upon six months
written notice, to require prepayment in full of the Signature Place Mortgage
Note on or after the tenth anniversary of Initial Endorsement. No prepayment fee
shall be imposed if the Partnership exercises this option. Enforcement of this
option would require the termination of the coinsurance contract and the
surrender of the Signature Place PLC.
The Partnership is entitled to participations under the Signature Place PIM
in addition to monthly pass-through payments of principal and Basic Interest,
equal to: (i) 50% of the net appreciation in the value of Signature Place from
Initial Endorsement until the sale of Signature Place or the maturity,
refinancing or prepayment of the Signature Place Mortgage; and (ii) 50% of
Signature Place's net cash flow (subject to certain HUD restrictions and reserve
requirements) beginning after completion of construction. The obligation of the
Signature Place Borrower to pay these participations is evidenced by an
additional interest agreement, which is collateralized by a subordinated
mortgage on Signature Place and is non-recourse to the Signature Place Borrower,
except under limited circumstances, including fraud and environmental
noncompliance.
PARTICIPATING GUARANTEED LOAN
The Partnership has also agreed to make a PGL in the aggregate amount of up
to $1,200,000 to the Individual Borrowers, jointly and severally, in the form of
a personal loan collateralized by the pledge of 100% of their partnership
interests in the Signature Place Borrower. Of the maximum loan proceeds to be
available under the PGL, $100 was funded as of December 31, 1995. In addition,
up to $499,900 of the loan proceeds were to be advanced at the rate of $6.25 for
each $1.00 of net operating income in excess of $960,000 per annum, and up to an
additional $700,000 of loan proceeds were to be advanced at the rate of $9.50
for each $1.00 of net operating income in excess of $1,040,000 per annum, earned
by the Signature Place Borrower at any time up to and including eighteen months
after Final Endorsement of the Signature Place Mortgage (the "Earn-Out"). The
Earn-Out period expired on August 8, 1994 and no additional amounts were
advanced under the PGL. The unfunded loan proceeds of $1,199,900, which had been
included in the Partnership's working capital reserve, were distributed to its
Partners on November 15, 1994.
The PGL bears interest at the rate of 15% per annum, payable semi-annually,
and provides that interest shall be accrued up to $100,000 to the extent Surplus
Cash (as defined by HUD) is insufficient to fully pay the interest obligation.
Any such accruals will be added to the outstanding principal balance of the PGL
and shall bear interest at the same rate. At such time as accruals of interest
(including semi-annually compounded interest) exceed $100,000 or commencing with
the second
F-16
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN MORTGAGES (CONTINUED)
anniversary of Final Endorsement (regardless of the balance of such accruals),
whichever occurs first, the Individual Borrowers shall pay interest on the
outstanding principal amount semi-annually, whether or not Surplus Cash is
available. Principal and accrued interest, if any, shall be due and payable on
May 8, 2006.
Since less than $250,000 was funded under the PGL, $249,900 (the difference
between $250,000 and the total amount funded) shall be considered additional
equity ("Additional Equity") contributed by the Individual Borrowers. To the
extent the Individual Borrowers' share of cash flow provides less than a 10%
cumulative annual return on the outstanding balance of Additional Equity
(compounded semi-annually) over the holding period of the investment, the
shortfall shall be paid out of the proceeds from the sale or refinancing of the
Signature Place Mortgage. All participations earned by the Partnership shall be
calculated after deducting interest and principal paid on the PIM, PGL and the
Additional Equity.
No prepayments of the PGL will be permitted prior to the tenth anniversary
of Initial Endorsement of the Signature Place Mortgage. Thereafter, the PGL may
be prepaid in whole, but not in part, upon 90 days prior written notice to the
Partnership subject to a prepayment fee equal to 1% of the principal amount
prepaid. On the tenth anniversary date, the Partnership will have the right to
call the PGL by six months prior written notice to the Individual Borrowers, in
which case no prepayment fee shall be paid.
The terms of the PGL entitle the Partnership to participations in addition
to Basic Interest equal to: (i) 10% of any increase in the value of the
partnership interests in the Signature Place Borrower (determined by references
to the value of Signature Place) over the base value of the partnership
interests (based on the outstanding principal amount of the Signature Place
Mortgage and the PGL), such increase to be determined upon the sale of Signature
Place or upon the refinancing, prepayment or maturity of the PGL; and (ii) 10%
of the Individual Borrowers' interest in Signature Place's net cash flow
(subject to certain HUD restrictions and reserve requirements). The aforesaid
10% participations in the PGL are over and above the 50% participations in the
Signature Place Mortgage. The obligation of the Individual Borrowers' to pay
these participations is evidenced by a Supplemental Interest Agreement, and is
non-recourse to such partners, except under limited circumstances, including
fraud.
6. THE GUARANTEE OF PGLS (ALL PROPERTIES)
The General Partner has agreed to guarantee a return to the Partnership, in
the aggregate, of all amounts invested in PGLs. Pursuant to the Guarantee, on
the date that dissolution and winding-up of the Partnership shall be completed,
the General Partner agreed to pay to the Partnership an amount, if any, by which
(i) the funds invested by the Partnership in PGLs exceeds (ii) all cash payments
received by the Partnership with respect to all Mortgages, INCLUDING points,
Basic Interest, Additional Interest and repayment of principal, but EXCLUDING
Basic Interest and repayment of principal of MBSs and other insured/guaranteed
Mortgages. As a result of the sale of the Highlands as referred to in
"Mortgages-the Highlands" above, the Partnership received cash in excess of the
amount of funds invested by the Partnership in PGLs. Accordingly, the General
Partner has no remaining future obligation with respect to any of the PGLs.
F-17
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The following is a summary of the fees earned and reimbursements paid or
payable to the General Partner and its Affiliates for the years ended December
31, 1995, 1994 and 1993, pursuant to the Partnership Agreement:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C> <C>
(1) Asset Management Fees....................................... $ 92,855 $ 158,167 $ 157,966
(2) Reimbursement of general and administrative expenses to the
General Partner............................................ 100,000 100,000 125,000
----------- ----------- -----------
$ 192,855 $ 258,167 $ 282,966
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- - - ------------------------
(1) For services rendered in managing the business of the Partnership, the
Partnership is obligated to pay on a quarterly basis to the General Partner
an Asset Management Fee equal to 0.5% per annum of the value of the Total
Invested Assets of the Partnership.
(2) The Partnership Agreement allows the Partnership to reimburse the General
Partner for certain general and administrative expenses paid in connection
with the management of the Partnership.
8. DEFERRED ACQUISITION FEES
Deferred acquisition fees as of December 31, 1995 and 1994 consisted of:
<TABLE>
<CAPTION>
1995 1994
----------- -------------
<S> <C> <C>
Acquisition expenses..................................................... $ 908,701 $ 1,945,006
Loan origination fees.................................................... -- (451,600)
Accumulated amortization................................................. (32,736) (41,531)
----------- -------------
Net deferred acquisition fees............................................ $ 875,965 $ 1,451,875
----------- -------------
----------- -------------
</TABLE>
9. SUBSEQUENT EVENTS
A) DISTRIBUTIONS TO PARTNERS
On February 15, 1996, the Partnership distributed $547,798 to the Partners,
which represented the Partnership's Distributable Cash Flow for the three months
ended December 31, 1995. The distribution to other Unitholders, the Corporate
Limited Partner and the General Partner was $536,829, $13 and $10,956,
respectively.
B) THE HIGHLANDS
RECENT DEVELOPMENTS
On February 27, 1996, the Partnership sold the Highlands GNMA for cash in
the amount of $13,105,373.01. The Highlands GNMA was sold through Utendahl
Capital Partners, an unaffiliated broker dealer, pursuant to which the Highlands
Borrower agreed to pay a portion of any additional taxes determined by the State
of Florida to be due in connection with the recording of the original loan
documents. The State of Florida claimed that $136,800 in additional recording
taxes were due. On March 12, 1996, the Partnership settled the recording tax
claim of the State of Florida discussed in Note 5 through a payment made on
behalf of the Partnership in the amount of $64,000 ($53,850 of which was funded
by the General Partner and $10,150 of which was funded by the Original Highlands
Borrower). The Partnership has recently received the signed Closing Agreement
settling the claim from the State of Florida and the letters of credit discussed
in Note 5 will be returned to the Original Highlands Borrower. The sales price
represents principal in the amount of $12,976,812.45, accrued interest in the
amount of $71,462.59 and a premium of $57,097.97. The Partnership was not
charged any separate fees or commissions in connection with the sale. The
General Partner of the Partnership
F-18
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS (CONTINUED)
decided to sell the Highlands GNMA to take advantage of what it perceived to be
a favorable market in which the Highlands GNMA could be sold at a premium. The
Partnership intends to distribute such proceeds to its partners on May 15, 1996,
the next scheduled distribution date.
The sale of the Highlands GNMA, together with the 1995 sale of the Highlands
and the related modification of the Highlands Mortgage, terminated the
Partnership's beneficial interest in the Highlands Mortgage and the Highlands.
C) CLASS ACTION LAWSUIT
Two class action lawsuits were filed against the General Partner and certain
affiliates of the General Partner in the District Court of Harris County, Texas
on January 11, 1996, styled GRIMSHAWE V. NEW YORK LIFE INSURANCE CO., ET AL.
(No. 96-001188) and SHEA V. NEW YORK LIFE INSURANCE CO., ET AL. (No. 96-001189)
alleging misconduct in connection with the original sale of investment units in
various partnerships (the "Proprietary Partnerships"), including violation of
various federal and state laws and regulations and claims of continuing
fraudulent conduct. The plaintiffs have asked for compensatory damages for their
lost original investment, plus interest, costs (including attorneys fees),
punitive damages, disgorgement of any earnings, compensation and benefits
received by the defendants as a result of the alleged actions and other
unspecified relief to which plaintiffs may be entitled. These suits were amended
and refiled in a consolidated action in the United States District Court for the
Southern District of Florida (the "Court") on March 18, 1996. In the federal
action, the plaintiffs added the General Partner as a defendant and included
allegations concerning the Partnership. The Partnership is not a defendant in
the litigation.
The defendants expressly deny any wrongdoing alleged in the complaint and
concede no liability or wrongdoing in connection with the sale of the Units or
the structure of the Proprietary Partnerships. Nevertheless, to reduce the
burden of protracted litigation, the defendants have entered into a Stipulation
of Settlement ("Settlement Agreement") with the plaintiffs because in their
opinion such Settlement would (i) provide substantial benefits to the limited
partners in a manner consistent with New York Life's position that it had
previously determined to wind up most of the Proprietary Partnerships, including
the Partnership, through orderly liquidation as the continuation of the business
no longer serves the intended objectives of either the limited partners or the
defendants and to offer the limited partners an enhancement to the liquidating
distribution they would otherwise receive and (ii) provide an opportunity to
wind up such partnerships on a schedule favorable to the limited partners and
resolve the issues raised by the lawsuit.
In connection with the proposed settlement (the "Settlement"), the General
Partner will solicit consents of the Unitholders for the dissolution of the
Partnership.
Under the terms of the Settlement Agreement, any settling Unitholders will
receive at least a complete return of their original investment, less
distributions received prior to the final settlement date, in exchange for a
release of any and all claims a Unitholder may have against the defendants in
connection with the Proprietary Partnership, including the Partnership, and all
activities related to the dissolution and liquidation of such partnerships.
Preliminary approval of the Settlement Agreement was given by the Court on
March 19, 1996. The Settlement Agreement is further conditioned upon final
approval by the Court as well as certain other conditions and is subject to
certain rights of termination detailed in the consent solicitation material
being mailed to the Unitholders.
F-19
<PAGE>
NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS (CONTINUED)
If the necessary consents of Unitholders for dissolution are obtained, the
Partnership will be dissolved even if all necessary approvals for the Settlement
Agreement are not obtained or the Settlement Agreement is otherwise terminated.
In general, upon the dissolution of the Partnership, tax consequences will
accrue to the partners. If the necessary consents of the Unitholders for
dissolution are not obtained, the Partnership will continue to own the Mortgages
and will continue to receive payments thereon.
The financial statements do not include any adjustments that might result
should the Unitholders vote to liquidate the Partnership.
F-20
<PAGE>
PRELIMINARY COPY
(FORM OF CONSENT CARD)
(Side 1)
NYLIFE GOVERNMENT MORTGAGE PLUS LIMITED PARTNERSHIP
THIS CONSENT IS SOLICITED ON BEHALF OF NYLIFE GOVERNMENT MORTGAGE PLUS
LIMITED PARTNERSHIP BY ITS GENERAL PARTNER, NYLIFE REALTY INC. THIS SOLICITATION
OF CONSENTS EXPIRES ON , 1996 UNLESS EXTENDED OR TERMINATED EARLIER.
The Units represented by this Consent, when properly executed, will be
recorded as directed by the Unitholder. If no direction is given, the Units will
be counted as giving CONSENT to the Proposal (as defined below). Please note
that abstentions (including failure to vote by brokers or other nominees) will
be counted as being AGAINST the Proposal.
The undersigned, acting with regard to all Units of depository receipts held
in NYLIFE Government Mortgage Plus Limited Partnership (the "Partnership") with
respect to which the undersigned is entitled to give his, her or its consent on
the Record Date, hereby consents, denies consent or abstains from consenting,
all as indicated on the reverse side hereof, to approve the proposal (the
"Proposal") to dissolve, terminate and wind up the Partnership as described in
the Definitive Solicitation Statement dated , 1996, receipt of
which, together with all amendments and supplements thereto, if any, is hereby
acknowledged. Delivery of this Consent, when properly executed, will revoke any
consent, failure to consent or abstention heretofore given with respect to such
Units.
(Please Date and Sign on Reverse Side)
<PAGE>
PRELIMINARY COPY
(FORM OF CONSENT CARD)
(Side 2)
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY, USING THE ENCLOSED
ENVELOPE.
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER MAKES NO RECOMMENDATION TO THE
UNITHOLDERS AS TO THE PROPOSAL.
TO APPROVE THE DISSOLUTION, TERMINATION AND WINDING UP OF THE PARTNERSHIP
(check one box)
/ / Consent / / Against / / Abstain
Please sign exactly as your name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in corporate name
by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
<TABLE>
<S> <C>
Dated: -----------------, 1996 ----------------------------
Signature
-----------------------------
Signature (if held jointly)
------------------------------
Title
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE OR DELIVER TO: NYLIFE Realty Inc., c/o . If you
have any questions, please call 1-800-278-4117. Facsimile copies of the Consent
Card, properly completed and duly executed, will be accepted at .
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered Page
------- -------------
1. Letter from Chairman of the Board to Investors
2. Notice of Class Action
3. Investor Questions and Answers
<PAGE>
[LETTERHEAD]
To Our Valued Customers:
We are sending you the enclosed materials because you may be eligible to
receive benefits under the proposed settlement of a class action lawsuit. The
lawsuit against New York Life and various other defendants has been brought on
behalf of individuals who invested in certain limited partnerships during the
period from January 1, 1985 through March 18, 1996. THE PRIMARY PURPOSE OF THE
PROPOSED SETTLEMENT IS TO PROVIDE CLASS MEMBERS AN OPPORTUNITY TO RECEIVE,
THROUGH A COMBINATION OF PRIOR DISTRIBUTIONS AND SETTLEMENT PAYMENTS, AT LEAST
100% OF THEIR ORIGINAL INVESTMENTS IN THE LIMITED PARTNERSHIPS.
The lawsuit alleges a variety of claims relating to the manner in which
interests in the limited partnerships were marketed, sold or transferred during
the period from January 1985 through March 18, 1996. (The limited partnerships
that are part of this settlement are identified in Section III.B of the Notice
accompanying this letter.) New York Life and its affiliates vigorously dispute
the claims.
Before the lawsuit was filed, however, New York Life had concluded that it
would be in the best interests of the limited partners to liquidate various of
the limited partnerships and that, in connection with the liquidation of those
partnerships, New York Life would add to the payments that investors would
receive from the liquidation. Because of this decision, and Plaintiffs'
counsels' experience in this type of litigation, the parties to the lawsuit were
able to negotiate a settlement that both sides find favorable to investors. Both
New York Life and counsel for plaintiffs believe the proposed settlement will
provide substantial monetary benefits to present and former owners of interests
in the partnerships and, at the same time, assure the ability of New York Life
and the other defendants to conduct their businesses without the disruption
caused by expensive and time consuming litigation.
Accompanying this letter you will find materials relating to the settlement,
which include:
-A NOTICE OF CLASS ACTION, PROPOSED SETTLEMENT, SETTLEMENT HEARING AND
RIGHT TO APPEAR that describes the lawsuit, the terms of the settlement
and an upcoming court hearing about the settlement.
-A QUESTION-AND-ANSWER BROCHURE designed to answer questions you may have
about the proposed settlement and how it may affect you.
-A STATEMENT OF ELIGIBILITY that identifies, according to records
available to New York Life, the Limited Partnership(s) included in the
litigation in which you own or owned units, the investment amount, the
amount of any prior distributions to you and, where possible, an
estimate of the amount of the payment to which you would be entitled
under the proposed settlement.
If you currently own Units in a limited partnership, you will also find a
PRELIMINARY CONSENT SOLICITATION STATEMENT describing the solicitation of the
limited partners' consent to liquidate the partnership and, in some cases, to
amend the partnership agreements to effectuate the settlement. Final consent
materials, including a consent card, will be sent to you at a later date.
PLEASE REVIEW THE ENCLOSED MATERIALS CAREFULLY TO MAKE SURE THAT YOU
UNDERSTAND BOTH YOUR RIGHTS UNDER THE PROPOSED SETTLEMENT AND THE DECISIONS YOU
NEED TO MAKE. IF YOU HAVE QUESTIONS AFTER READING THE ENCLOSED SETTLEMENT
MATERIALS, YOU CAN CALL 1-800-278-4117 FOR FURTHER INFORMATION.
<PAGE>
RELIEF UNDER THE PROPOSED SETTLEMENT
If the Court approves the proposed settlement, and if the liquidation of a
particular limited partnership and any required amendments to its partnership
agreement are approved by the requisite vote of its limited partners, then each
Class Member who currently owns units in the limited partnership will receive:
1. A LIQUIDATION ADVANCE from the New York Life Defendants of his, her or
its PRO RATA share of the approximate current value of the limited
partnership's assets and any excess working capital PLUS
2. One of the following payments:
-OUT-OF-POCKET LOSS (THE "REFUND"): A cash payment calculated to provide
each class member with 100% of his or her total original investment in
the limited partnership, taking into account any prior distributions,
any values received from selling or transferring units, and the
Liquidation Advance described above. In no case will this payment be
less than $200.
OR
-THE ENHANCEMENT: A cash payment for EACH limited partnership in which
the Class Member invested. The payment will be based on the total number
of investment units purchased by the Class Member but in no case will be
less than $200.
Class Members who no longer own units in a particular limited partnership,
or who own units in a partnership whose limited partners do not vote to
liquidate the partnership or to approve any proposed modifications to the
partnership agreements, will be eligible to receive only the Refund or the
Enhancement, but not the Liquidation Advance described above.
The relief to be made available through the proposed settlement is described
in more detail in Section IV of the attached Notice.
SETTLEMENT DECISIONS YOU NEED TO MAKE NOW
The enclosed materials relating to the proposed settlement describe certain
choices now available to Class Members. These choices include:
-To remain in the Class and be eligible to receive the benefits under the
proposed settlement, you need not take any action at this time.
-To remain in the Class but file with the Court a written objection to
any aspect of the proposed settlement. To do so, you must comply with
the requirements described in Section IX (page 20) of the attached
Notice.
-To exclude yourself from the Class and not receive the settlement
benefits. To do so, you must comply with the requirements described in
Section VIII (page 19) of the attached Notice.
The deadline for objections and exclusions is June 12, 1996.
LIQUIDATING THE LIMITED PARTNERSHIP(S)
If you currently own Units in a limited partnership, a Preliminary Consent
Solicitation Statement accompanies these materials. It provides information with
respect to the general partners' solicitation of the limited partners' consent
to liquidate the partnership and in some cases to amend the relevant partnership
agreements in order to effectuate the proposed settlement. Although you should
read the preliminary consent statement carefully, you need not respond to it at
this time.
A final and definitive consent solicitation statement, including a consent
card, will be sent to you at a later date. When you receive the definitive
statement, we urge you to read it carefully and complete and return the
accompanying consent card. You will be entitled to receive the full benefits
2
<PAGE>
available under the settlement only if the liquidation and any proposed
modifications to the partnership agreements are approved by the requisite number
of limited partners of your partnership. New York Life reserves the right to
terminate the settlement as to any partnership that does not vote to liquidate
at this time.
STATUS OF THE PROPOSED SETTLEMENT
The Court has not yet approved the proposed settlement and will not rule on
it before the hearing on July 3, 1996. The hearing is described in Section IX of
the attached Notice.
If you choose to remain in the Class, you will receive a check for the
benefits described above -- and described in greater detail in the accompanying
Notice -- if and when the proposed settlement becomes final.
UNLESS YOU HAVE QUESTIONS ABOUT THE TERMS OF THE PROPOSED SETTLEMENT, YOU
NEED NOT TAKE ANY ACTION AT THIS TIME TO RECEIVE THE BENEFITS OF THE PROPOSED
SETTLEMENT. If you do have questions, call 1-800-278-4117 to speak to a
representative regarding your benefits under the proposed settlement. PLEASE DO
NOT CALL THE COURT OR THE CLERK OF THE COURT.
We hope that you will be pleased with the steps New York Life has taken to
address the concerns underlying the lawsuit.
Very truly yours,
[SIGNATURE]
HARRY G. HOHN
CHAIRMAN OF THE BOARD
3
<PAGE>
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
- - - -----------------------------------------x
EVELYN SHEA, ANN GRIMSHAWE and :
on behalf of themselves and all others :
similarly situated, :
: Case No. 96-0746-
Plaintiffs, : CIV-NESBITT
: CLASS ACTION
v. :
:
NEW YORK LIFE INSURANCE COMPANY, :
NYLIFE INC., NYLIFE EQUITY INC., :
NYLIFE SECURITIES INC., NYLIFE :
REALTY INC., CNP REALTY INVESTMENT, :
INC., AMERICAN EXPLORATION COMPANY :
and AMERICAN EXPLORATION :
PRODUCTION COMPANY, :
:
Defendants. :
- - - -----------------------------------------x
NOTICE OF CLASS ACTION, PROPOSED SETTLEMENT,
SETTLEMENT HEARING AND RIGHT TO APPEAR
PLEASE READ THIS ENTIRE NOTICE CAREFULLY.
IT DESCRIBES A CLASS ACTION THAT MIGHT INVOLVE YOU.
YOUR RIGHTS WILL BE AFFECTED BY THE LEGAL
PROCEEDINGS DESCRIBED BELOW.
THIS IS NOT NOTICE OF A SUIT AGAINST YOU.
RATHER, YOU MAY BE ELIGIBLE FOR SUBSTANTIAL MONETARY
BENEFITS FROM THE PROPOSED SETTLEMENT.
I. OVERVIEW.
A. WHY YOU WERE SENT THIS NOTICE. You have been sent this Notice because
you may be eligible to receive cash payments under a proposed settlement of a
class action lawsuit brought on behalf of people who purchased or otherwise
assumed rights and title
<PAGE>
to interests in four series of limited partnership programs that the New York
Life entities helped to organize, generally known as:
NEW YORK LIFE OIL AND GAS PRODUCING PROPERTIES
PROGRAM
NYLIFE ENERGY INVESTORS
NYLIFE REALTY INCOME PARTNERS
NYLIFE GOVERNMENT MORTGAGE PLUS
The objective of the proposed settlement is to provide investors in
these limited partnership programs an opportunity to receive an amount of money
that, together with the distributions and any other payments they have
previously received, will at least equal 100% of the amount they invested in any
particular partnership. If all eligible Class Members in all eligible Limited
Partnerships participate in the Settlement, and all of the Limited Partnerships
are authorized to liquidate, the aggregate settlement payments will comprise two
components: $90 million to guarantee a return of principal to investors, and
approximately $97 million in pre-payments of liquidation proceeds (which the New
York Life Defendants will attempt to recover from the proceeds when the
Partnership assets are actually sold). The amount of the payment you may be
entitled to receive is described in more detail below under "CALCULATION OF
BENEFITS" in Section IV.A of this Notice. The right to, or amount of,
settlement benefits with respect to any particular partnership will depend on
whether authorization to liquidate the partnership has been obtained by the time
the settlement proceedings are concluded. If you currently own an interest,
please be sure to read Section I.B below and the preliminary consent
solicitation materials that accompany this Notice.
YOU DO NOT HAVE TO DO ANYTHING NOW IF YOU WISH TO SHARE IN THE
PROPOSED BENEFITS OF THE SETTLEMENT. If you purchased or assumed rights and
title to an interest in any of the limited partnerships identified in
Section III.B of this Notice (the "Limited Partnerships") between January 1,
1985 and March 18, 1996 (the "Class Period"), and you do not affirmatively act
to exclude yourself, you will automatically be included in the Class and will be
eligible to receive the benefits of the settlement, provided that it is approved
by the Court.
If you do not want to share in the proposed benefits, you may request
exclusion from the Class by following the procedures set out under the heading
"EXCLUSION FROM THE CLASS" as described in Section VIII at Page 19 below. If
you exclude yourself from the Class, you will not share in any of the benefits
of the proposed settlement, you will not be bound by any of the orders and
judgments that may be entered in the action, and your Limited Partnership
rights, if any, will continue to be determined by your Limited Partnership
agreement. REQUESTS FOR EXCLUSION MUST BE POSTMARKED BY JUNE 12, 1996.
2
<PAGE>
You also have the right to remain part of the Class but to object to
any portion of the proposed settlement. To do so, you must follow the
procedures described under Section IX below. If you object, you will remain part
of the Class and be bound by all orders and judgments entered in the Action,
even if the Court rejects your objections. OBJECTIONS MUST BE POSTMARKED BY
JUNE 12, 1996.
The Court has not yet finally ruled on the fairness of the proposed
settlement. The Court has determined, however, that this Notice should be
distributed to all Class Members so that they may make their own decisions about
whether or not to remain in the Class and participate in the proposed
settlement. Unless you specifically act to exclude yourself from the Class
according to the procedures described below, you will be bound by the terms of
the settlement, and will be eligible to receive its benefits, if it is approved
by the Court and becomes final. As described below, the Court will hold a
hearing on the proposed settlement on July 3, 1996.
NEW YORK LIFE AND THE PLAINTIFFS HAVE ASSIGNED REPRESENTATIVES TO
ANSWER ANY QUESTIONS YOU MAY HAVE ABOUT THE PROPOSED SETTLEMENT. IF YOU HAVE
QUESTIONS AFTER READING THIS NOTICE, PLEASE CALL 1-800-278-4117.
B. WHY YOU MAY HAVE RECEIVED PRELIMINARY CONSENT SOLICITATION MATERIALS
WITH THIS NOTICE. Investors will be assured a full return of the money invested
in a particular Limited Partnership only if authorization to liquidate the
partnership has been obtained by the time the settlement proceedings are
concluded. If authorization has not been obtained, you will still receive a
cash payment unless New York Life exercises its option to terminate the
settlement as to that partnership. If authorization to liquidate is timely
received, the Defendants will assume the risk that insufficient funds are
received upon actual liquidation to cover the Liquidation Advance, as defined
below.
Preliminary consent solicitation materials are being sent to current
investors with this Notice in order to permit the liquidation process to go
forward and to adopt any amendments to the partnership agreements necessary to
permit the settlement proposal to be carried out. You need not respond to these
materials at this time.
IF YOU HAVE RECEIVED PRELIMINARY CONSENT SOLICITATION MATERIALS, YOU
SHOULD READ THEM CAREFULLY. FINAL AND DEFINITIVE CONSENT SOLICITATION
MATERIALS WILL BE SENT TO YOU AT A LATER DATE. AT THAT TIME, YOU WILL
BE ABLE TO GIVE YOUR APPROVAL OR DISAPPROVAL TO THE MATTERS ON WHICH
YOUR CONSENT IS SOUGHT.
3
<PAGE>
YOU ARE ADVISED TO READ BOTH THIS NOTICE AND THE PRELIMINARY CONSENT
SOLICITATION STATEMENT(S), IF APPLICABLE, IN THEIR ENTIRETY. READING ONE IS NOT
A SUBSTITUTE FOR READING THE OTHER. EACH PROVIDES IMPORTANT INFORMATION THAT
THE OTHER DOES NOT PROVIDE. If you currently own an interest in one of the
Limited Partnerships but did not receive the preliminary consent solicitation
materials, you should call 1-800-278-4117 to ask for a copy of the materials.
II. DESCRIPTION OF THE LAWSUIT.
This action began as two class action lawsuits filed against the
Defendants on January 11, 1996 in the District Court of Harris County Texas,
captioned 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 "Texas
Actions"). On March 18, 1996, this class action (the "Action") was filed in the
United States District Court for the Southern District of Florida (the "Court").
Among other things, it presents federal and state law claims and consolidates
and amplifies the allegations in the Texas Actions. Plaintiffs have agreed, as
part of the settlement of this Action, to the dismissal with prejudice of the
Texas Actions.
In this Action, the Plaintiffs claim that the Defendants, in selling
interests in the Limited Partnerships to Class Members, provided materially
false statements and omitted to provide material information concerning (i) the
amount that would be realized from or paid out by the Limited Partnerships, (ii)
the rate of return on investments in the Limited Partnerships, (iii) cash
distributions made or projected to be made by the Limited Partnerships, (iv) the
safety of investors' principal, (v) the "suitability" of the investment for
risk-averse investors, (vi) the reasonableness of the assumptions underlying
projected rates of return, (vii) the economic viability of Limited Partnerships,
(viii) the nature of the Limited Partnerships and how they would be operated,
(ix) the assets purchased, acquired or sold by and/or for the Limited
Partnerships, (x) the way in which partnership assets were used or applied, and
(xi) decisions about how and when to wind up the partnerships.
The Defendants categorically deny all of the Plaintiffs' allegations.
Defendants believe that the manner in which interests in the Limited
Partnerships were sold to Class Members was not only lawful but entirely fair
and appropriate, and that Defendants have used their best efforts to operate the
Limited Partnerships in a manner that would benefit investors.
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III. PROPOSED SETTLEMENT.
A. SETTLEMENT NEGOTIATIONS.
The proposed settlement described in this Notice is the result of
extensive arm's-length negotiations involving Plaintiffs and their lawyers, and
Defendants and their lawyers, and is subject to Court approval.
Plaintiffs' counsel have conducted, and continue to conduct, an
extensive investigation into the matters at issue in this action. The
investigation includes both formal and informal discovery, the review of
hundreds of thousands of pages of documents, interviews and sworn depositions of
key officials of Defendants and other witnesses, and review and analysis by
various experts. Based on their investigation and evaluation of the facts and
law to date, Plaintiffs and their counsel believe that the lawsuit should be
settled upon the terms of the proposed settlement in view of the substantial
monetary benefits to be paid to Class Members and their conclusion that it is
fair, reasonable and in the best interests of the Class. The settlement will be
concluded only if, at the completion of their investigation, Plaintiffs and
their counsel continue to believe the settlement to be fair, reasonable and in
the best interests of the Class.
Throughout this litigation, New York Life has taken the position that:
- The New York Life Defendants had, before the filing of the lawsuits,
decided to exit the proprietary partnership business.
- The New York Life Defendants had, prior to the commencement of this
action, determined that it would be in the best interests of the
limited partners to wind up various of the Limited Partnerships and
that they would provide investors in those partnerships an additional
payment upon liquidation.
- The New York Life employees responsible for the sales of interests in
the Limited Partnerships worked honestly and conscientiously when
describing and selling the Limited Partnerships to the persons who
invested in them, including the Class Members, and Defendants have
used their best efforts to operate the Limited Partnerships in a
manner that would benefit the Limited Partners.
Notwithstanding that the Defendants believe that Plaintiffs'
allegations are without merit and that Defendants would prevail at trial, New
York Life and the other defendants wish to conduct their businesses without the
continued disruption and distraction that would inevitably be caused by this
litigation. Accordingly, the Defendants
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are willing to enter into the proposed settlement and to have the claims
dismissed by the Court because they believe the proposed settlement (i) serves
the interests of all of the parties to the litigation, (ii) provides substantial
benefits to the Class, and (iii) is fair, reasonable and adequate in every
respect.
The Defendants and the Plaintiffs also acknowledge that litigation,
particularly in complex cases such as this one, creates uncertainty, risks and
delays, and that the proposed settlement offers the chance finally to resolve
these matters in a manner that is certain, prompt, and not unduly expensive.
B. THE SETTLEMENT CLASS.
By Order dated March 19, 1996 the Court, for settlement purposes,
formally certified the Class as comprising all persons or entities who purchased
or otherwise assumed rights and title to any Proprietary Investment Units during
the period from January 1, 1985 through March 18, 1996, but NOT INCLUDING
persons or entities who signed a document that released all New York Life
Defendants from any further claims concerning the Proprietary Investment Units
they owned. A "Proprietary Investment Unit" is defined as a unit of Limited
Partnership interest in any of the following partnerships:
1. NEW YORK LIFE OIL AND GAS PRODUCING
PROPERTIES PROGRAM ("NYLOG")
NYLOG 1A NYLOG 2A NYLOG 3AX
NYLOG 1B NYLOG 2B NYLOG 3AN
NYLOG 1C NYLOG 2C NYLOG 3BX
NYLOG 1D NYLOG 2D NYLOG 3BN
NYLOG 2E NYLOG 3CX
NYLOG 2F NYLOG 3CN
NYLOG 2G NYLOG 3DX
NYLOG 3DN
NYLOG 3EX
NYLOG 3EN
NYLOG 3FX
NYLOG 3FN
NYLOG 3GX
NYLOG 3GN
NYLOG 3HX
NYLOG 3HN
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2. NYLIFE ENERGY INVESTORS ("NEI")
NEI 86 NEI 87-II NEI IV NEI VI
NEI 87 NEI III NEI V
3. NYLIFE REALTY INCOME PARTNERS
4. NYLIFE GOVERNMENT MORTGAGE
PLUS LIMITED PARTNERSHIP
C. CHOICES YOU NEED TO MAKE NOW.
If you are a Class Member as defined above, you have the following
choices with respect to the proposed settlement:
- YOU MAY REMAIN IN THE CLASS AND BE ELIGIBLE TO PARTICIPATE IN THE
BENEFITS OF THE PROPOSED SETTLEMENT. IF THIS IS WHAT YOU CHOOSE TO
DO, YOU NEED NOT TAKE ANY ACTION AT THIS TIME. YOUR INTERESTS WILL BE
REPRESENTED WITHOUT COST TO YOU BY COUNSEL FOR THE CLASS. Once the
settlement is approved by the Court, you will be contacted again and
will be told specifically how and when you will receive the benefits
of the proposed settlement. Please keep in mind that, if you remain
in the Class, (i) you will be bound by all orders and judgments
entered in this case, whether favorable or unfavorable, (ii) you
cannot transfer any Units you may own without complying with the
Court's orders, and (iii) you will not be able to maintain, continue
or commence any other claim, lawsuit or proceeding against the
Defendants relating to the Proprietary Investment Units.
- IF YOU REMAIN IN THE CLASS, YOU MAY FILE WITH THE COURT A WRITTEN
OBJECTION TO ANY ASPECT OF THE PROPOSED SETTLEMENT, POSTMARKED BY JUNE
12, 1996. To do so, you must comply with the requirements described
below in Section IX. In addition, you (or an attorney acting on your
behalf at your expense) may appear before the Court to voice your
objection to the extent allowed by the Court. If the Court does not
agree with your objections, you nevertheless will be bound by the
orders and judgments in this case.
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- YOU MAY EXCLUDE YOURSELF FROM THE CLASS BY SENDING A FORMAL, WRITTEN
REQUEST FOR EXCLUSION THAT COMPLIES WITH THE REQUIREMENTS DESCRIBED
BELOW IN SECTION VIII POSTMARKED BY JUNE 12, 1996. If you request
exclusion and are excluded, (i) you lose all rights to receive any of
the relief being made available under the proposed settlement, (ii)
you may not file any objection to the proposed settlement, and (iii)
you will not be bound by the final order or judgment in this case, and
your Limited Partnership rights, if any, will be determined by your
Limited Partnership agreement. PLEASE NOTE THAT, IF YOU CHOOSE TO BE
EXCLUDED FROM THE CLASS WITH RESPECT TO ANY UNIT OF INTEREST IN A
LIMITED PARTNERSHIP ("PROPRIETARY INVESTMENT UNIT"), YOU WILL BE
EXCLUDED ENTIRELY FROM THE CLASS WITH RESPECT TO ALL PROPRIETARY
INVESTMENT UNITS YOU OWN OR OWNED IN ALL LIMITED PARTNERSHIPS.
Please keep these three choices in mind as you read this Notice. Choices you
may have as a current Unit owner with respect to the proposals on liquidating
your Limited Partnership or amending the relevant partnership agreements are
described in the accompanying preliminary consent solicitation materials.
D. DISMISSAL OF TEXAS LAWSUITS.
As part of the proposed settlement of this Action, the Texas Actions
described in Section II above, 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),
will be dismissed with prejudice.
IV. PROPOSED SETTLEMENT RELIEF FOR CLASS MEMBERS.
A. CALCULATION OF BENEFITS.
The proposed settlement has been structured by counsel for all parties
to avoid lengthy and costly litigation and to quickly and efficiently resolve
this case by offering each Class Member on the Final Settlement Date(1) the
opportunity to have received, in the aggregate, an amount equal to at least 100%
of the total Investment
- - - --------------------
(1) In general, the Final Settlement Date is the date on which the Court's
order approving the settlement is final and no longer subject to appeal.
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Principal paid for each Proprietary Investment Unit (taking into account prior
distributions by the Limited Partnership to the Class Member).
The amount of the cash payment you may be entitled to receive under
the proposed settlement depends on a number of factors, including
(i) how much you paid when you bought or acquired the Unit (or what
value it had, if you did not pay cash);
(ii) how much money the Partnership has returned to you through
distributions;
(iii) how much you received if you sold or transferred the Unit (or
what value it had, if you did not receive cash); and
(iv) if you still own the Unit, (a) how much the assets of the
Partnership are worth when the settlement becomes final, and (b) whether
the required number of limited partners have voted to approve liquidation
of the Partnership.
To understand what the settlement may be worth to you, evaluate the
following factors for each Limited Partnership in which you invested. As you do
so, you should refer to the information provided on the Statement of Eligibility
included with this Notice, which, where possible, includes a calculation of your
estimated settlement benefits.
1. FOR CLASS MEMBERS WHO SOLD OR TRANSFERRED
THEIR UNIT(S) IN A PARTICULAR LIMITED PARTNERSHIP.
FIRST, determine what your INVESTMENT is. Your Investment is the
amount you paid for the Unit when you acquired it. If you received the Unit as
a gift, as part of an inheritance, as part of a settlement in a divorce or for
little or no cash, then your Investment will be the value that you and the
person from whom you acquired it agree upon in good faith. If a good faith
agreed value is not possible, then a Settlement Administrator retained by the
Plaintiffs and Defendants will set the value.
SECOND, add up all of the payments that were made to you by the
Partnership. These are your DISTRIBUTIONS.
THIRD, if you have sold or transferred the Unit, determine how much
you were paid. Again, if you transferred the Unit as a gift, as part of an
inheritance, as part of a settlement in a divorce or for little or no cash, then
the value will be what you and the person who acquired it agree upon in good
faith or, if a good faith agreed value is not
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possible, the value as determined by the Administrator. This amount is called
the TRANSFER PROCEEDS.
IF YOU HAVE SOLD OR TRANSFERRED THE UNIT, then your cash payment under
the settlement proposal is calculated as follows:
INVESTMENT MINUS DISTRIBUTIONS MINUS TRANSFER PROCEEDS
= OUT-OF-POCKET LOSS
IF YOUR INVESTMENT IS GREATER THAN YOUR DISTRIBUTIONS AND YOUR
TRANSFER PROCEEDS COMBINED, then you will receive a cash payment (the "Refund")
equal to your Out-of-Pocket Loss. Under the terms of the settlement, the
minimum Refund you will receive for any single partnership is $200.
IF YOU HAVE NO OUT-OF-POCKET LOSS (because your Distributions plus
Transfer Proceeds exceed your Investment), then you will receive an amount equal
to the Enhancement. The Enhancement is discussed further below.
2. CLASS MEMBERS WHO ARE CURRENT UNIT OWNERS.
As part of the settlement, the New York Life Defendants have agreed to
pay to all Class Members who are current Unit owners in any Partnership WHOSE
LIMITED PARTNERS HAVE VOTED TO APPROVE LIQUIDATION an amount equal to an
approximation of the value of their interest in the Partnership's assets,
calculated as if the Partnership had been liquidated at the time the settlement
becomes final. In effect, these Class Members will receive, as part of their
settlement payment, an advance payment against what they would receive when the
Partnership later makes a liquidating distribution. This portion of the
settlement payment is called the LIQUIDATION ADVANCE.(2)
- - - --------------------------
(2) The amount of the Liquidation Advance will be determined based on an
approximation of the particular Partnership's asset values and excess
working capital. Those values will be determined by reference to certain
valuations and appraisals as of December 31, 1995, which will then be
adjusted to take account of Partnership activity between December 31, 1995
and the Final Settlement Date.
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FOR THOSE WHO CURRENTLY OWN UNITS IN LIQUIDATING PARTNERSHIPS, an amount
equal to the Liquidation Advance PLUS either their Refund or an Enhancement will
be paid. If you are a current Unit owner, your Out-of-Pocket-Loss will be
calculated as follows:
INVESTMENT MINUS DISTRIBUTIONS MINUS LIQUIDATION ADVANCE
= OUT-OF-POCKET LOSS
If you currently own Units in a partnership and have previously sold
or transferred other Units in that partnership, your formula will be:
TOTAL INVESTMENT MINUS DISTRIBUTIONS MINUS TRANSFER PROCEEDS
MINUS LIQUIDATION ADVANCE (FOR CURRENTLY-OWNED UNITS)
= OUT-OF-POCKET LOSS
IF YOUR INVESTMENT IS GREATER THAN YOUR DISTRIBUTIONS PLUS LIQUIDATION
ADVANCE COMBINED, then you will receive a cash payment equal to your Out-of-
Pocket Loss (the"Refund") plus your Liquidation Advance. Under the terms of the
settlement, the minimum Refund you will receive for any single partnership is
$200.
IF YOU HAVE NO OUT-OF-POCKET LOSS (because your Distributions plus
Liquidation Advances exceed your Investment), then you will receive a payment
equal to the Enhancement. The Enhancement is discussed below.
WHEN THE PARTNERSHIP'S ASSETS ARE FINALLY SOLD AND THE PARTNERSHIP IS
LIQUIDATED, the money and other funds in the Partnership will be used, FIRST, to
set up a reserve to pay any remaining liabilities of the Partnership; and THEN,
any remaining funds will be distributed to the current Unit owners in proportion
to their interest in the Partnership. At the time of this distribution, the
Limited Partnership will repay the New York Life Defendants from the amount
otherwise payable to each Class Member who received a Liquidation Advance. Each
Class Member who received a Liquidation Advance will be deemed to have
authorized and instructed the general partners to make such repayment. After
New York Life is repaid, the amount remaining, if any, will be distributed to
those Class Members. Finally, after the general partners conclude that all
liabilities have been satisfied, any remaining reserve will be distributed in
the same manner.
If the amount of money available from the Limited Partnership is not
sufficient to provide the New York Life Defendants with an amount equal to the
Liquidation Advances paid with respect to that Partnership, then the New York
Life Defendants will absorb the difference. In no event will a Class Member be
required to repay out of his or her pocket any of the Liquidation Advance even
if the actual liquidation proceeds are less than anticipated.
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3. CLASS MEMBERS IN NON-LIQUIDATING PARTNERSHIPS.
IF YOU ARE OR WERE A UNIT OWNER IN A PARTNERSHIP THAT HAS NOT BEEN
AUTHORIZED BY ITS LIMITED PARTNERS TO LIQUIDATE or make any amendments to the
Partnership agreements necessary to carry out the settlement, the Defendants
have the right to exclude your Partnership from the settlement, and therefore to
exclude you from participation in the settlement with respect to any Units you
own in that Partnership. If the Defendants instead decide to allow you to
participate with respect to such a non-liquidating Partnership, then you will
receive a payment based on a calculation that assumes (if you are a current
owner) that you have received the Liquidation Advance, even though you will not
actually receive the Liquidation Advance as part of your settlement payment. In
that case, your settlement payment will be calculated as follows:
INVESTMENT MINUS DISTRIBUTIONS MINUS ASSUMED LIQUIDATION
ADVANCE (FOR CURRENTLY OWNED UNITS)
= OUT-OF-POCKET LOSS
IF YOU HAVE NO OUT-OF-POCKET LOSS, calculated in this fashion, you
will receive the Enhancement, as calculated below. In addition, since the
Limited Partnership will have voted not to liquidate, you will continue to be a
limited partner, and will share in any distributions the Partnership may make in
the future.
4. ENHANCEMENT.
If the calculations above show that you are entitled under the
settlement to an ENHANCEMENT, the amount of your Enhancement will depend upon
the particular Partnership as to which the Enhancement will be paid.
- For each Partnership that is part of the NYLOG I series, the
Enhancement will be equal to the greater of either $10 for each Unit,
or $200.
- For each Partnership that is part of the NYLOG II and III series, and
for the NYLIFE Realty Income Partnership, the Enhancement will be
equal to the greater of either 40 cents for each Unit, or $200.
- For the NYLIFE Government Mortgage Plus Limited Partnership, the
Enhancement will be equal to the greater of 20 cents for each Unit, or
$200.
The varying amounts of the Enhancement to be paid for the different Limited
Partnerships reflect differences in the original cost of purchasing Units in
these partnerships.
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5. CONDITIONS OF RELIEF.
The cash settlement payments described above are conditioned upon
entry of a court order and judgment approving the settlement that is final and
no longer subject to appeal.
In partial return for the payments described above, Class Members who
currently own Proprietary Investment Units, under the Final Order and Judgment,
will be deemed to authorize and irrevocably direct the General Partners of the
respective Limited Partnership to pay to NYLIFE Equity Inc. or NYLIFE Realty
Inc. out of the actual Liquidation Proceeds an amount equal, if available, to
the Liquidation Advance which that Class Member received as part of the
settlement payments made following the Final Settlement Date. By negotiating
your settlement check, you will grant New York Life a security interest in your
Unit(s) and in your share of your Limited Partnership's liquidation proceeds, up
to the amount of your Liquidation Advance. In addition, current owners who do
not request exclusion from the Class have now been barred and, upon the final
settlement, will be forever barred and enjoined from selling or otherwise
transferring any Proprietary Investment Unit that they own as of March 18, 1996
unless they comply with the provisions of the Court's order of March 19, 1996,
as described in Section VII below.
UNLESS YOU WISH TO REQUEST EXCLUSION FROM THE CLASS, OR TO FILE AN
OBJECTION OR COMMENT WITH THE COURT, YOU DO NOT NEED TO TAKE ANY
ACTION AT THIS TIME TO PARTICIPATE IN THIS SETTLEMENT.
V. INCOME TAX CONSEQUENCES.
Your receipt of benefits resulting from the proposed settlement as
described above is likely to have tax consequences for you. Those tax
consequences may vary, depending upon your individual circumstances. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR TO DETERMINE ANY FEDERAL, STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES OF THE RECEIPT OF RELIEF IN YOUR PARTICULAR CIRCUMSTANCES.
If you elect not to receive any of the settlement benefits, the
settlement should not have any tax consequences for you, although a liquidation
of any Limited Partnership in which you own Proprietary Investment Units may
have tax consequences.
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VI. RELEASE OF CLASS MEMBERS' CLAIMS.
If the proposed settlement is approved by the Court and the settlement
becomes final and effective, all claims relating to a broad variety of matters
in connection with the Limited Partnerships and your investment in them that
have been, could have been, may be or could be alleged or asserted now or in the
future by a Class Member against the Defendants and other released parties will
be dismissed on the merits and with prejudice. None of those claims may
thereafter be asserted in any lawsuit, or other proceeding. If Plaintiffs and
Class Members do not properly request exclusion (as described below in Section
VIII, Plaintiffs and Class Members will be deemed to have released and
discharged any and all claims described below, and to have agreed not to sue the
Defendants and other Released parties on those claims. BECAUSE THE RELEASE IS A
CRITICAL ELEMENT OF THE PROPOSED SETTLEMENT, IT HAS BEEN INCLUDED HERE IN ITS
ENTIRETY EXCEPT FOR SOME DEFINED TERMS THAT APPEAR ELSEWHERE IN THE NOTICE. YOU
SHOULD READ IT VERY CAREFULLY BECAUSE IT WILL AFFECT YOUR RIGHTS IF YOU REMAIN
IN THE CLASS.
RELEASE AND WAIVER
I. DEFINITIONS. FOR PURPOSES OF THE PROPOSED RELEASE AND WAIVER:
A. "DEFENDANTS" MEANS NEW YORK LIFE INSURANCE COMPANY, NYLIFE
INC., NYLIFE EQUITY INC., NYLIFE REALTY INC., CNP REALTY INVESTMENT, INC., AND
NYLIFE SECURITIES INC., ALL PREDECESSORS AND SUCCESSORS OF EACH OF THEM, AND THE
AMERICAN EXPLORATION COMPANY, AND AMERICAN EXPLORATION PRODUCTION COMPANY.
B. "RELEASEES" MEANS THE DEFENDANTS, THE LIMITED PARTNERSHIPS,
AND THEIR PARENTS, SUBSIDIARIES, AFFILIATES, PREDECESSORS, SUCCESSORS AND
ASSIGNS, AND EACH OF THEIR RESPECTIVE PAST, PRESENT AND FUTURE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, BROKERS, CO-VENTURERS, PARTNERSHIP OPERATORS AND
MANAGERS, REGISTERED REPRESENTATIVES, ATTORNEYS, ACCOUNTANTS, INVESTMENT
BANKERS, ADVISERS, HEIRS, ADMINISTRATORS, EXECUTORS, PREDECESSORS, SUCCESSORS
AND ASSIGNS, OR ANY OF THEM.
C. "RELEASED TRANSACTIONS" MEANS THE CREATION, SPONSORSHIP,
FORMATION, MARKETING, SOLICITATION, SALE, PURCHASE, OPERATION, RETENTION,
SERVICING, MANAGEMENT, ADMINISTRATION, LIQUIDATION, AND DISPOSITION, SELECTION,
PURCHASE OR SALE OF ASSETS OF, AND BORROWING OR INVESTMENT OF PROCEEDS FOR, THE
LIMITED PARTNERSHIPS, THE PROPRIETARY INVESTMENT UNITS, THE GENERAL PARTNERSHIPS
OR ANY OTHER INTEREST IN A LIMITED PARTNERSHIP, AND ALL ACTIONS TAKEN OR TO BE
TAKEN IN CONNECTION WITH THE DISSOLUTION, LIQUIDATION AND/OR WINDING UP OF THE
LIMITED PARTNERSHIPS AND THE SETTLEMENT OF THIS ACTION.
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D. "ASSETS" MEANS THE REAL OR PERSONAL, TANGIBLE OR INTANGIBLE,
PROPERTIES OR THINGS OWNED BY A LIMITED PARTNERSHIP, INCLUDING OIL AND GAS
PRODUCED IN THE ORDINARY COURSE.
E. "COLLATERALIZED VALUE" MEANS THE LESSER OF THE AMOUNT OF THE
LIMITED PARTNER'S SHARE IN THE LIQUIDATION PROCEEDS PLUS THE RESERVE, OR THE
AMOUNT OF THE LIQUIDATION ADVANCE.
F. "EXISTING LIMITED PARTNERS" ARE LIMITED PARTNERS WHO OWN
PROPRIETARY INVESTMENT UNITS AS OF THE DATE THE RELEASE BECOMES EFFECTIVE.
G. "GENERAL PARTNERS" MEANS NYLIFE EQUITY INC., NYLIFE REALTY
INC., AMERICAN EXPLORATION PRODUCTION COMPANY OR CNP REALTY INVESTMENTS, INC.,
FORMERLY LINCLAY INVESTMENT PROPERTIES, INC., AS APPLICABLE.
H. "LIMITED PARTNERS" MEANS ANY PERSON OR ENTITY WHO IS OR WAS
A LIMITED PARTNER IN ANY LIMITED PARTNERSHIP AS DETERMINED BY THE RELEVANT
LIMITED PARTNERSHIP AGREEMENT.
I. "LIMITED PARTNERSHIP[S]" MEANS A LIMITED PARTNERSHIP OR
OTHER DIRECT INVESTMENT PROGRAM CREATED, SPONSORED, MARKETED, SOLD, OPERATED OR
MANAGED BY THE DEFENDANTS DURING THE PERIOD FROM JANUARY 1, 1985 THROUGH MARCH
18, 1996, INCLUSIVE, AND LISTED IN SECTION III.B. ABOVE.
1. RELEASE AND COVENANT NOT TO SUE. PLAINTIFFS AND ALL CLASS
MEMBERS HEREBY EXPRESSLY AGREE THAT THEY SHALL FOREVER RELEASE AND DISCHARGE THE
RELEASEES FROM ANY AND ALL CAUSES OF ACTION, CLAIMS, DAMAGES, EQUITABLE, LEGAL
AND ADMINISTRATIVE RELIEF, INTEREST, DEMANDS OR RIGHTS, WHETHER BASED ON
FEDERAL, STATE OR LOCAL STATUTE OR ORDINANCE, REGULATION, CONTRACT, COMMON LAW,
OR ANY OTHER SOURCE, INCLUDING ANY CLAIMS RELATING TO FEDERAL OR STATE
SECURITIES LAW, THAT HAVE BEEN, COULD HAVE BEEN, MAY BE OR COULD BE ALLEGED OR
ASSERTED NOW OR IN THE FUTURE BY PLAINTIFFS OR ANY CLASS MEMBER AGAINST THE
RELEASEES IN THE ACTION OR IN ANY OTHER COURT ACTION OR BEFORE ANY
ADMINISTRATIVE BODY (INCLUDING ANY FEDERAL OR STATE REGULATORY COMMISSION),
TRIBUNAL, ARBITRATION PANEL OR SELF-REGULATORY ORGANIZATION ON THE BASIS OF,
CONNECTED WITH, ARISING OUT OF, OR RELATED TO, IN WHOLE OR IN PART, ANY LIMITED
PARTNERSHIP OR OTHER DIRECT INVESTMENT PROGRAM CREATED, SPONSORED, MARKETED,
SOLD, OPERATED OR MANAGED BY THE DEFENDANTS, INCLUDING WITHOUT LIMITATION:
(i) THE RELEASED TRANSACTIONS;
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(ii) ANY OR ALL OF THE ACTS, OMISSIONS, FACTS, MATTERS, TRANSACTIONS OR
OCCURRENCES THAT WERE DIRECTLY OR INDIRECTLY ALLEGED, ASSERTED,
DESCRIBED, SET FORTH OR REFERRED IN, OR RELATED TO, THE ACTION OR THE
TEXAS ACTIONS;
(iii) ANY OR ALL OF THE ACTS, OMISSIONS, FACTS, MATTERS, TRANSACTIONS,
OCCURRENCES, SCHEMES, ARTIFICES OR ANY ORAL OR WRITTEN STATEMENTS OR
REPRESENTATIONS ALLEGEDLY MADE IN CONNECTION WITH, OR DIRECTLY OR
INDIRECTLY RELATING TO, THE RELEASED TRANSACTIONS INCLUDING, WITHOUT
LIMITATION, ANY ACTS, OMISSIONS, SCHEMES, ARTIFICES, FACTS, MATTERS,
TRANSACTIONS, OCCURRENCES, OR ORAL OR WRITTEN STATEMENTS OR
REPRESENTATIONS RELATING TO OR IN CONNECTION WITH:
(a) THE PURCHASE, SALE OR RETENTION OF ANY PROPRIETARY INVESTMENT
UNIT OR OTHER INTEREST IN OR RELATING TO THE LIMITED
PARTNERSHIPS;
(b) THE AMOUNT THAT WOULD BE REALIZED ON OR PAID WITH RESPECT TO THE
PROPRIETARY INVESTMENT UNITS;
(c) THE RATE OF RETURN THAT WOULD BE EARNED ON THE PROPRIETARY
INVESTMENT UNITS;
(d) CASH DISTRIBUTIONS MADE OR PROJECTED;
(e) THE NATURE, CHARACTERISTICS, TERMS, APPROPRIATENESS, SUITABILITY,
DESCRIPTIONS AND OPERATION OF THE PROPRIETARY INVESTMENT UNITS;
(f) THE ASSETS PURCHASED, ACQUIRED OR SOLD FOR THE LIMITED
PARTNERSHIPS;
(g) THE OPERATORS, ADMINISTRATORS AND AGENTS RETAINED BY THE
DEFENDANTS FOR THE LIMITED PARTNERSHIPS AS WELL AS THE CONDUCT
AND ACTIVITIES OF SUCH OPERATORS, ADMINISTRATORS AND AGENTS;
(h) THE PROPRIETY OF THE WAY IN WHICH PARTNERSHIP FUNDS OR ASSETS
WERE USED OR APPLIED;
(i) ACTUAL OR ANTICIPATED TAX EFFECTS OF THE LIMITED PARTNER'S
INVESTMENT.
(iv) ANY OR ALL ACTS, OMISSIONS, FACTS, MATTERS, TRANSACTIONS, OCCURRENCES
OR ORAL OR WRITTEN STATEMENTS OR REPRESENTATIONS IN CONNECTION WITH OR
DIRECTLY OR INDIRECTLY RELATING TO THE ADMINISTRATION, MANAGEMENT OR
OPERATION OF THE LIMITED PARTNERSHIPS AND ANY ACTIVITIES OF THE
GENERAL PARTNERS IN CONNECTION THEREWITH; AND
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(V) ANY OR ALL ACTS, OMISSIONS, FACTS, MATTERS, TRANSACTIONS, OCCURRENCES
OR ORAL OR WRITTEN STATEMENTS OR REPRESENTATIONS IN CONNECTION WITH OR
DIRECTLY OR INDIRECTLY RELATING TO THE SETTLEMENT AGREEMENT OR THE
SETTLEMENT OF THE ACTION, OR THE DISSOLUTION, LIQUIDATION AND/OR
WINDING UP OF THE AFFAIRS, OF THE LIMITED PARTNERSHIPS (INCLUDING,
WITHOUT LIMITATION, RELATING TO ANY AND ALL AMENDMENTS OF THE LIMITED
PARTNERSHIP AGREEMENTS, THE SOLICITING OF CONSENTS, VOTES, AND
AUTHORIZATIONS FROM EXISTING LIMITED PARTNERS, THE SALE AND
LIQUIDATION OF ASSETS ON A "WHERE IS, AS IS" BASIS, THE SALE OF ASSETS
FROM ONE LIMITED PARTNERSHIP TOGETHER WITH THE ASSETS OF OTHER LIMITED
PARTNERSHIPS OR THEIR SALE TO ANY AMERICAN EXPLORATION DEFENDANTS, AND
THE PAYMENT OF THE COLLATERALIZED VALUE TO NYLIFE EQUITY INC. AND
NYLIFE REALTY INC. AS PROVIDED IN SECTION B.4(D) OF THE STIPULATION OF
SETTLEMENT), EXCEPT TO THE EXTENT PROVIDED IN PARAGRAPH 6 BELOW.
2. WITHOUT IN ANY WAY LIMITING THE SCOPE OF THE RELEASE, THIS
RELEASE COVERS, WITHOUT LIMITATION, ANY AND ALL CLAIMS FOR ATTORNEYS' FEES,
COSTS OR DISBURSEMENTS INCURRED BY LEAD PLAINTIFFS' COUNSEL OR ANY OTHER COUNSEL
REPRESENTING PLAINTIFFS OR CLASS MEMBERS, OR BY PLAINTIFFS OR THE CLASS MEMBERS,
OR ANY OF THEM, IN CONNECTION WITH OR RELATED IN ANY MANNER TO THE ACTION, THE
SETTLEMENT OF THE ACTION, THE ADMINISTRATION OF SUCH SETTLEMENT AND/OR THE
RELEASED TRANSACTIONS EXCEPT TO THE EXTENT PROVIDED IN SECTION I OF THE
STIPULATION OF SETTLEMENT.
3. PLAINTIFFS AND CLASS MEMBERS EXPRESSLY UNDERSTAND THAT SECTION
1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA PROVIDES THAT A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. TO THE EXTENT
THAT, NOTWITHSTANDING THE CHOICE OF LAW PROVISIONS IN THE SETTLEMENT AGREEMENT,
CALIFORNIA OR OTHER LAW MAY BE APPLICABLE, PLAINTIFFS AND THE CLASS MEMBERS
HEREBY AGREE THAT THE PROVISIONS OF SECTION 1542 AND ALL SIMILAR FEDERAL OR
STATE LAWS, RIGHTS, RULES, OR LEGAL PRINCIPLES OF ANY OTHER JURISDICTION WHICH
MAY BE APPLICABLE HEREIN, ARE HEREBY KNOWINGLY AND VOLUNTARILY WAIVED AND
RELINQUISHED BY PLAINTIFFS AND THE CLASS MEMBERS, AND PLAINTIFFS AND THE CLASS
MEMBERS HEREBY AGREE AND ACKNOWLEDGE THAT THIS IS AN ESSENTIAL TERM OF THIS
RELEASE.
4. IN CONNECTION WITH THIS RELEASE, PLAINTIFFS AND THE CLASS MEMBERS
ACKNOWLEDGE THAT THEY ARE AWARE THAT THEY MAY HEREAFTER DISCOVER CLAIMS
PRESENTLY UNKNOWN OR UNSUSPECTED, OR FACTS IN ADDITION TO OR DIFFERENT FROM
THOSE WHICH THEY NOW KNOW OR BELIEVE TO BE TRUE WITH RESPECT TO THE MATTERS
RELEASED HEREIN. NEVERTHELESS, IT IS THE INTENTION OF PLAINTIFFS AND THE CLASS
MEMBERS IN EXECUTING THIS RELEASE FULLY, FINALLY AND FOREVER TO SETTLE AND
RELEASE ALL SUCH MATTERS, AND ALL CLAIMS RELATING THERETO, WHICH EXIST,
HEREAFTER MAY EXIST, OR MIGHT HAVE EXISTED (WHETHER OR NOT PREVIOUSLY OR
CURRENTLY ASSERTED IN ANY ACTION).
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5. THE PLAINTIFFS AND THE CLASS MEMBERS EXPRESSLY AGREE THAT THEY,
ACTING INDIVIDUALLY OR TOGETHER, SHALL NOT SEEK TO INSTITUTE, MAINTAIN OR ASSERT
IN ANY ACTION OR PROCEEDING ANY CLAIM THAT IS BASED UPON OR RELATES TO ANY OF
THE MATTERS DESCRIBED IN THE COMPLAINT OR ADDRESSED BY THE RELEASE TO BE GIVEN
IN CONNECTION WITH THE SETTLEMENT OF THIS ACTION.
6. NOTHING IN THE RELEASE SHALL (I) PRECLUDE ANY ACTION TO ENFORCE
THE TERMS OF THE SETTLEMENT AGREEMENT; OR (II) PRECLUDE ANY CLASS MEMBER (OR ANY
ATTORNEY ACTING ON BEHALF OF SUCH CLASS MEMBER) FROM RESPONDING TO ANY INQUIRY
ABOUT THIS SETTLEMENT OR ITS UNDERLYING FACTS BY THE SECURITIES AND EXCHANGE
COMMISSION, THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR ANY OTHER
GOVERNMENTAL OR SELF-REGULATORY ORGANIZATION.
VII. PLEASE NOTE THAT THE COURT HAS ENTERED AN
INJUNCTION THAT AFFECTS YOUR RIGHTS.
The Court's March 19, 1996 Order enjoins Class Members who do not
exclude themselves from the Class from filing any lawsuit or prosecuting any
lawsuit, action or arbitration in any jurisdiction based on or relating to the
facts and circumstances underlying the claims and causes of action in this case
or the Released Transactions described above. It also enjoins all persons from
contacting or otherwise organizing Class Members who have not excluded
themselves from the Class into a separate class for purposes of asserting as a
purported class action any claim (including by seeking to amend a pending
complaint to include class allegations, or seeking class certification in a
pending action) based on or relating to the claims and causes of action, or the
facts and circumstances relating thereto, in this Action and/or the Released
Transactions, as described above. Finally, the Court has enjoined current Unit
owners who do not exclude themselves from the Class from selling or otherwise
transferring their interest in any Unit to another person except as may occur by
operation of law. You may transfer your Unit(s) only if you agree in writing to
be bound by the Release and to waive any benefits under the settlement. The
person to whom you transfer the Unit(s) will be eligible to receive the same
benefits you would have received if you had not transferred the Unit(s).
If you already have pending (or wish to initiate) a claim, lawsuit or
proceeding against the Defendants or other Releasees, or any of them, relating
to a Proprietary Investment Unit and/or to any claims at issue in this lawsuit,
and you do not want to resolve your individual claims through this proposed
settlement, you must file a timely written request for exclusion from the Class
or you will be bound by the orders and judgments entered in this Action.
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VIII. EXCLUSION FROM THE CLASS.
IF YOU REQUEST EXCLUSION, YOU WILL NOT BE ELIGIBLE TO RECEIVE THE
BENEFITS OF THE SETTLEMENT. YOU MAY NOT REQUEST EXCLUSION WITH REGARD
TO SOME PROPRIETARY INVESTMENT UNITS AND REMAIN IN THE CLASS WITH
RESPECT TO OTHERS. IF YOU REQUEST EXCLUSION WITH REGARD TO ANY
PROPRIETARY INVESTMENT UNIT(S), YOU WILL BE EXCLUDED FROM THE CLASS
WITH REGARD TO ALL UNITS IN ALL LIMITED PARTNERSHIPS.
IF YOU ELECT TO BE EXCLUDED FROM THE CLASS, YOU MUST COMPLY WITH
THE REQUIREMENTS DESCRIBED IN THIS SECTION.
If you fall within the Class definition but wish to exclude
yourself from the Class, you must send a formal, WRITTEN REQUEST FOR EXCLUSION
to the Clerk of the Court at the following address:
Clerk
United States District Court
Southern District of Florida
New York Life Limited Partnership
Class Action Settlement
P.O. Box 8418
Boston, MA 02266-8418
PLEASE BE SURE TO WRITE "EXCLUSION NOTICE" ON THE LOWER LEFT-HAND
CORNER OF THE FRONT OF THE ENVELOPE.
YOUR WRITTEN AND COMPLETE REQUEST FOR EXCLUSION MUST BE POSTMARKED BY NO LATER
THAN JUNE 12, 1996. OTHERWISE, YOUR REQUEST WILL BE UNTIMELY, YOU WILL BE
DEEMED TO HAVE WAIVED ANY REQUEST FOR EXCLUSION, AND YOU WILL BE BOUND BY ALL
PROCEEDINGS, ORDERS AND JUDGMENTS IN THE ACTIONS, EVEN IF YOU ALREADY HAVE
PENDING, OR LATER SEEK TO INITIATE, LITIGATION AGAINST ANY OF THE DEFENDANTS OR
OTHER RELEASED PARTIES RELATING TO THE LIMITED PARTNERSHIPS OR THE CLAIMS
RELEASED IN THIS ACTION.
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Your written request for exclusion must (i) identify all Proprietary
Investment Units in which you have or had an interest, (ii) state that you want
to be excluded from the Class, and (iii) include your name, your Social Security
or Tax Identification Number, your address, your telephone number, the name and
caption of this lawsuit, and your signature. Again, if you have an ownership
interest in more than one Proprietary Investment Unit, you may not choose to
remain a Class Member with respect to some Proprietary Investment Units but to
exclude yourself from the Class with respect to other Proprietary Investment
Units.
IF TWO OR MORE INDIVIDUALS OR ENTITIES SHARE OWNERSHIP IN ONE
PROPRIETARY INVESTMENT UNIT AND ANY ONE OF THEM EXCLUDES HIMSELF,
HERSELF OR ITSELF, THE OTHERS WILL ALSO BE EXCLUDED.
If you exclude yourself from the Class, you will NOT be permitted to
participate in the proposed settlement or to receive any benefits of any
settlement approved by the Court. If you do not exclude yourself from the
Class, and if the Court approves the proposed settlement, then you will receive
the settlement benefits to which you are entitled under the terms of the
proposed settlement. YOU WILL NOT NEED TO PAY ANY ATTORNEYS' FEES TO
PARTICIPATE IN THE BENEFITS OF THE PROPOSED SETTLEMENT.
IX. HEARING ON PROPOSED SETTLEMENT, RIGHT TO OBJECT
TO PROPOSED SETTLEMENT AND RIGHT TO APPEAR.
The Court will hold a hearing to consider whether to approve the
proposed settlement and to approve the subsequent agreement related to the
payment of fees and expenses entered into between the New York Life Defendants
and Plaintiffs' counsel. THE HEARING WILL BE HELD ON JULY 3, 1996, AT 9:30
A.M., IN THE COURTROOM OF THE HONORABLE LENORE NESBITT, UNITED STATES DISTRICT
COURT, LOCATED AT 301 N. MIAMI AVENUE, MIAMI, FLORIDA 33128-7788.
If you choose to remain in the Class, but want to object to any aspect
of the settlement, you must file with the Court and serve upon counsel a written
objection to any aspect of the proposed settlement.
Any Class Member who has NOT filed a written request for exclusion and
who complies with the procedures described in this section, may object to the
fairness, reasonableness or adequacy of the proposed settlement or the
application for an award of attorneys' fees and expenses to counsel for the
Class. Class Members may do so either on their own or through an attorney hired
at their own expense. If you hire an attorney to represent you, your attorney
must (i) file a Notice of Appearance with the Clerk of the
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Court no later than June 12, 1996, (ii) send a copy to Plaintiffs' counsel and
Defendants' counsel at the addresses provided below no later than June 12, 1996
and, (iii) if access to the deposition transcripts and exhibits described below
is sought, sign the confidentiality agreement governing those documents.
If you wish to submit written objections to the proposed settlement,
you or your attorney must prepare and submit to Plaintiffs' counsel and
Defendants' counsel at the addresses provided below, postmarked no later than
June 12, 1996, a written statement of the objections, as well as the specific
reasons, if any, for each objection, including any legal support you wish to
bring to the Court's attention and any evidence you wish to introduce in support
of your objection. Objections postmarked after that date will NOT be
considered by the Court and will be deemed to have been waived. You will remain
a member of the Class and will be bound by the orders and judgments in this
action regardless of how the Court rules on your objections. Any Class Member
who submits written objections, as described above, may appear at the hearing,
either in person or through personal counsel, after filing a Notice of
Appearance with the Clerk of the Court, and serving such Notice of Appearance on
Plaintiffs' counsel and Defendants' counsel at the addresses provided below, no
later than June 12, 1996. Class Members making an appearance will be heard to
the extent allowed by the Court.
If you intend to request permission to address the Court at the
hearing, you must also simultaneously file and serve a notice from you (or your
attorney) requesting permission to address the Court at the hearing.
YOU MUST SERVE ANY PAPERS AND EVIDENCE WITH THE ATTORNEYS FOR THE
PARTIES AT THE ADDRESSES PROVIDED BELOW NO LATER THAN JUNE 12, 1996.
Class Members may obtain access, at their own expense, to the
deposition transcripts and deposition exhibits generated in this lawsuit by
entering into the confidentiality agreement governing these documents. These
transcripts and depositions will be made available at the offices of
Defendants' counsel, Steel, Hector & Davis.
The Court may adjourn the hearing on the proposed settlement to a new
date and time without further notice to you or other Class Members. You (or
your personal attorney) therefore should check with the Clerk of the Court
before appearing at the hearing.
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The names and addresses of Plaintiffs' counsel and Defendants' counsel
appear below:
Michael A. Hanzman, Esq.
Michael E. Criden, Esq.
Hanzman Criden Korge & Chaykin, P.A.
200 South Biscayne Blvd., Suite 2100
Miami, Florida 33131
Counsel for Plaintiffs and the Class
Lewis F. Murphy, P.A.
Steel Hector & Davis
200 South Biscayne Blvd., Suite 4000
Miami, Florida 33131
Defendants' Counsel
YOU ARE NOT REQUIRED TO FILE ANY PAPERS WITH THE COURT OR TO APPEAR AT
THE HEARING TO BE ELIGIBLE TO RECEIVE THE BENEFITS THAT WILL BE
OFFERED TO CLASS MEMBERS IF THE PROPOSED SETTLEMENT IS APPROVED.
The Court has not determined whether the lawsuits have any merit, nor
will it be asked to decide the question if it approves the proposed settlement.
This Notice and the proposed settlement do not imply that the Defendants have or
have not engaged in any wrongdoing, that any of the alleged claims and defenses
are or are not true, or that Plaintiffs or the Class would or would not be able
to recover anything from the Defendants if this lawsuit were not settled.
If the Court does not approve the proposed settlement, the Settlement
Agreement will terminate, the order certifying the Class for settlement purposes
will be vacated, you will retain whatever rights (if any) you might have against
the Defendants.
X. COUNSEL FOR THE SETTLEMENT CLASS.
The Court has designated the law firms of Hanzman Criden Korge &
Chaykin, P.A., 200 South Biscayne Blvd., Suite 2100, Miami, Florida 33131 and
Goodkind Labaton Rudoff & Sucharow, LLP, 100 Park Avenue, 12th Floor, New York,
NY 10017 together, to serve as Lead Counsel for Plaintiffs and the Class for
purposes of the settlement of this lawsuit. YOU WILL NOT BE CHARGED FOR THE
SERVICES OF THOSE LAW FIRMS.
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You have the right to retain your own attorney to represent you in
this matter. If you do so, however, you will be responsible for paying your own
attorneys' fees and expenses. You also have the right to represent yourself
before the Court without an attorney, subject to the procedures set forth above.
XI. ATTORNEYS' FEES AND EXPENSES.
Pursuant to the terms of the Stipulation of Settlement, the New York
Life Defendants were obligated to pay to Plaintiffs' counsel any attorneys' fees
and costs awarded by the Court in accordance with applicable law. In order to
avoid litigating this issue, and to eliminate the resulting uncertainties and
risk, the parties agreed that the New York Life Defendants will pay Plaintiffs'
counsel the sum of Twelve Million Five Hundred Thousand Dollars ($12,500,000.00)
for attorneys' fees and expenses incurred in this matter. This agreement was
negotiated and reached after the Stipulation of Settlement was executed by all
parties. This settlement of the attorneys' fees issue will be presented to the
Court for approval at the hearing.
PAYMENT OF ATTORNEYS' FEES AND EXPENSES TO PLAINTIFFS' COUNSEL WILL
NOT REDUCE ANY FUNDS OR BENEFITS BEING MADE AVAILABLE TO CLASS MEMBERS UNDER THE
PROPOSED SETTLEMENT, AND CLASS MEMBERS WILL NOT BE REQUIRED TO PAY ANY PORTION
OF PLAINTIFFS' COUNSEL'S FEES AND EXPENSES.
XII. TERMINATION OF PROPOSED SETTLEMENT.
Plaintiffs have the right to terminate the proposed settlement if,
upon the completion of discovery, they do not continue to believe that the
settlement is fair, reasonable and adequate. Defendants have the right to
terminate the proposed settlement if the Court does not approve it in full,
without modification, or if any appellate court modifies or disapproves the
terms of the Settlement Agreement or the Court's orders.
The proposed settlement also contains certain other conditions under
which the parties might have the right to terminate fully or partially the
proposed settlement. If the proposed settlement is terminated, all Class
Members will be restored to the positions they occupied before the parties
entered into the proposed settlement, and their rights will not be affected in
any way by the parties' actions in connection with the proposed settlement.
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XIII. ADDITIONAL INFORMATION.
This Notice is only a summary of the proposed settlement, which is set
forth in a more detailed legal document. The full Stipulation of Settlement is
on file with the Clerk of the Court, and you may inspect it at the Clerk's
Office at any time during normal business hours. For a more detailed statement
of the matters involved in the litigation, Plaintiffs and Defendants also refer
you to the complaint filed in this case and to the other papers and court orders
on file in the Clerk's Office, which you may inspect from Monday through Friday,
between the hours of 9:00 a.m. and 3:00 p.m., ET.
Because you may find certain aspects of the proposed settlement
somewhat complicated, the parties have prepared a Question and Answer brochure
as part of this notice. The parties have also assigned representatives to
answer any questions you may have about the settlement. If you still have
questions after you have read this notice and the Question and Answer brochure,
please call 1-800-278-4117, Monday through Friday (excluding holidays), between
the hours of 9:00 a.m. and 6:00 p.m., ET.
You may also write to the Settlement Administrator:
Settlement Administrator
P.O. Box 8417
Boston, MA 02266-8417
PLEASE DO NOT CALL THE COURT OR THE CLERK OF THE COURT.
Dated: March 29, 1996
Carlos Juenke
Clerk, United States District Court
Southern District of Florida
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ANSWERS TO QUESTIONS YOU MAY HAVE
ABOUT THE PROPOSED SETTLEMENT
GENERAL FACTS ABOUT THE SETTLEMENT
WHY DID I RECEIVE THIS NOTICE?
In January and March 1996, class action lawsuits were filed against New York
Life and several other defendants concerning a number of limited partnerships.
(The limited partnerships at issue are identified in Section III.B of the Notice
accompanying this brochure.) You have been identified as having purchased or
otherwise acquired an ownership interest in one or more of these limited
partnerships. As a result, you may be eligible to receive a payment under a
proposed settlement of the class action litigation.
AM I BEING SUED?
No. Because the lawsuits have been brought on your behalf, you are in effect a
plaintiff, not a defendant. The defendants are New York Life Insurance Company
and its affiliates, NYLIFE Inc., NYLIFE Equity Inc., NYLIFE Securities Inc., CNP
Realty Investment, Inc. and NYLIFE Realty Inc. (the "New York Life Defendants")
and American Exploration Company and American Exploration Production Company.
WHAT LIMITED PARTNERSHIPS ARE INVOLVED?
All of the limited partnerships sold in connection with four programs that the
New York Life Defendants helped to organize are part of the litigation and the
proposed settlement. Those four series of limited partnerships are:
New York Life Oil & Gas Producing Properties ("NYLOG")
NYLIFE Energy Investors
NYLIFE Realty Income Partners
NYLIFE Government Mortgage Plus
WHAT ARE THE ALLEGATIONS AGAINST THE DEFENDANTS?
The plaintiffs make a number of claims about the sale and management of the
limited partnerships. More specifically, the lawsuit raises allegations that the
defendants misled investors concerning (i) the amount that would be realized
from or paid out by the limited partnerships, (ii) the rate of return on
investments in the limited partnerships, (iii) cash distributions made or
projected to be made by the limited partnerships, (iv) the safety of investors'
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principal, (v) the "suitability" of the investment for risk-averse investors,
(vi) the reasonableness of the assumptions underlying projected rates of return,
(vii) the economic viability of limited partnerships, (viii) the nature of the
limited partnerships and how they would be operated, (ix) the assets purchased,
acquired or sold by and/or for the limited partnerships, (x) the way in which
partnership assets were used or applied, and (xi) decisions about how and when
to wind up the partnerships.
WHAT IS NEW YORK LIFE'S RESPONSE TO THESE ALLEGATIONS?
New York Life denies all of the allegations in this lawsuit and believes that
the manner in which the limited partnerships were sold and managed was entirely
proper and fair, and that investors have been kept fully and fairly informed
about their investments.
WHY IS NEW YORK LIFE SETTLING THIS LAWSUIT?
Settlement of the lawsuit provides New York Life with a vehicle for exiting
various limited partnerships. Prior to this lawsuit, New York Life had already
concluded that it would be in the best interests of the limited partners to
liquidate various limited partnerships and to provide investors with some
enhancement to their liquidation payments. With this settlement, New York Life
can achieve these goals and make substantial additional monetary benefits
available to class members, as well as avoid time consuming and expensive
litigation.
THE SETTLEMENT RELIEF
WHAT ARE THE BENEFITS OF THE SETTLEMENT?
The benefits to be made available under the proposed settlement will depend on
several factors, including (1) whether you currently own units in a limited
partnership, (2) whether you have already recovered your original investment in
the limited partnership, and (3) whether the required number of limited partners
in your limited partnership votes to approve the liquidation and any proposed
modifications to the partnership agreements.
CLASS MEMBERS WHO CURRENTLY OWN INVESTMENT UNITS
I CURRENTLY OWN UNITS IN ONE OF THE LIMITED PARTNERSHIPS. WHAT WILL I RECEIVE?
If the Court approves the proposed settlement, and the required number of
limited partners in your
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limited partnership votes to approve liquidation and any proposed modifications
to the partnership agreements, then you will receive:
1. A LIQUIDATION ADVANCE from the New York Life Defendants of your PRO RATA
share of the approximate current value of your limited partnership's assets
and any excess working capital PLUS
2. One of the following payments:
- OUT-OF-POCKET LOSS (THE "REFUND"): A cash payment calculated to provide you
with 100% of your total original investment in the limited partnership,
taking into account any prior distributions and the Liquidation Advance
described above, provided that no payment will be less than $200.
OR
- THE ENHANCEMENT: A cash payment for EACH limited partnership in which you
invested. The payment will be based on the total number of investment units
that you purchased but in no case will be less than $200.
IF I AM ELIGIBLE FOR A REFUND, HOW WILL THE REFUND BE CALCULATED?
The amount of the Refund is simply the amount by which your original investment
exceeds the sum of any prior distributions to you plus the Liquidation Advance.
EXAMPLE: Assume that you still own your original investment, that you originally
invested $10,000 in a particular limited partnership, and that you have thus
far received $6,000 in distributions from the partnership. If the value of
your Liquidation Advance is calculated to be $2,000, then the settlement check
that you receive will be $4,000, consisting of: $2,000 for the Liquidation
Advance PLUS $2,000 for the Refund. This calculation is based on the
assumption that the required number of limited partners in your partnership
vote to liquidate. If the required number do not vote to liquidate, and if New
York Life decides to allow investors in that partnership to participate in the
settlement, then you would receive the $2,000 Refund, but not the Liquidation
Advance.
If you do not still own your original investment, then see the next Section,
"Class Members Who Sold or Transferred Their Investment Units."
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The settlement relief is described in more detail in Section IV of the
accompanying Notice.
HOW WILL NEW YORK LIFE CALCULATE MY ENHANCEMENT?
If the payment to you of the Liquidation Advance WOULD allow you to recover the
full amount of your original investment (or if you have already recovered your
investment), then you will be eligible to receive the Enhancement. The amount of
the Enhancement will vary depending on the partnership. For the NYLOG, NYLIFE
Realty Income and NYLIFE Government Mortgage Plus programs, Class Members will
receive:
(1) A cash payment based on a calculation that varies depending on the original
cost of the investment unit
OR
(2) $200, WHICHEVER IS GREATER.
- - - - Investment units costing originally $250 (I.E., the NYLOG Series I) will be
credited with a $10 enhancement per unit.
- - - - Investment units originally costing $10 (I.E., NYLOG Series II and III, and
NYLIFE Realty Income) will be credited with a $.40 enhancement per unit.
- - - - Investment units originally costing $10, but approximately half of which was
returned shortly after the offering (I.E., NYLIFE Government Mortgage Plus)
will be credited with a $.20 enhancement per unit.
EXAMPLE: Assume that you still own your original investment, that you paid
$10,000 to purchase 40 investment units at $250 each, that you have received
$9,000 in distributions to date, and that your Liquidation Advance would be
$2,000, giving you a total return at settlement of $11,000. Your settlement
check would be equal to: $2,000 (the Liquidation Advance) and an Enhancement
of $400 ($10 x 40 units), for a total check of $2,400. (If the calculation of
the Enhancement were to result in a sum of less than $200, you would receive
the minimum of $200.)
If you do not still own your original investment, then see the next Section,
"Class Members Who Sold or Transferred Their Investment Units."
WHY ARE SOME CLASS MEMBERS ELIGIBLE FOR A REFUND AND OTHERS FOR AN ENHANCEMENT?
Whether you receive a Refund or an Enhancement will depend on whether you have
received a full
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repayment of your original investment taking into account the Liquidation
Advance. If you will have not received a full repayment, then you will receive a
Refund. If you will have received a full repayment, then you will receive an
Enhancement.
WHAT WILL HAPPEN IF THE REQUIRED NUMBER OF LIMITED PARTNERS IN MY LIMITED
PARTNERSHIP DO NOT VOTE TO APPROVE THE PROPOSED LIQUIDATION AND ANY PROPOSED
MODIFICATIONS TO THE PARTNERSHIP AGREEMENTS?
If the required number of limited partners in your limited partnership do not
vote in favor of the proposals, but the Court nonetheless approves the
settlement, New York Life has the option of not making any payments to investors
relating to that Partnership, although payments would be made to those investors
for any other partnership in which they may have invested. If New York Life
instead chooses to make payments despite the rejection of the liquidation
proposal, then you will receive the Refund or the Enhancement, but not the
Liquidation Advance since the partnership will not be liquidated. Because your
partnership will not have been liquidated, you will continue to receive whatever
distributions the partnership may make in the future.
WHEN WILL I GET MY SETTLEMENT CHECK?
The Court has not yet approved the proposed settlement and will not rule on it
before the hearing to be held on July 3, 1996. (See Section IX of the
accompanying Notice for a description of the hearing.) If and when the proposed
settlement is final, AND THE REQUIRED NUMBER OF LIMITED PARTNERS IN EACH LIMITED
PARTNERSHIP HAS VOTED TO APPROVE THE PROPOSALS CONTAINED IN THE CONSENT
SOLICITATION MATERIALS, several things will happen. New York Life will send you
a cash payment for the amount of either the Refund or the Enhancement. In
addition, if you still own your investment units, your cash payment will include
the amount of your Liquidation Advance. (This will be the FIRST check to current
limited partners.) This cash payment will be mailed within 30 days of the date
the settlement is final, or as soon as possible thereafter.
WHAT WILL HAPPEN AFTER THE LIMITED PARTNERSHIP IS LIQUIDATED?
The general partners will use the liquidation proceeds to (i) establish a
reserve for purposes of meeting any liabilities or obligations that remain
following liquidation of the limited partnerships, and
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(ii) distribute the remaining amounts, if any, to limited partners on a PRO RATA
basis. (With respect to Class Members who received the Liquidation Advance, New
York Life will be reimbursed for the Liquidation Advance from this distribution.
Remaining amounts, if any, will be distributed in a SECOND check to such Class
Members.) Finally, once a general partner has determined that ALL of a limited
partnership's outstanding liabilities and obligations have been satisfied, any
amounts that remain will be distributed to limited partners on a PRO RATA basis,
assuming New York Life has already been fully reimbursed. (Any such distribution
will come in a THIRD check to Class Members who are limited partners in that
limited partnership.)
WHY IS IT CALLED A LIQUIDATION ADVANCE? DO I HAVE TO REPAY IT?
Under no circumstances will New York Life look to you to return any portion of
the settlement payment you received. Instead, the Liquidation Advance will be
repaid from your share of the proceeds and/or other funds the partnership has at
the time it is dissolved. By signing and cashing your settlement check, you will
grant New York Life a security interest in your Units and your share of the
partnership's liquidation proceeds up to the amount of the Liquidation Advance.
If your share of the liquidation proceeds is not sufficient to repay New York
Life, then New York Life will absorb the difference.
CLASS MEMBERS WHO SOLD OR TRANSFERRED THEIR INVESTMENT UNITS
I NO LONGER OWN UNITS IN ONE OF THE LIMITED PARTNERSHIPS. AM I STILL ELIGIBLE
FOR RELIEF?
Assuming that the settlement is approved by the Court, you will still be
eligible for relief even if you no longer own units in a limited partnership.
Once the Court's order approving the settlement is final and no longer subject
to appeal, you will receive a check for either the Refund or the Enhancement, as
described above, but NOT the Liquidation Advance.
IF I SOLD MY INVESTMENT UNITS, HOW WILL MY SETTLEMENT PAYMENT BE CALCULATED?
In calculating your settlement payment, New York Life will take into account the
amount for which you sold your investment units (the "Transfer Proceeds"). You
will be sent a Statement of Transfer form to report information about any sale.
If the sum of all
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prior distributions to you PLUS any Transfer Proceeds falls short of your
original investment, then you will be eligible for a Refund. If this sum exceeds
your original investment, then you will be eligible for an Enhancement.
IF I DID NOT SELL MY INVESTMENT UNITS BUT GAVE THEM AWAY AS A GIFT (OR RECEIVED
THEM AS A GIFT), WILL I STILL BE ELIGIBLE FOR RELIEF?
Yes, you will still be eligible for either a Refund or an Enhancement. In order
to determine which of these two forms of relief you will receive, the parties
will send you a Statement of Transfer form once the settlement is final. The
Statement of Transfer will ask you to ascribe a value to the units at the time
of transfer. The individual or entity to whom you transferred your units will
also be asked to complete a Statement of Transfer. If the value you report in
good faith agrees with that reported in good faith by the person who received
them, then New York Life will use that value as the Transfer Proceeds. If not,
then the value of the units will be determined by an administrator who is
jointly retained by counsel for plaintiffs and defendants.
WHAT IF I TRANSFERRED SOME UNITS AND KEPT OTHERS?
With respect to any investment that you may have made in a limited partnership,
if you have transferred some units but have kept others, then the calculation of
your settlement payment is slightly more complicated but based on the same
essential concepts already discussed above. Your settlement payment will be
equal to your original investment, minus all prior distributions, minus any
Transfer Proceeds (as defined above), and minus the Liquidation Advance for the
units that you do still hold. If you transferred some or all of your units, it
may take longer to receive your settlement check.
CAN I SELL OR TRANSFER MY UNITS NOW?
No. The Court has issued an order prohibiting any voluntary sales or transfers
of units by investors who have not excluded themselves from the settlement. You
may transfer your Units only if you agree in writing to be bound by the
settlement release and to waive any benefits under the settlement. The person to
whom you transfer will be entitled to the same relief that you would have
received if you had not transferred the Units.
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REQUESTING EXCLUSION FROM THIS SETTLEMENT
MAY I EXCLUDE MYSELF FROM THE SETTLEMENT?
Yes. Please bear in mind that if you exclude yourself, you will not receive the
substantial monetary benefit provided to class members. In addition, you may NOT
request exclusion from the settlement with respect to one partnership, or to
certain investment units, and remain eligible for relief with respect to others.
Any request for exclusion that you submit will AUTOMATICALLY exclude you from
the settlement class for EVERY partnership and EVERY unit and prevent you from
receiving the Refunds, Enhancements and Liquidation Advances to be made
available under the proposed settlement.
If you wish to be excluded from the settlement, you must follow the procedures
described in Section VIII of the Notice. Please note that any request for
exclusion must be in writing and be postmarked no later than June 12, 1996. Be
sure to include with your request ALL information required in Section VIII of
the Notice.
IF I EXCLUDE MYSELF FROM THE SETTLEMENT, BUT MY LIMITED PARTNERSHIP IS
LIQUIDATED, WHAT WILL I RECEIVE?
If you exclude yourself from the settlement and your limited partnership is
subsequently liquidated, you will receive the amounts to which you are entitled
under the terms of your limited partnership agreement, as amended. Please refer
to the preliminary consent solicitation materials for more detailed information.
I AM (OR WAS) A JOINT OWNER OF PARTNERSHIP UNITS. CAN I REMAIN A CLASS MEMBER IF
ONE OF THE OTHER JOINT OWNERS ASKS TO BE EXCLUDED?
No. The decision of any single joint owner to request exclusion will
automatically result in the exclusion of all other joint owners.
FOR MORE INFORMATION ABOUT THIS SETTLEMENT
If you still have questions after reading the Notice and the materials
accompanying it, you may call 1-800-278-4117, and a representative will answer
your questions. The telephone lines will be open Monday through Friday
(excluding holidays), from 9:00 a.m. until 6:00 p.m., ET.
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