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Home My WebLink About931384.tiff TEEN ' THE JOHN NUVEEN COMPANY - 1992 ' o- ANNUAL t 'c. _ REPORT BEN ' ` j�U R L I C BENEFIT 6.a.'"Ia�" ti"i° f'"I*° '" PRIVATE 1-M E ` Ett-E 'C,,,I'ic . .. p' 1 "`art F�;$ h''' I I I I I I I I I I J t i. EXHIBIT I 5.cz r 1 THE JOHN NUVEEN COMPANY was founded in Chicago in 1898 as an underwriter, trader and distributor of municipal securities, and as a financial adviser to municipalities and bond-issuing agencies. Through these activities,Nuveen has played a key role in developing municipal finance as an important source of capital for the growth and improvement of the nation's cities, counties and states. From this core discipline,Nuveen has evolved into one of the country's leading investment banks specializing in tax-free investments for individual investors.In this role, the firm designs, markets and manages a wide range of high quality tax-free investment products. More than 1,000,000 individuals have invested nearly$60 billion in Nuveen's tax-free trusts and funds through independent broker-dealers, banks, insurance companies and financial planners. The John Nuveen Company's common stock is listed on the New York Stock Exchange under the ticker symbol "J-NC." CONTENTS FINANCIAL HIGHLIGHTS 1 SHAREHOLDERS' LETTER 2 PUBLIC BENEFIT AND PRIVATE INTEREST 6 FINANCIAL PERFORMANCE 17 9: 1219 - FINANCIAL HIGHLIGHTS (in thousands, except per share data) Year ended December 31, 1988 1989 1990 1991 1992 REVENUES $ 110,076 $ 114,795 $ 131,474 $ 180,238 $ 221,212 NET INCOME 25,320 26,050 30,527 47,886 59,440 CAPITAL* 213,636 139,686" 170,213 218,193 211,169* RETURN ON EQUITY 13.1% 22.9% 21.9% 28.1% 33.6% EARNINGS PER SHARE $ .69 $ .71 $ .83 $1.31 $ 1.58 REVENGES NET INCOME CAPITAL* RETURN ON EQUITY $250 $60 $250 35% 50 30 200 200 25 40 150 150 20 • 30 Is 100 i 100 • 20 10 — { Y 50 50 10 5 Ft 0 88 89 90 91 92 ° 88 89 90 91 92 ° °88 89* 90 91 92' e6 89 90 91 92 (.Sire/Ikons% (S wi/lions) (S Reflects the payment of special cash dividends to The St.Paul Companies,Inc.of$100 million in 1989 and$65 million in March 1992,prior to the public offering of the firm's stock. 1 NUVEEN DEAR SHAREHOLDERS , Nineteen ninety-two was an important year for The John Nuveen Company The year's most noteworthy event was the successful initial public offering of the firm's common stock by The St. Paul Companies. In addition, the firm achieved record revenues and net income in the year of its passage to public ownership. FINANCIAL PERFORMANCE . . . Nuveen's revenues reached $221 million in 1992, a 23'% increase over the $180 million recorded in 1991. Net operating income before accounting changes rose to nearly$63 million, or $1.66 per share, a 31% increase over the pre- vious year's record of 848 million, or $1.31 per share. Nuveen's 1992 net income was $59 million, or$1.58 per share, after one-time charges taken during the first quarter to comply with the Financial Accounting Standards Board's accounting changes for postretiremcnt costs and income taxes. Since its purchase by The St. Paul Companies in 1974, the firm has averaged an after-tax annual return on equity of 250/o. The Company's 1992 after-tax return on equity of 34%improved on this solid record of performance. Net sales of Nuveen tax-free products reached $7.2 billion in 1992, including$2.6 billion in exchange-traded common stock offerings, $1.6 billion in MuniPreferred' offerings, $1.1 billion in mutual fund sales, net of redemptions, and$1.9 billion in unit investment trust sales. Net assets under management grew to a record $27 billion as of December 31, 1992, up from $22 billion at the close of 1991. By year's end, the total amount of Nuveen tax-free trusts and funds under management and surveillance was approxi- mately$50 billion. Net operating revenues from Nuveen's Municipal Securities Division—derived from the firm's activities in assisting municipal issuers to finance public projects more than doubled over the prior year. Nuveen participated as senior manager or co- manager in $4.7 billion of new municipal underwritings in 1992. 2 9;31249 MUNICIPAL MARKET D E V E L O P M E N T S . . . In recent years, the municipal market has undergone a fundamental change in ownership patterns. Until 1980, most of the nation's municipal securities were purchased by institutional investors. Today, individ- ual investors from a broad cross-section of the population provide nearly 80% of the capital for new municipal development. Tax-free investment products have been one catalyst for this dramatic shift in ownership. The end result has been the emergence of a substantial new market for both private investors and state and local govern- ments and their bond-issuing agencies. Nuveen has been a major force in developing retail interest in the municipal mar- ket. Since 1961, the Company, working with its independent distribution partners, has provided the public with a range of municipal investment products that has expanded tax-free investing opportunities. Nineteen ninety-two marked the fifth anniversary of the launch of one of Nuveen's most formidable product lines:exchange-traded municipal funds.The Nuveen Municipal Value Fund (NUV), the firm's first exchange-traded fund, joined the tax-free benefits generated by an investment-grade municipal portfolio with the ease, liquidity and visi- bility of stock exchange trading.At the time, NUV was the nation's largest initial public offering and a notable turning point in municipal market investing by individuals. BREADTH OF P R O D U C T . . . The design, development and marketing of high-quality municipal investment products is a top priority at Nuveen. The 1992 introduction of two new exchange-traded product lines—in addition to new offerings in existing trust and fund families—underscored this commitment. Nuveen Select Tax-Free Income Portfolios, first introduced in March 1992, com- bine features of exchange-traded funds and unit investment trusts in order to gener- ate stable tax-free dividends for investors. In September, Nuveen introduced the first of two Select Maturities Municipal Funds—which are composed of bonds with intermediate-term characteristics. 3 921249 The Select Maturities Funds have an average maturity of 15 years or less, which enables their portfolio managers to seek tax-free income without assuming the risk of greater price fluctuation associated with longer-term municipal issues. Nuveen offers more than 150 tax-free investment products, including Unit Invest- ment Trusts, Money Market Funds, Open-End Funds, Exchange-Traded Funds and Exchange-Traded Portfolios.Within these product families,investors can choose tradi- tional and insured investments, national and state funds, leveraged and unleveraged funds, and products of various maturities. Nuveen's product development activities are driven by the needs of those investors who rely upon a secure source of steady income as an important element of their financial security The financial needs of these investors take many different forms.As a result, Nuveen has developed a diverse selection of products that financial advisers can tailor to meet the specific financial objectives of each investor. This breadth of product, offered in the primary and secondary markets, is one reason for the increase in the public's level of municipal market investing and the ongoing appeal of tax-free investments. AWARD - WINNING R E s E A R C H . . . Nuveen's investment products arc built on professional credit research and surveillance. We maintain one of the investment banking indus- try's most experienced research departments devoted exclusively to the analysis of municipal investments. Nuveen analysts scrutinize an issuer's credit history, revenue projections, cash flows and liquidity, debt service coverage, bond covenants and call provisions to determine the quality of its municipal securities. In 1992, Nuveen Research once again received industry-wide recognition for the quality of its work. Global Guaranty, the American Banker/Bond Buyer publication that regularly polls institutional investors for their choice of the best municipal ana- lysts, cited nine Nuveen researchers for the excellence of their credit analyses in diverse sectors. Three members of Nuveen Research received the "1992 All-American Municipal Analysts Team" designation as the top analysts in the Housing, Lease- Backed, and Higher Education sectors. For the year, members of Nuveen Research completed more than 2,600 published credit reviews, 700 surveillance reports and 60 in-depth reports on trends impacting municipal investments. 4 9: 1249 THE H U NI A N Bon . . . Nuveen's tax-free investment products are distributed through independent national and regional broker-dealers, commercial and savings banks, insurance com- panies and agencies, and financial planners. The development of an active and liquid municipal market for individual investors would not have been possible without the skills and client relationships of these financial intermediaries—Nuveen's primary customer base. Nuveen currently has relationships with more than 100,000 Registered Repre- sentatives at over 4,000 firms who educate and advise their clients on the benefits of municipal investing. They serve as the enduring bond between Nuveen and the individual investor—a bond that we intend to strengthen over time. THE NUVEEN DIFFERENCE . . . Nuveen has nearly a century of municipal market experience. Our employees, our ideas and our technology are focused on enhancing the benefits of municipal financing and investing. Nuveen's chief accomplishment has been to lever- age its municipal market expertise to provide high-quality tax-free investment prod- ucts to the public.We are confident that this continuing emphasis holds great promise for the future of The John Nuveen Company I itiF li.kfr r 4 't , Richard J.Franke Donald E. Sveen Chairman President 5 9:1249 PUBLIC BENEFIT AND PRIVATE INTEREST Enduring structures arc based on fundamental building blocks. The atom is the foundation of the physical world. The cell is the substance of life. The dollar is the cornerstone of the world's largest economy Institutions share this trait. A single product, service or idea can be the source of a lasting enterprise. The John Nuveen Company is built on the idea that prudent investors value a secure source of steady income.The pursuit of this idea is what led a wholesale grocer named John Nuveen to found a company devoted to municipal investing. The realization of this idea is what drives The John Nuveen Company to design,market and manage tax-free investments for families across America. Nuveen, founded as a municipal bond underwriter in 1898, has evolved into a leading marketer and manager of municipal investment products. Since its inception, the Company has devoted its energies to raising investment capital for municipalities and providing secure tax-free income opportunities for investors. Though the scale and scope of the enterprise has changed over time, the concentration on servicing — these fundamental needs has remained steadfast. John Nuveen noted that the municipal bond is a blend of public benefit and pri- vate interest. It is the means by which a community's strength can be used to raise capital for growth and development, thereby creating public benefit. It is also the investment vehicle that serves private interest as a source of steady income and financial security. THE ROOTS OF PUBLIC B E N E F I T . . John Nuveen started his career as a wholesale grocer traveling the Midwest in the late 1890s. During the course of his travels, he recognized that a growing nation needed to direct its capital to fundamental infra- structure development. Even more, he concluded that the investments to finance this growth would be supported by an extraordinary level of security due to a public pro- ject's significant and sustained impact on the lives of each citizen. In response, he founded a firm dedicated to developing and applying the inherent benefits of munici- pal securities. Turn-of-the-century pundits predicted that no investment house could specialize solely in municipal bonds. John Nuveen, however, was unshakable. In fact, the firm's 6 973,1249 THE JOI IN NIIVEEN COMPANY'S HEADQUARTERS IN CHICAGO. adherence to one asset class became a matter of operating policy: "The Company recognizes the superior payment record of municipal bonds as a class and deals only in that instrument." Early on, John Nuveen & Co. became a major underwriter of municipal issues in the territories of Alaska,Arizona, New Mexico and Oklahoma—an activity that left a distinct imprint on the firm's culture. Since there was little municipal expertise in newly emerging Territory governments, Nuveen engaged in its own financial analyses of municipal issuers. Thus, the firm's tradition of exhaustive municipal research was born of necessity before it became a matter of policy Another lasting influence from this period was Nuveen's emergence as a financial adviser to municipal issuers. Initially, the Company provided financial counsel to territo- ries on the structure and marketability of their debt issues. Over time, Nuveen's cus- tomized financing solutions for state and local governments and their agencies developed into one of the firm's most notable areas of expertise. Thday,Nuveen continues these activities under the auspices of its Municipal Securities Division. Nuveen's investment bankers provide clients with capital for the development and improvement of their communities. This service is often preceded by extensive credit analyses, debt capacity studies and reviews of all available financing options. Nuveen also provides municipal issuers with credit structuring, capital allocation modeling, credit reconfigurations and debt capacity enhancements. MUNICIPAL MARKET E F F I C I E N C Y . . . The objective of municipal finance is to make capital available to issuers on reasonable terms for sound public projects. The dynamics of municipal development are a balance of structural and financial engineer- ing. The design parameters of a public project must be measured in terms of the liability and risk associated with the municipal issue. Public good must be considered in the light of market realities for municipal projects to leave the drawing board and become a reality The balancing act of municipal finance is the source of the municipal market's strength. Every municipal project is measured against a series of legal, technical and 7 91249 1 i ";• tp ' • din rhgo_ financial standards. The terms of financing must be fair and equitable to both the issuer and the investor. The issue must be rated according to the fundamental sound- ness of its issuer. The revenue stream that secures the financing must be sustainable for the life of the bond.The market must be able to absorb the size of the offering. The genius of the American municipal bond process is that it is disciplined by a free capital market that analyzes the value of each public project. The viability of every municipal issue is reviewed by a host of investment specialists and then tested on the open market.The vast scale of the nation's public works financed by the municipal mar- ket attests to the enduring efficiency of this process—a process that generates funda- mental public benefit. 8 921249 THE ROCK ISLAND DAM AND GENERATING STATION ILLUSTRATES THE BREADTH OF PUBLIC BENEFIT' DERIVED PROM MI INICII'AL FINANCE.THE PROJECT,FIRST BEGUN IN 19.59,IS AN IMPORTANT ELEMENT IN A NETWORK OF DAMS AND POWER PLANTS THAT HARNESSES THE ENORMOUS HYDRO- ' .- •,•,C_ ELECTRIC POI ENTLL -41 T.: 71 r OF THE COLUMBIA �.-. RIVER John NCIVEEN I 0 &CO.HAS SERVED AS T. MANAGER FOR MOST OF THY BONDS SOLD TO HISa" FINANCE TADS DEVELOP- Z I/-�.� I MENT,WHICH CUR- 4d • �. . �� C : REM LY DELIVERS 4 ENOUGH POWEtt 10 SUP- PLY THE PEAK DEMANDS OF NEARLY 1.5 MILLION HOMES AND BUSINESSES. MUNICIPAL SECURITIES E X P E R T I S E . . . Nuveen's Municipal Securities Division has always focused on the design and development of marketable municipal issues that meet the issuer's need for low-cost capital. The firm's long-standing success in the public finance arena can be traced to two primary skills:developing innova- tive bond issues and organizing the wide distribution of municipal securities. Time and again, Nuveen has tailored bond issues to the specific needs of issuers in a variety of sectors. Examples of the firm's pioneering underwritings include: the first motor fuel tax revenue financing; the first electric revenue bond issue for a public utility;the first major tax-exempt financing for an independent state health care authority; and the first tax-exempt hospital revenue bond financing. 9 9-1249 Nuveen also was instrumental in enhancing the credit rating of municipal bonds through the introduction of private insurance programs for municipal issues.The firm underwrote the first bonds that were insured by each of the three largest bond insur- ance companies—Municipal Bond Investors Assurance Corporation,AMBAC Indemnity Corporation and Financial Guaranty Insurance Company The employment of private bond insurance has added an extra dimension of security to the municipal market. Not only do insurers guarantee the timely payment of principal and interest to bondholders, but the credits are generally upgraded by rating agencies in light of the issue's height- -- ened financial security. The broad distribution of municipal securities is another Nuveen strength. The __ successful sale of a bond issue is an important step in transforming a municipal proj- ect from idea to actuality. The process requires an underwriter of sufficient size and marketing prowess to effectively bring a new issue to market on the best possible terms for the issuer and the investor. Breadth of securities distribution hinges on an underwriter's reputation in the marketplace. The ability to create wide market acceptance for the bonds of new issuers, as well as rapid placement of seasoned credits, is a function of significant - experience. The underwriter must secure the respect of the investment community through a practical demonstration of the ability to distribute product. Nuveen's Municipal Securities Division's reputation for efficient and effective underwriting and distribution makes it a recognized force in the business and the cornerstone of Nuveen's success. THE EXPANSION OF PRIVATE I N T E R E S T . . . The public benefit of municipal bonds is self-evident. It touches the lives of virtually every American on a daily basis. The roads on which we drive, the schools at which we study, the energy plants that power our homes and offices, and the hospitals that care for our sick derive their financing from municipal bonds. However, public benefit is only one aspect of the instrument. There is also an important dimension of private interest. Municipal investment products have brought the benefits of tax-free investing to a wide cross-section of individual investors throughout the country. The process began in 1961 with Nuveen's introduction and support of municipal bond unit investment trusts (UITs)—the first investment product to assemble a variety of municipal securi- ties into a fixed portfolio. The UIT's low minimum purchase price and ready availabil- ity through financial advisers introduced many investors to the benefits of tax-free investing. The product's key features—stable tax-free income, preservation of capital, diversification and liquidity—became the template of subsequent tax-free investment TO 921249 I , 1 A-='f, _fii 3 I I ail ! Ifi I . VItUM fVV� JIAG,A FOCI SE!)APPROACH TO CREATING AND MANAGING I QUALITY INVESTMENTS, IS THE CORNERSTONE IOF NUVEEN'S PORTFOLIO MANAGEMENT STRATEGY. PORTFOLIO MANAGERS REVIEW,PURCHASE:AND OVERSEE A BROAD RANGE OF MUNICIPAL BONDS,ALWAYS SEEKING TO ENHANCE THE QUALIFY AND VALI.E OP (IDR TAX-FREE INVESTMENTS. (L To R: RON TOUPIN,VICE:PRESIDENT;VERLA HOLCMIAN BOYLE,ASSISTANT VICE PRESIDENT;AND TOM SPALDING,JR.,VICE PRESIDENT) 11 931249 I 1 1 products. By year-end 1992, Nuveen had issued more than 3,700 UITs with an aggre- gate market value in excess of$32 billion. The introduction of municipal bond mutual funds in 1976 deepened the public's -- involvement in tax-free investing. In addition to the benefits provided by UITs, the mutual funds' open-end structure allowed investors to add to their investment in one convenient package and reinvest their income and capital gains in order to enjoy tax- free compounding. By year-end 1992, Nuveen offered 16 long-term open-end funds and five money market funds with assets totaling more than$6 billion. THE EXCHANGE - TRADED ERA . . . Exchange-traded municipal funds dramatically expanded the world of tax-free investment opportunities. The product combines the steady tax- free income of municipal bond funds with the liquidity and visibility of stock exchange-- listing In just five years, exchange-traded municipal funds have helped create a new $50 billion retail capital market of substantial depth and liquidity. 12 9= .12)19 MEMBERS OF NUVEEN RESEARCH VISIT MUNICIPAL ISSUERS TO ASSESS THE STRENGTH OF"WE COM- MUNITY AND THE FUNDAMENTAL VALUE AND BENEFIT A PROPOSED PROJECT BRINGS FO ITS CITIZENS, WHICH HELPS DETERMINE THE INHERENT QUALITY OF THE FORTHCOMING MUNICIPAL ISSUES.EILEEN HOPKINS OF NUVEEN RESEARCH VISITS WITH KEITH ENDERSBY OF CALIFORNIA CORRIDOR CONSTRUCTORS AT THE SITE OF CALIFORNIA'S FIRST PUBLIC TOLL ROAD.THE SAN JOAQUIN HILLS TRANSPORTATION CORRIDOR PROJECT IS TO HE FUNDED BY A $1.2 BILLION MUNICIPAL BOND ISSUE. Nuveen is the leading exchange-traded municipal fund sponsor,with nearly$21 billion in assets under management at year-end 1992. The diversity and depth of the firm's prod- uct line testifies to Nuveen's dedication to this franchise. By year's end, Nuveen sponsored a total of 58 national and state, leveraged and unleveraged, and insured and uninsured funds. Exchange-traded funds are an important product line that we have grown and intend to nurture over time. VALUE I N V E S T I N G . . . Nuveen's success in serving the investment needs of individual investors rests on the ability to apply the full range of its municipal expertise to trust and fund management. A century's worth of experience offers us an unparalleled familiarity with all aspects of the municipal market. At the same time,we are sensitive to the goals and aspirations of individual investors. This mix of municipal expertise and investor orientation defines Nuveen's approach to investment management. We employ Value Investing—which combines the disciplines of 13 :.1249 research, surveillance, pricing and portfolio management—to create and manage sound tax-free investments that deliver solid and sustained performance to investors. Value Investing,which is based upon the search for relative value in the marketplace, is what distinguishes Nuveen's tax-free investments. Research is the starting point of product construction and the means by which Nuveen seeks to ensure a high standard of quality throughout a product's life.Nuveen Research analysts continually examine and rank bond issues in a variety of sectors according to their fundamental credit strengths. They engage in field investigations of -pending municipal projects, review historical and current financial disclosures, and meet with the firm's municipal finance experts to determine the issue's relation to __ Nuveen's exacting quality standards. The extensive credit histories of issuers for which Nuveen has underwritten bonds are an invaluable source of information in gauging fundamental credit quality. The firm maintains 62,000 detailed credit histories dating as far back as the turn of the century These credit histories provide a window to an issuer's sustained debt issuance and servicing—a view that aids in determining a new credit's suitability for a long-term investment product. -- Surveillance is another key aspect of Value Investing. Nuveen Research maintains a vigilant review of all aspects of an issue's ongoing creditworthiness, enabling portfo- lio managers to maintain a current view of an issue's relative credit strength to deter- mine how it may impact the performance of an investment product. As one of the nation's largest municipal bond purchasers, Nuveen scrutinizes vir- tually all of the market's new and secondary offerings. On a daily basis,the firm prices billions of dollars of municipal securities held in its trusts and funds. These pricing activities provide a daily window into the municipal market and an ongoing frame of reference=for the relative value of municipal issues. Informed portfolio management is the final component of Value Investing. Nuveen Advisory Corp.and Nuveen Institutional Advisory Corp. serve as the investment advis- ers and managers for Nuveen's family of tax-free investments. In addition to daily exposure to municipal market offerings, the portfolio managers meet on a weekly basis with the firm's senior management for a thorough review of current and pending purchases—bringing the firm's broadest historical perspective to the pursuit of the utmost value for investors. The end result of these efforts is the creation of long-term high quality investment products that provide a steady stream of tax-free income. Though Value Investing is - 14 9:3249 I I • • s,„:• • • n4 , THE NATION'S FINAN- CIAL ADVISERS HELP THEIR CLIENTS DETERMINE THE APPROPRIATE MIX OF NUVEEN INVESTMENTS FOR THEIR PORTFOLIOS. PAUL SCHEIRNER,VICE PRESIDENT/FINANCIAL CONSULTANT, SHEARSON LEIIMAN BROTHERS, MEETS WITH LONG-TIME CLIENTS BARBARA AND DONALD WALLMARK A'T THEIR PALM SPRINGS, CALIFORNIA HOME. 15 9'1249 a rigorous and involved process, it's the best means we know to design and deliver quality investment products. THE MUNICIPAL ENTERPRISE . . . Nuveen has spent nearly a century specializing in munici- pal investments. Since its inception, there has been an interplay of public benefit and private interest to the firm's activities. Early on, the firm aided in the development of fundamental services by expanding the use of municipal securities in raising capital. Today, the continuing development of the country's water and power plants, higher— education facilities, health care systems, and homes for millions of first-time buyers extends the public legacy of municipal finance. — At the same time, due largely to the emergence of tax-free investment products for individual investors, the private interest in municipal investing has taken on a new and expanded dimension.With the assistance of their financial advisers, millions of investors have been able to secure a source of steady income through tax-free investments. Municipal investing improves the nation's level of productivity and over- all quality of life while it enhances the investor's financial security. Private interest supports public benefit. The John Nuveen Company is proud to be a part of the rich legacy of municipal enterprise. The public benefit of municipal bonds is a source of inspiration for our endeavors. The development and delivery of high quality tax-free products for individ- ual investors is the ongoing object of our efforts. The fulfillment of public benefit and private interest defines the history of municipal investing and the history of The John Nuveen Company The story, which began at the turn of the 20th Century, remains as vibrant and relevant as we prepare to enter the 21st Century 16 901249 - MANAGEMENT ' S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW are directly related to the growth in fund net assets managed by the Company's two investment Net income for the year ended December 31, advisory subsidiaries,Nuveen Advisory Corp. and 1992,before including the effect of two one-time Nuveen Institutional Advisory Corp. This growth in accounting changes,was$62.6 million,or$1.66 net assets is largely the result of sponsoring new per share, compared with$47.9 million,or$1.31 series of the Company's tax-free fund products, and per share, in 1991 and$30.5 million, or$.83 per also reflects increased sales over redemptions of share, in 1990.After including the effect of these existing tax-free open-end fund products, reinvest- accounting changes, net income was$59.4 million, ment of fund dividends (or,where applicable, unit or$1.58 per share. Earnings for 1992 and 1991 are investment trust principal and income distri- record-results for the Company. Gross revenues butions) and increases in the value of the under- increased to$221.2 million in 1992, also a record, lying assets of the funds. compared with$180.2 million in 1991 and$131.5 The following table summarizes net assets under million in 1990.The Company paid its first two management: quarterly dividends of$.12 per share,totaling $9.2 million,in 1992.Prior to becoming a publicly NUVEEN TAX-FREE MANAGED FUNDS held entity in May 1992, the Company also paid NET ASSETS UNDER MANAGEMENT a special$65.0 million dividend to St. Paul Fire (in millions) December 31, and Marine Insurance Company,then its sole 1992 1991 1990 shareholder. Book value per share at December 31, 1992, after reflecting payment of these dividends, Mutual Funds $ 3,767.0 $ 2,603.3 $ 1,927.2 was$5.49,compared with 85.95 and$4.64 at Money Market Funds 2,634.3 3,110.0 2,869.3 December 31, 1991, and 1990, respectively Exchange-Traded Funds The following discussion and analysis should be (Closed-end) 20,034.5 16,288.7 8,439.9 Exchange-Traded read in conjunction with the consolidated financial Portfolios(Closed-end) 816.7 — — statements and related notes found on pages 20 — --- - -- --- through 29, since they contain important informa- Total $27,252.5 $22,002.0 $13-,236.4 tion that is helpful in evaluating the Company's results of operations and financial condition. Sales of tax-free investment products declined in 1992 reflecting increased competition from RESULTS OF OPERATIONS other sponsors of similar tax-free products, a low interest rate environment and increased Gross revenues earned by the Company competition for investor attention from the equity increased 22.7°/n to$221.2 million in 1992 from markets. Sales in 1991 were 69.9%higher than S180.2 million in 1991,which were 37%higher 1990,largely the result of increased demand for than 1990 revenues of$131.5 million. These and increased sales of leveraged closed-end fund increases are primarily the result of continuing products, caused in part by falling interest rates. growth in investment advisory fees earned from The following table presents a summary of the tax-free assets under management and increased Company's sales for 1990 through 1992: investment banking revenues. Revenues from the underwriting and distribution of tax-free invest- NUVEEN TAX-FREE INVESTMENT PRODUCT SALES ment products declined in 1992, as did interest earnings. Both of thelatter two categories of (in millions) Year Ended December 31, revenue increased in 1991 over 1990. 1992 1991 1990 Investment advisory fees from assets under Unit Investment Trusts $1,923.3 $ 2,311.1 $2,171.4 management increased by 56.6%to$146.9 million Mutual Funds(1) 1,094.2 581.2 423.5 in 1992 from 893.8 million in 1991. Included in Money Market Funds(1) (475.7) 240.7 202.3 this category of revenue in 1992 is$8.9 million of Exchange-Traded Funds: portfolio structuring fees, representing one-time Common Shares 1,803.5 5,328.8 2,246.9 fees earned by the Company to research and select Preferred Shares 1,550.0 1$25.7 1,070.4 securities for several series of a new tax-free Exchange-Traded Portfolios 808.0 closed-end fund product: the Select Tax-Free 4,780.0 8,076.4 3,943.1 Income Portfolio.Advisory fee income increased Total Tax-Free Investment 56.10/n in 1991 from$60.1 million in 1990. Product Sales $6,703.3 $10,387.5 $6,114.5 Increases in on-going investment advisory fees _. - ---- (1)Sales and dividend reinvestments less redemptions 931249 Revenues earned by the Company from the environment, growing consumer demand for sale of tax-free unit investment trusts in 1992, leveraged managed products and a nominal including distribution revenues and net position- level of competition as demonstrated by the ing profits,were$31.3 million, compared with Company's ability to capture a majority of tax- $41.4 million in 1991 and$33.2 million in 1990. exempt closed-end fund sales during the period. Tax-free unit investment trust sales declined Revenues earned by the Company from the in 1992 after showing a modest increase in 1991. underwriting and distribution of tax-free products The Company believes that its percentage consists of two categories.The Company earns decline in sales in 1992 is less than that of the a portion of the sales charge on unit investment unit investment trust industry taken as a whole trust sales and mutual fund sales and a portion and that this decline,while partly reflecting the of the underwriting profit on newly offered current low interest rate environment for fixed exchange-traded products. These revenues are — income investments,is also directly impacted directly related to both the volume and mix of by investors' increasing demand for mutual product sales.The Company also realizes posi- fund products. tioning gains or losses from changes in the Notwithstanding the low interest rate environ- market value of unit investment trust inventories - ment in 1992,tax-free mutual fund sales have and municipal bond inventories held for future grown in each of the last two years,with the unit investment trust products.These market larger percentage of growth occurring in 1992 values are directly affected by the movement of when sales increased 88.3%over the prior year. interest rates during the period beginning with Net sales in 1991 exceeded 1990 sales by$157.7 the acquisition of a municipal bond;for a future million, or 37.2%. Throughout 1991, and with unit investment trust and ending with the sale of increased emphasis in 1992, the Company that unit investment trust. In a declining interest — expanded its marketing and promotional efforts rate environment,the Company would realize for this product line. During the first quarter gains from carrying fixed income securities in its of 1992,the Company expanded its mutual fund inventory and, conversely,in a rising interest rate - product line with the addition of seven new environment the Company would incur losses. single state open-end funds in Arizona, Florida, The Company controls this interest rate risk by Maryland, Michigan, New Jersey, Pennsylvania managing inventory levels for both municipal and Virginia. bonds and unit investment trusts and by timing - Redemptions of money market shares deposits of new unit investment trusts. exceeded new sales, resulting in a decline in During 1992, distribution revenues and under- money market fund net assets under manage- writing profits declined 23.30/0 when compared ment during 1992. Net sales in 1991 exceeded with 1991. Positioning profits during this 1990 by$38.4 million, or 19.0%. During the period declined$3.8 million. Nineteen ninety-one past two years, the tax-free money market distribution revenues and underwriting profits fund segment of the mutual fund industry has were 20.6%higher when compared to 1990 and experienced nominal growth in total assets positioning profits in 1991 were$5.0 million under management and has become increas- higher than in 1990. ingly competitive. The Company's Municipal Securities Division, Tax-free exchange-traded product sales, whose revenues include both new issue under- including fund and portfolio common shares writing profits and fee income earned from vari- traded on national securities exchanges and ous advisory activities,recorded strong operating preferred shares, declined in 1992 by 42.6"/o, to results in 1992.Revenues increased 33.2%in 1992 $4.2 billion from$7.3 billion in 1991, reflecting over 1991,largely the result of an increase in the entry of new competitors into the leveraged municipal bond new issue and refunding-activity. closed-end fund market in 1992. During 1992, Revenues associated with underwriting munici- the Company introduced a series of two new tax- pal securities increased 62.1%,to$14.6 million in - free exchange-traded fund products, the Select 1992, from$9.0 million in 1991. During 1992,the Tax-Free Income Portfolio,with relatively fixed Company was senior manager or co-manager in portfolios, and the Select Maturities Municipal 127 municipal underwritings totaling$4.7 billion, Fund,with portfolios having intermediate-term compared to 94 municipal underwritings totaling characteristics (bond maturities of five to fifteen $3.2 billion in 1991. Merger and acquisition, years). Sales in 1991 for all exchange-traded remarketing and other fee income decreased$1.1 products were over 118.7%higher than 1990 million to$3.6 million in 1992 from$4.7 million in sales of$3.3 billion. The Company believes that 1991,primarily from a decrease in hospital and the extraordinary sales results of 1991 were health care merger and acquisition transactions largely attributable to a declining interest rate completed during 1992.The Company was remar- 18 9,7:1249 keting agent for various issuers of variable rate shareholder, and by its first two quarterly divi- demand obligations (VRDOs)with an aggregate dends as a public company, each$.12 per share, principal value hi excess of$1.1 billion in each of totaling$9.2 million. 1992 and 1991. The Company is remarketing agent for various Operating expenses increased 20.0%, to issuers of VRDOs with an aggregate principal $123.3 million in 1992 from$102.8 million in 1991, value in excess of$1.1 billion at December 31, and increased 22.3%in 1991 from$84.1. million 1992. Although remarketing agents, including in 1990. Compensation expense, the largest indi- the Company, are only obligated to use their best vidual category of operating expense, increased efforts in locating purchasers for the VRDOs, 28.7%in 1992 compared with 1991, and 32.3%in they frequently purchase VRDOs for resale to 1991 compared with 1990. The largest component other buyers within a few days. During tempo- of compensation expense is employee profit nary periods of imbalance between supply and sharing,which is derived by formula as a percent- demand for VRDOs, the Company may hold sub- age of pretax operating revenues.Also included stantial amounts of such obligations for resale. in compensation in 1992 is$9.4 million of expense The Company has come to expect such imbal- related to the 1992 Special Incentive Plan adopted ances at year-end and,to a lesser extent, at each earlier in the year. Under this program, certain calendar quarter-end.At December 31, 1992 and key executives received restricted stock or, as 1991, the Company owned$148.3 million and elected in lieu of restricted stock, deferred units. $163.8 million of VRDOs,which are classified in The cost of this program is being recorded as its consolidated balance sheets as "Temporary compensation expense over vesting periods of investments arising from remarketing obliga- fourteen or eighteen quarters beginning with the tions:" In comparison, the Company's average second quarter of 1992. Advertising and promo- daily inventory of VRDOs was $37.2 million tional costs increased 37.9%to $24.5 million in during 1992 and$27.4 million during 1991. 1992, from $17.8 million in 1991, and increased John Nuveen&Co. Incorporated,the marginally in 1991 compared with 1990, reflect- Company's wholly owned broker/dealer ing the Company's increased emphasis on sales subsidiary, is subject to the Securities and and marketing programs to promote new and Exchange Commission Rule 15e3-1, the existing products. "Uniform Net Capital Rule;which requires the maintenance of minimum net capital and CAPITAL RESOURCES AND LIQUIDITY AND requiresthattheratioofaggregateindebted- FINANCIAL CONDITION ness to net capital, as these terms are defined, shall not exceed 15 to 1. At December 31, 1992, Management believes that its capital its net capital ratio was 0.27 to 1 and its net cap- resources are more than adequate to finance ital was $166.0 million which is $163.1 million in its daily operations. The Company's primary excess of the required net capital of$2.9 million. businesses are not capital intensive and the Company has no current need to obtain long- term financing. Throughout the year, asub- stantial percentage of the Company's assets were comprised of cash and cash equivalents, highly liquid temporary investments arising from remarketing obligations and short-term receivables, including amounts related to the Company's managed fund advisory services. The funding requirements of the Company are mostly satisfied from equity capital as reflected in its consolidated balance sheet. The Company, however, periodically utilizes available lines of credit to satisfy additional periodic short-term funding requirements arising primarily from its obligations as remarketing agent for vari- able rate demand obligations. During the year ended December 31, 1992, the Company's net worth was increased by net earnings of$59.4 million and decreased by a special dividend of$65 million paid to St. Paul Fire&Marine Insurance Company, then its sole 19 9Z11249 CONSOLIDATED BALANCE SHEETS --- (in thousands) December31, _- 1992 1991 ASSETS Cash $ 1,752 $ 4,400 Securities purchased under agreements to resell, at selling prices — 6,000 Short term investments, at cost which approximates market value 4,796 4,724 Temporary investments arising from remarketing obligations 148,285 163,795 -- Receivables: Sponsored management investment companies 13,673 11,066 Brokers and dealers 1,747 2,045 Customers 1,620 2,657 — Income taxes — 9,647 Interest 1,474 2,008 Accrued net profits on syndicate accounts and other receivables 9,128 10,654 Securities owned (trading account), at market value: Nuveen Tax-Exempt Unit Trusts 59,231 42,579 Tax-exempt bonds and notes 9,278 24,681 U.S. government securities 9,452 — --. Deferred income tax charges 643 5,775 Furniture, equipment,and leasehold improvements,at cost less accumulated depreciation and amortization of $9,514 and$9,339, respectively 9,473 9,464 -- Otherassets 23,596 11,925 $294,148 $311,420 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Secured short-term bank loans $ 20,000 $ 22,000 Security purchase obligations 4,365 487 Payables: Brokers and dealers 470 982 Customers 201 10,574 Income taxes 6,180 — Accrued compensation and other expenses 20,801 36,882 Deferred compensation 13,869 12,190 Other liabilities 17,093 10,112 Total liabilities 82,979 93,227 Stockholders'equity: Preferred stock,$.01 par value; 5,000,000 shares authorized, no shares issued Class A Common stock, $.01 par value; 150,000,000 shares authorized, 9,900,568 shares issued 99 Class B Common stock, $.01 par value; 40,000,000 shares authorized,28,560,000 and 36,660,000 shares issued, respectively 286 367 - Additional paid-in capital 42,984 10,252 Retained earnings 192,785 207,574 Unearned compensation (24,985) — Total stockholders'equity 211,169 218,193 •$294,148 $311,420 See accompanying notes to consolidated financial statements. • 20 ,�. 971249 NSOLIDATED STATEMENTS OF INCOME in thousands except per share data) Year ended December 31, 1992 1991 1990 ievenues: Investment advisory fees from assets under management $146,942 $ 93,841 $ 60,110 Underwriting and distribution of investment products 39,474 54,212 41,207 Investment banking 18,224 13,685 11,826 Interest 12,340 14,626 14,263 _. All other 4,232 3,874 4,068 Total revenues 221,212 180,238 131,474 enses: Compensation and benefits 75,094 58,326 44,079 Advertising and promotional costs 24,494 17,757 16,478 - Interest 2,589 6,502 5,862 Occupancy and equipment rental 9,664 9,392 8,696 Communications 1,765 1,888 2,105 Other operating expenses 9,739 8,892 6,832 Total expenses 123,345 102,757 84,052 1 )me before taxes and cumulative effect of accounting changes 97;867 77;481 47,422 come taxes: Current 30,003 14,318 12,736 Deferred 5,291 15,277 4,159 Total income taxes 35,294 29,595 16,895 I income before cumulative effect ofaccounting changes 62,573 47,886 30,527 I iulative effect of accounting changes: Income taxes 1,080 — — Postretirement health care benefits, net of taxes 2,053 - Total accounting changes 3,133 — — lei income $ 59,440 $ 47,886 $ 30,527 lings per common share: Net income before cumulative effect of accounting changes $ 1.66 $ 1.31 $ .83 Cumulative effect of accounting changes .08 Net income $ 1.58 $ 1.31 $ .83 •t._,'npanying notes to consolidated financial statements. 21 a:1249 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS 'S ' EQUITY lin thousands) Class A Class B Additional Unearned Preferred Common Common Paid-In Retained Compen- Stock Stock Stock Capital Earnings -sation Total Balance at December 31,1989 $ $ $ 367 $ 10,158 $129,161 $ — $139. 36 Net income — — — 30,527 - 30,527 Balance at December 31, 1990 - - 367 10,158 159,688 - 170. 13 Net income — — — — 47,886 47,,,d6 Other — — 94 — — —94 Balance at December 31, 1991 — — 367 10,252 207,574 — 218 13 Net income — — 59,440 - 59,440 Cash dividends paid — — (74,229) — (74 29) Issuance of Class A Common Stock — 81 (81) — — — — Issuance of restricted stock pursuant to the Nuveen 1992 Special Incentive Plan — 18 — 32,266 — (32,284) — Amortization of unearned — compensation from restricted stock awards — — 7,299 7,,a9 Other — — 466 — A66 Balance at December 31, 1992 $ — $ 99 $ 286 $ 42,984 $192,785 $ (24,985) $211 39 See accompanying notes to consolidated financial statements. 22 W71249 -- CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 1992 1991 1990 Cash flows from operating activities: Net income $59,440 $47,886 $30,527 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 5,132 15,277 4,159 Depreciation and amortization 2,033 1,773 1,516 Net change in accrued income less net change in accrued expense during the period (461) (19,561) 15,385 _. Net change in receivables and payables from/to brokers, dealers, customers and other assets/other liabilities (12,212) 14,430 (8,870) Amortization of unearned compensation 7,299 Net(increase) decrease in assets: Temporary investments arising from remarketing obligations 15,510 (66,657) (52,038) Securities owned (trading account) (10,701) 69,976 9,250 Net Increase (decrease) in liabilities: Secured short-term bank loans (2,000) 8,300 (16,800) Security purchase obligations 3,878 (27,995) 27,378 Deferred compensation 1,679 (30,161) (6,792) Net cash provided by operating activities 69,597 13,268 3,715 Cash flows used in financing activities: Dividends (74,229) Other 126 (74,103) Cash flows from investing activities: Purchase of treasury bills (4,796) (4,724) (4,615) Proceeds from maturity of treasury bills 4,724 4,615 4,596 Other (4,070) (4,889) (3,430) (4,142) (4,998) (3,449) Increase (decrease) in cash and cash equivalents (8,648) 8,270 266 Cash and cash equivalents: Beginning of year 10,400 2,130 1,864 End of year $ 1,752 $ 10,400 $ 2,130 See accompanying notes to consolidated financial statements. 23 9Z1249 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- 1 . SUMMARY OF SIGNIFICANT tering the business affairs of the Nuveen family ACCOUNTING POLICIES of management investment companies. Nuveen - - Institutional Advisory also provides investment General Information and Basis of Presentation management services for public utility nuclear power plant decommissioning trust funds. The consolidated financial statements include the accounts of The John Nuveen Company In the normal course of business,the Company (together with its subsidiaries, the "Company" acquires (and holds in inventory) and sells or ",Nuveen") and its wholly owned subsidiaries, municipal bonds, unit investment trusts, and, John Nuveen&Co.Incorporated ("Nuveen& from time to time, U.S. government obligations. Co.),Nuveen Advisory Corp. ("Nuveen The Company also invests funds not currently Advisory") and Nuveen Institutional Advisory used in its operations in securities purchased Corp. ("Nuveen Institutional Advisory").All under agreements to resell. At December 31, material intercompany accounts and trans- 1992,the Company's inventory of securities actions have been eliminated in consolidation. owned did not contain any significant concentra- Certain amounts in the consolidated financial tions of credit risk relating to either individual statements for prior years have been reclassified issues or to issuers (or groups of issuers) locat- to conform with the 1992 presentation. ed in any state or region of the country. Prior to the public offering of the Company's Securities Transactions - - stock, Nuveen&Co.was wholly owned by St.Paul Fire&Marine Insurance Company (Fire Securities transactions are recorded on a settle- &Marine)which is wholly owned by The St. Paul ment date basis,which is generally five business Companies, a publicly traded holding company days after the trade date. Securities owned (together with Fire&Marine,the "Parent"). (trading accounts) are valued at market value Nuveen was incorporated on March 23, 1992. and realized and unrealized gains and losses In exchange for all of the outstanding shares of are reflected in income. Profits and losses are -_ Nuveen&Co.,the Company issued 36,660,000 accrued on unsettled securities transactions shares of Class B Common Stock to the Parent based on trade dates and,to the extent on April 1,1992.In connection with the public determinable, on underwriting commitments, offering of its Class A Common Stock, 8,100,000 purchase and sale commitments of when-issued — shares of Class B Common Stock were converted securities, and delayed delivery contracts. to Class A Common Stock and sold by the Parent. The Company issued 1,793,568 shares of Class A In connection with underwriting activities, con- _ Common Stock pursuant to the Nuveen 1992 tracts are entered into with other brokers and Special Incentive Plan. Nuveen is also autho- dealers to jointly purchase and sell securities. rized to issue preferred stock. The accompany- When the Company takes physical possession of ing financial statements have been retroactively a portion or all of the securities purchased for restated for all periods presented to reflect the such "joint accounts", it records as inventory its 36,660,000 shares of Class B Common Stock share of such securities. issued to the Parent on April 1,1992. Temporary Investments Arising from Remarketing Nuveen&Co., a registered broker and dealer Obligations in securities under the Securities Exchange Act of 1934,trades, underwrites, and markets muni- The Company is remarketing agent for various _ cipal bonds, and is sponsor/underwriter of the issuers of variable rate demand obligations Nuveen tax-exempt unit trusts (a series of unit with an aggregate principal value in excess of investment trusts) and Nuveen tax exempt open- $1.1 billion at December 31, 1992.Although end and exchange-traded (closed-end) manage- remarketing agents, including the Company,are -. ment investment companies. Nuveen Advisory only obligated to use their best efforts in locating and Nuveen Institutional Advisory are registered purchasers for the VRDOs,they frequently pur- investment advisers underthe Investment chase VRDOs for resale to other buyers within _ Advisers Act of 1940 and their principal business a few days. During temporary periods of imbal- is providing investment advice to and adminis- ance between supply and demand for VRDOs, 24 971249 the Company may hold substantial amounts of classifies this revenue with investment advisory such obligations for resale.The Company has fees on the statement of income. During 1992, come to expect such imbalances at year-end the Company recorded in income$8,883,000 of and,to-a lesser extent, at each calendar quarter- portfolio structuring fees. end.At December 31, 1992 and1991, the Company owned 8148.3 million and$163.8 mil- Income Taxes lion of VRDOs. In comparison, the Company's average daily temporary investment in VRDOs The Company files a consolidated Federal tax was$37.2 million during 1992 and$27.4 million return. Certain transactions are reported at during 1991. different times for financial and tax reporting purposes.Appropriate provision is made in the --- Securities Purchased Under Agreements to Resell consolidated financial statements for deferred taxes on these timing differences. Securities purchased under agreements to resell are treated as collateralized financing trans- 2. SHORT-TERM BANK LOANS actions and are carried at the amount at which such securities will be subsequently resold as The Company meets its short-term financing specified in the respective agreements. It is the needs arising from its VRDO remarketing and Company's policy to take possession of the secu- municipal bond underwriting activities by obtain- rities underlying the agreements to resell.The ing bank loans that are collateralized by firm Company monitors the value of these securities securities. daily and,if necessary, requests additional col- Short-term bank loans are collateralized by lateral to assure that the agreements are fully marketable securities having a market value of secured. $22,400,000 and$24,700,000 at December 31, 1992, and 1991,respectively Short-term bank loans are The Company utilizes resale agreements as generally made at the prevailing overnight loan a vehicle to Invest capital not required to fund rate and are payableon demand. daily operations. The level of such investments The daily average amount of loans outstanding will fluctuate on a daily basis as the Company during 1992 and 1991 was $12,498,000 and commits capital to carry temporary investments -$1,567,000, respectively, and carried a weighted in VRDOs and inventory positions and to finance average interest rate of 4.10%and 6.11%, respec- new issue municipal underwritings. Such agree- tively. The largest loan balance on any one day ments typically mature on the day following the during 1992 was 3139,000,000 and during 1991 was day in which the Company enters into such agree- $54,000,000.The average interest rate on loans ments. Since these agreements are highly liquid outstanding at December 31, 1992 and 1991 was investments,readily convertible to cash, and 5.75%and 5.44%, respectively Interest paid during mature in less than three months, the Company the years ending December 31, 1992, 1991 and 1990 includes these amounts in cash equivalents for amounted to$689,000,$140,000 and$285,000, cash flow purposes. respectively Furniture,Equipment and Leasehold Improvements 3 . SECURITY PURCHASE OBLIGATIONS Furniture and equipment are depreciated on Pursuant to several trust agreements, the _ a straight-line basis over estimated useful Company is obligated to purchase certain munici- lives ranging from five to ten years. Lease- pal when-issued bonds having a market value of hold improvements are amortized over the $4,408,000 and$498,000 at December 31, 1992 and lesser of the economic useful life of the improve- 1991, respectively, and deliver such bonds to the ment or the remaining term of the lease. trustee of the Nuveen Tax-Exempt Unit Trust. The commitments to deliver these bonds atDecember Portfolio Structuring Fees 31, 1992 and 1991 are secured by irrevocable bank letters of credit drawn by the Company in favor of During 1992 the Company introduced the the trustee amounting to$4,400,000 and$521,000, Exchange Traded Portfolio, a new closed-end respectively.These letters of credit are collater- fund product line. The Company receives a fee alized by securities owned by the Company having (a"portfolio structuring fee") upon sale of such a market value of$4,910,000 and$594,000 at fund shares for researching and selecting the December 31, 1992 and 1991,respectively The lia- underlying securities of the fund.The Company bility reported in the consolidated balance sheet is recognizes this portfolio structuring fee as the amount the Company is contractually obligated income on a straight-line basis over the period to pay at the future settlement date of the purchase during which the initial portfolio investments are transactions including interest accrued through being acquired (up to six months in 1992) and the respective balance sheet dates. 25 9,71249 4. INCOME TAXES The tax effect of significant items that gives rise to the net deferred tax asset recorded on the Company's During the first quarter of 1992,the Company consolidated balance sheet at December 31, 1992 adopted the provisions of Financial Accounting are shown below: Standards Board Statement (FASB) No. 109,'Accounting for Income Taxes':This statement 1992 changed the way the Company calculates tax Gross deferred tax asset: expense reported in its financial statements. Deferred.compensation $5,979,000 _- Under the new standard,the primary objective is Accrued postretirement to ensure that the deferred tax asset or liability benefit obligation 1,475,000 shown on the Company's balance sheet properly Other 1,356,000 reflects the amounts due to or from the government in the future.As a consequence,the portion of the Gross deferred tax asset 8,810,000 tax expense which is a result of the change in the deferred tax asset or liability may not always be Gross deferred tax liability: consistent with the income reported on the income Special Incentive Plan 6,960,000 statement. Under Accounting Principles Board Other 1,207,000 Opinion No. 11 (APB 11),the accounting rules used Gross deferred tax liability 8,167,000 by the Company prior to 1992,the primary objective _ was to match tax expense with pretax operating Net deferred tax asset $ 643,000 - income on the income statement.Adopting FASB 109 resulted in a charge to earnings amounting Income tax expense for 1992 was increased to$1,080,000. by$340,000 representing the amount that stock- — The provision for income taxes is different from holders' equity was increased to reflect the tax that which would be computed by applying the effect of compensation expense which, for tax statutory Federal income tax rate of 34%to income purposes, exceeded amounts recognized in the before taxes. The principal reasons for these differ- financial statements. ences are as-follows: Income tax expense includes deferred income tax charges (benefits) resulting from timing differ- 1992 _ 1991 1990 ences in the recognition of revenue and expense for - Federal statutory rate applied tax return and financial statement purposes. The to income before taxes 34.0% 34.0% 34.0% sources of these items and the tax effect of each State and local income taxes, are as follows: net of Federal income — tax benefit: 1991 1990 Current year taxes 4.1 3.7 3.3 Prior years refunds (3.0) Deferred compensation $15,750,000 $4,647,000 Loss of Federal tax benefits Unrealized inventory resulting from payment of appreciation 316,000 (75,000) deferred compensation — 3.1 6.4 Accrued expenses (106,000) 1325,000) Tax-exempt interest income, Other,net (683,000) (88,000) net of disallowed $15,277,000 $4,159,000 — interest expense (2.4) (3.7) (5.0) Other,net .4 1.1 ( .1) Federal and state income taxes paid-for the years Effective tax rate 36.1% 38.2% 35.6% --- _ — ending December 31, 1992, 1991 and 1990 amount- - ing to$13,835,000, $35,600,000, and$6,062,000 respectively, include required estimated payments on current year estimated taxable income and final payments of prior year taxes required to be paid -- upon filing the final Federal and state tax returns, reduced by refunds received,if any. 5. COMMITMENTS In the normal course of business, the Company enters into when-issued, delayed delivery, and — underwriting commitments. Estimated profits and losses on those commitments are reflected in the consolidated financial statements at year end. Rent expense for office space and equipment was — $6,375,000,$6,335,000 and$6,020,000 for the years ended December 31, 1992, 1991, and 1990,respec- 26 9671241 tively.Minimum rental commitments for office The following table summarizes the funded status space and equipment, including estimated escala- at December 31, 1992 and 1991. Prepaid pension tion for insurance,taxes, and maintenance for the cost is recorded in other assets on the consolidated years 1993 through 2000, the last year forwhich balance sheets. there is a commitment, are as follows: 1992 1991 Plan assets at fair Year Commitment value,primarily 1993 $ 5,322,000 common stocks, 1994 4,852,000 U.S.Government 1995 5,115,000 obligations,and 1996 5,152,000 corporate bonds $18,049,000 $17,210,000 1997 5,153,000 Actuarial present value Thereafter 13,883,000 of benefits for services rendered to date: 6. EMPLOYEE RETIREMENT AND INCENTIVE Accumulated benefits COMPENSATION PROGRAM based on salaries paid - - -- _ - to date Vested 9,297,000 8,381,000 The Company has a noncontributory retirement Non vested 867,000 264,000 _ plan covering substantially all employees including 10,164,000 8,645,000 employees of its subsidiaries. Pension benefits are based on years of service and the employee's aver- Additional benefits age compensation during the highest consecutive based on estimated -- five years of the employee's last ten years of employ- future salary levels 2,462,000 2,933,000 ment.The Company's funding policy is to contribute Projected benefit annually at least the minimum amount that can be obligation 12,626,000 11,578,000 deducted for Federal income tax purposes. Plan assets in excess of The following table sets forth the components of projected benefit the net pension benefit as reflected in the consoli- obligation 5,423;000 5,632,000 dated statement of income: Unrecognized net asset _. at January 1, 1987 December 31, being recognized over 15 years (2,602,000) (2,893,000) 1992 1991 1990 Unrecognized net gain Service cost-benefits from past experience (1,878,000) (1,963,000) earned during Unrecognized prior the year $ 652,000 $ 480,000 $575,000 service cost 94,000 102,000 Interest cost on Prepaid pension cost $ 1,037,000 $ 878,000 projected benefit obligation 854,000 798,000 786,000 Actual return on The assumptions used in determining funding plan assets (1,094,000) (2,726,000) (588,000) status and pension expense (benefit) are as follows: Net amortization (571,000) 1,238,000 (912,000) Net pension expense 1992 1991 1990 (benefit) _$(159,000) $(210,000) $(139,000) Funded Status: Discount rate 7 3/4% 7 3/4% 8 1/2% Rate of increase in compensation 6% 6% 6% Pension Cost: Expected rate of return on plan assets 8% 8% 8% The Company also maintains a noncontributory pension plan for certain employees whose pension benefits exceed the Section 415 limitations of the Internal Revenue Code.Pension benefits for this plan follow the vesting provisions of the funded plan.Funding is not made under this plan until benefits are paid. 27 pp sz.12x49 The following table-sets forth the components of cash bonus until retirement,termination, death, the net pension expense for the unfunded plan as or disability The deferred compensation liabilities reflected in the consolidated statements of income: incur interest expense at the prime rate. December31, 7 . POSTRETIREMENT BENEFITS 1992 1991 1990 OTHER THAN PENSION Service cost-benefits earned during the year $39,000 $115,000 $116,000 The Company provides certain life insurance and Interest cost on projected health care benefits for retired employees and their - benefit obligation 237,000 227,000 210,000 eligible dependents.A portion of the cost of these Net amortization 126,000 125,000 151,000 benefits is shared by the Company and the retiree. Net pension expense $402,000 $467,000 $477,000 Effective January 1, 1992,the Company - implemented Statement of Financial Accounting Standards No. 106, "Employers'Accounting for The following table reconciles the accumulated Postretirement Benefits Other than Pensions?'This benefit obligation of the unfunded plan at standard changed the method of accounting for December 31,with the amount of liability reflected postretirement benefits from a cash basis to the in the Company's consolidated balance sheets: accrual basis. Postretirement benefits expense is now accrued during the period that the employee 1992 1991 renders the service to earn the benefits.A tran- Actuarial present value of sition obligation of$3,292,000 ($2,053,000 after benefits for services tax) representing the cumulative January 1, 1992 rendered to date: liability was recorded as a charge to earnings in Accumulated benefits based the first quarter. on salaries paid to date, all vested benefits $3,322,000 $2,967,000 Net postretirement benefit expense for the year Additional benefits based ended December 31, 1992 includes the following on estimated future components: salary levels 17,000 189,000 Projected benefit obligation 3,339,000 3,156,000 1992 Unrecognized net loss from Service Cost $226,000 past experience 1469,0001 1576,0001 Interest Cost 277,000 Unrecognized net obligation Net postretirement benefit expense 503,00 at January 1, 1987 being $ 0 recognized over 15 years _ 1989,000) (1,101,000) Unfunded plan accrued The following table sets forth the plan's funded pension cost $1,881,000 $1,479,000 status reconciled with amounts reported in the The discount rate and rate of increase in future Company's consolidated balance sheet at compensation levels used in determining the actu- arial December 31, 1992: present value of the projected benefit obliga- 1992 tions were the same rates as disclosed under the - - - - — funded pension plan. Accumulated Postretirement Benefit Obligation: Retirees eligible for benefits $ 910,000 The Company has a profit sharing plan which Fully eligible active plan participants 864,000 covers substantially all employees, including Other active plan participants 2,155,000 employees of its subsidiaries.Amounts deter- — Accumulated postretirement benefit obligation 3,929,000 minable under the plan are contributed in part to a profit sharing trust qualified under the Internal Unrecognized net loss 1205,0001 Accrued postretirement benefit cost $3,724,000 Revenue Code with the-remainder paid as cash bonuses. During the years ending December 31, 1991 and 1990,the total amount available to be A 160/o and 13%annual rate of increase in the distributed as cash awards together with contri- per capita costsof covered medical benefits for butions to the profit sharing trust was 30°/n of the pre-65 and post-65 participants was assumed for Company's pretax operating income.Pursuant to 1992. These rates gradually decrease to 7%by the Nuveen Annual Cash Bonus Plan,the percent- the year 2001. Increasing the assumed healthcare age of pretax earnings (before deducting expenses cost trend rates by one percentage point in each associated with the Nuveen 1992 Special Incentive year would result in an increase in the Accumu- Plan) subject to profit sharing was decreased from lated Postretirement Benefit Obligation (APBO) as 30%to 25%°effective April 1, 1992. of December 31, 1992 of$550,000 and an increase The Company has a nonqualified deferred coin- in the aggregate of the service cost and interest pensation program whereby certain key employees cost for the period ended December 31, 1992 of can elect to defer receipt of all or-a portion of their 28 90124E $100,000. A weighted average discount rate of was .27 to 1 and its net capital was$166,006,000 7.75%was used to determine the APBO. which is$163,068,000 in excess of the required net capital of$2,938,000. 8. 1992 SPECIAL INCENTIVE PLAN 11.TRANSACTIQN5 WITH AFFILIATED On May 27, 1992 the Company issued 1,793,568 COMPANIES shares of Class A Common Stock and, as elected in lieu of restricted stock, 546,432 deferred units Transactions with affiliated companies consist to certain employees pursuant to the Nuveen 1992 primarily of securities transactions made in the Special Incentive Plan. Substantially all of the normal course of business at current market prices stock and deferred units issued pursuant to the in accordance with established procedures. plan are subject to restrictions on transferability, a risk of forfeiture and certain other terms and 12. QUARTERLY RESULTS (UNAUDITED) conditions specified under the plan. The value of the restricted stock and deferred units is reported The following table sets forth selected quarterly as compensation expense during the period begin- financial information for each quarter in the two ning on the date of grant and ending on the last year period ending December 31, 1992. vesting date.Awards vest over fourteen or eighteen quarters with substantially all of the awards vesting Fn thousands except per share data) 1992 on or before July 1, 1995. Included in stockholders' First Second Third Fourth equity at December 31, 1992 is$24,985,000 of __. Quarter Quarter Quarter Quarter unearned compensation relating to the issuance of restricted stock and included in other assets is Total revenues $47,031 $58,072 $59,786 $56,323 $8,139,000 of unearned compensation relating Net income before to the issuance of deferred units. Deferred units cumulative effect of in the amount of$9,989,000 have not vested at accounting changes 12,747 16,676 17,618 15,532 December 31, 1992 to employees and are included Net income 9,614 16,676 17,618 15,532 Per common share: in other liabilities on the Company's balance sheet. Net income before On May 27, 1992 the Company also granted cer- cumulative effect of tain employees options to purchase the Company's accounting changes .35 .45 .46 .40 Class A Common Stock at$18 per share which was Net income .26 .45 .46 .40 the offering price of the Company's shares at the Cash dividends .12 .12 time of its initial public offering in May 1992. The right to purchase stock pursuant to the option Stock Price Range: 30program vests over fourteen or eighteen quarters High — 18% 26 % Low — 15% 16% 22% and remains exercisable, subject to certain condi- tions, until May 27, 2002. At December 31, 1992 there were outstanding options with respect to 3,617,000 shares of which 620,000 shares are (in thousands except per share data) 1991 vested. During the year ending December 31, 1992 First Second Third Fourth options were exercised to purchase 7,000 shares Quarter Quarter Quarter Quarter of the Company's stock. Total revenues $37,506 $43,041 $48,497 $51,194 Net income 9,159 11,883 14,328 12,516 9. EARNINGS PER SHARE Earnings per common share .25 .32 .39 .34 Earnings per share have been computed by dividing net income attributable to common shares The John Nuveen Company Class A Common by the weighted average number of common shares stock, representing approximately 26%of the outstanding during the period. The weighted aver- Company's issued and outstanding common stock age number of shares outstanding during 1992 was at December 31, 1992,is listed on the New York 37,734,000 and during 1991 and 1990 was 36,660,000. Stock Exchange under the symbol JNC:'Trading of the Company's Class A Common stock began on 10.NET CAPITAL REQUIREMENT May 20, 1992.At December 31, 1992,there were approximately 11,000 shareholders of record. Nuveen&Co. is subject to the Securities and There are no restrictions on the Company's present Exchange Commission Rule 15c3-1, the "Uniform ability to pay dividends on its common stock. Net Capital Rule:'which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, as these terms are defined, shall not exceed 15 to 1.At December 31, 1992 the Company's net capital ratio 29 901249 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders The John Nuveen Company:We have audited the accompanying consolidated balance sheets of The John Nuveen Company(the Company) and subsidiaries as of December 31, 1992 and 1991, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1992.These consolidated financial statements are the responsibility of the Company's man- agement. Our responsibility is to express an opinion on these consolidated 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 state- ments 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 princi- ples used and significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The John Nuveen Company and subsidiaries as of December 31, 1992 and 1991, and the results of their operations and their cash flows for each of the years in the three-year period ended — December 31, 1992, in conformity with generally accepted accounting principles. As discussed in note 4 to the consolidated financial statements,the Company changed its method of accounting for income taxes in 1992 to adopt the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, `Accounting for Income Taxes."As discussed in note 7 to the consoli- dated financial statements, the Company also adopted the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 106, "Employers'Accounting for Postretirement Benefits Other Than Pensions" in 1992. Chicago,Illinois January 29, 1993 ".../7./77 G Agar /NCB4.r..e•aE 30 9,1249 - - F I V E Y E A R F I N A N C I A L SUMMARY (in thousands, unless otherwise indicated) _ Years Ended December 31, 1992 -..- 1991 1990 1989 1988 Income Statement Data: Revenues: Investment advisory fees from assets under management $146,942 $ 93,841 $ 60,110 $ 40,380 $ 33,499 Underwriting and distribution of investment products 39,474 54,212 41,207 42,963 41,839 Investment banking 18,224 13,685 11,826 12,942 12,339 Interest 12,340 14,626 14,263 14,826 18,842 All other 4,232 3,874 4,068 3,684 3,557 Total revenues 221,212 180,238 131,474 114,795 110,076 Expenses: Compensation and benefits 75,094 58,326 44,079 38,829 36,858 Advertising and promotional costs 24,494 17,757 16,478 12,730 10,983 All other 23,757 26,674 23,495 25,641 25,644 Total expenses 123,345 102,757 84,052 77,200 73,485 _ Income before taxes and cumulative effect of accounting changes 97,867 77,481 47,422 37,595 36,591 Income taxes 35,294 29,595 16,895 11,545 11,271 Net income before cumulative effect of accounting changes 62,573 47,886 30,527 26,050 25,320 Cumulative effect of accounting changes 3,133 — — Net Income $ 59,440 $ 47,886 $ 30,527 $ 26,050 $ 25,320 Earnings Per Common Share: Net income before cumulative effect of accounting changes =$ 1.66 $ 1.31 $ .83 $ .71 $ .69 Net income 1.58 1.31 .83 .71 .69 Return On Equity 33.6% 28.1% 21.9% 22.9% 13.1% Balance Sheet Data: Total assets $294,148 $311,420 $302,147 $264,051 $362,777 Total liabilities 82,979 93,227 131,934 124,365 149,141 Stockholders' equity $211,169 $218,193 $170,213 $139,686 $213,636 Total Dividends Per Share"' _$ .24 — — Nuveen Managed Funds(in millions): Net assets under management: Mutual funds $ 3,767 -$ 2,603 $ 1,927 $ 1,517 $ 1,189 Money market funds 2,634 3,110 2,869 2,667 2,595 Exchange traded funds and portfolios 20,851 16,289 8,440 5,139 3,070 Total -$ 27,252 $ 22,002 $ 13,236 $ 9,323 $ 6,854 _ Nuveen managed fund sales: Mutual funds"' 1 1,094 $ 581 $ 424 $ 286 $ 200 Money market funds'' (476) 241 202 72 16 Exchange traded funds and portfolios 4,162 7,254 3,317 1,951 1,216 Total -$ 4,780 $ 8,076 $ 3,943 $ 2,309 $ 1,432 Nuveen Unit Investment Trusts (in millions): Market Value Outstanding 1 22,419 $ 24,371 $ 24,093 $ 23,863 $ 22,299 Total sales (par value) 1,923 2,311 2,171 2,359 2,525 ("Excluding payment of a special cashdividend to St. Paul Fire and Marine Insurance Company in March 7992 ($65 million)and 7989($100 million). °Sales and dividend reinvestments less redemptions. • %1249 THE JOHN NUVEEN COMPANY — BOARD OF DIRECTORS EXECUTIVE OFFICERS SHAREHOLDER INFORMATION RICHARD J. FRANKE RICHARD J. FRANKE HEADQUARTERS Chairman and Chairman and The John Nuveen Company Chief Executive Officer Chief Executive Officer 333 West Wacker Drive John Nuveen&Co. Incorporated Chicago, IL 60606 DONALD E. SVEEN 312-917-7700 DONALD E. SVEEN President and President and Chief Operating Officer TRANSFER AGENT AND REGISTRAR Chief Operating Officer The Bank of New York John Nuveen&Co. Incorporated ANTHONY T. DEAN Shareholder Relations Executive Vice President Church Street Station ANTHONY T. DEAN Investment Product Sales and Customer Service Y.O. Box 11258 Executive Vice President New York,NY 10286-1258 John Nuveen&Co.Incorporated 1-800 X24-4458 TIMOTHY R. SCHWERTFEGER TIMOTHY R. SGHWEfi'1'FEGER Executive Vice President Corporate Marketing STOCK EXCHANGE LISTING Executive Vice President New York Stock Exchange John Nuveen&Co.Incorporated Trading Symbol: JNC - ROBERT B. KUPPENHEIMER ym WILLARD L. Bove Vice President and National Sales Manager Foam 10-K President Packaged Products Sales The annual report to the Field Museum of Securities and Exchange Natural History JOHN H. NOONAN Commission on Form 10-K Vice President and Manager for the fiscal year ended W. JOHN Drusool.l. Municipal Securities December 31, 1992, Chairman and President will be provided upon Rock Island Company O.WALTER RENFFTLEN written request to: WILLIAM J. HAY Vice President and Controller Jeff Kratz Vice President and Investor Relations General Counsel/Retired H.WILLIAM STABENOW John Nuveen&Co.Incorporated The St. Paul Companies Vice President and Treasurer 333 West Wacker Drive Chicago,IL 60606 DUANE R. KULLBERO JAMES J.WESOLOWSKI Managing Partner/Retired Vice President and General Counsel Arthur Andersen&Co. PAUL,C.WILLIAMS DOUGLAS W. LEATHERDALE Vice President and Manager Chairman and Chief Executive Officer Corporate Planning and Research The St. Paul Companies STOCK PRICE / DIVIDEND HATE — PATRICK A. THIELE Executive Vice President The table below sets forth the amount of cash dividends declared and paid per and Chief Financial Officer share and the high and low closing sales prices of the Company's stock front the The St. Paul Companies public offering of its shares in May 1992 through December 31,1992.SECOND QTR. THIRD QTR. FOURTH QTR. STOCK PRICE RANGE: HIGH $183A $26 $30'% Low 15A 16Y 22% CASH DIVIDEND: — .12 .12 32 9-. -JVEEIII Research PRISON COPs 4 Issuers and 5 Types of Prisons � mum ■ ■ ■ Sm. nl _ •1 a a . =EEC 9 I11hhsa Federal State Local For-Profit Not-For-Profit Corporate For-Profit September 1993 EXHIBIT IMrs defr1 931243 Table of Contents INTRODUCTION 1 An Apocryphal Leasing Tale 1 50% of Principal Lost In Two Years 1 Immobile Prisoners and "Turf" 2 There are Three Credit Categories of Prison COP and Lease Bonds 2 The Gamut for Start-Up Jails 2 THE FIRST COMPREHENSIVE RESEARCH INTO TAX-EXEMPT JAIL LEASING 4 Nine Defaults Out of 20 "Spec"Prisons 4 Nine of 25 Lease Defaults 5 Redefining Essentiality 5 A CHECKLIST FOR INVESTORS 5 OTHER CONSIDERATIONS 11 The Plight of Lease-Financed California Jails 11 California's "Return-to-Custody" Program 12 For-Profit Jails in Texas and Elsewhere 12 N-Group 12 Other Risky Jail COPs 13 From Over-Crowding to Over-Capacity 13 • © 1993 by John Nuveen&Co. Incorporated • Chicago- Atlanta 404.233.6663 Philadelphia 215564.5252 Statements herein contained John Nuveenakersnrurporatedare based upon information Investment Bankers -3hi ago.Wacker Drive BocAusa 512.346.3440 PhoeFrancisco nix s 415.32furnished us from Chicago, 12 60606 Bose Baton 407.907.0014 San Seattle 691.69011 other sources.While we oial r Telephone 912914.]700 Boston 617.542.540014254.2 206.587.0956 notguaranteetheircorrect-N10 0W East 501h Cal 21 . 58.2000030 i Wash813.ington D.C.47]3 be o 10022 Dallas 714i40.4B00 Wasbinglon D202223.8116 reliableeand have ourse them lves Newyork 1 .2 oi Angelese 310.20 relied upon them. Telephone 212.20720011 Lot 010.'l]4.041t 931249 INTRODUCTION No market professional can afford not knowing how to distinguish good Jail COP financings from bad ones. Significant increases in prison lease-financings are occurring. Volume, in the billions of dollars, is expected to keep growing beyond the year 2000. California's penal system is typical. Presently at 175% of capacity, it must borrow $3 billion (mostly in the form of COP financings) to reach 125% of capacity by 1995. The rise in prisoner populations is largely drug related. Prison leases cover a wide range of credit quality. At their best, prison COPs are AM rated with general fund backup, and bond insurance. At the low end are COP-financed prison facilities built in remote areas -- on speculation that they will be able to obtain prisoner contracts after completion. We have identified nine "Spec" prison COP issues which have defaulted in recent months. "For-profit" jail COPs* have the worst default record of any known group of tax- exempt securities. And prison leases may be the most under analyzed sector in the tax-exempt market. An Apocryphal Leasing Tale A story told in leasing circles concerns a COP issue sold by a southern state to expand the capitol complex. The lease named the state treasurer as trustee for the COPholders, as provided by the state constitution. This security structure meant that -- if the state defaulted on the COPs -- the treasurer had to evict himself. The story may not be true, and we are not investigating. But it is easy to find equally bizarre -- and real life -- leasing practices. In 1992, six Texas lease bond issues -- each of which was sold to finance a county prison --defaulted almost simultaneously. The jails never held prisoners, and (with one small exception) defaulted after depleting their capitalized interest and reserves. All six were originated by the N-Group (a Texas based financial consultant) and remained in lock step from sale to default. 50% of Principal Lost In Two Years Following default, all six jails were sold to the Texas Department of Criminal Justice at 50%of lease bond principal. Within two years, bondholders lost 50% of their investment. The Department -- which had boycotted the county-owned prisons because of alleged building code violations -- seamlessly reversed its policy. It made minor renovations and then transferred prisoners in from its own overcrowded jails, filling the new prisons to 100% of capacity -- all within a few months time. These jails were all "Spec" prisons -- built without prisoner contracts. Prison lease-financing would be far less controversial were it not for the Texas defaults. Some feel that these defaults will come to be viewed as an aberration after a few more successful jail COP issues calm the market. Over $100 million (par value)of prison issues defaulted in 1992 and 1993. The defaults tend to cast a cloud over the multitude of legitimate jail COPs-- which deserve market recognition. The corrections niche is expanding into a major (and respectable) market sector. • For-profit Jails are facilities built by cities or counties which are nearly always financed by tax- exempt lease bonds or COPs. These Jails are built to make the jails a profit by "importing" Inmates from other Jurisdictions for a fee. The jails are not built to house the issuer's prisoners. 1 931249 Immobile Prisoners and "Turf" The problems associated with prison overcrowding are well-known. But transferring inmates from jail to jail -- even within the same state -- is an obstacle course which some local lessees cannot seem to navigate. "Spec" Jail COPs may be the most fundamentally flawed credits ever offered to tax-exempt investors and mutual funds. There is no pool of prisoners, and no waiting list of inmates, waiting to occupy the next available prison. The Texas jail lease bond financings were not rated and were clearly advertised as high risk investments appropriate only for sophisticated buyers. But these so-called "high risk" bonds are really "no chance" bonds. Below we list some of the pitfalls which start-up prisons encounter. Several can be summarized under "turf-- a traditional lack of cooperation among law enforcement officials and systems. A bulging jail is seen as proof that law enforcement is effective. Also, prisoners themselves often strongly oppose being transferred -- away from friends and family. During leasing's first decade (the 1980s), only 16 leases defaulted. So far, in the 1990's, nine prison leases have defaulted -- and Brevard County, Florida (a COP issue, but not a jail financing) almost defaulted. Today, leases comprise approximately 6%of all municipal debt outstanding. But, it looks as if they represent far more than 6% of the risk. Since 1990, more tax-exempt prison lease financings have defaulted than leases issued for all other purposes combined. There are Three Credit Categories of Prison COP and Lease Bonds: • Investment Grade. AAA to BBB. These are mostly issued to build state penitentiaries. To qualify for investment grade, single site jails must have more than one occupancy agreement, and be backed by a general fund or other revenue pledge sufficient to cover debt service without regard to lease revenue. Fewer than 100 of these credits are rated, but dozens more are outstanding. To date, none have defaulted. • Below Investment Grade, but with Few Defaults. NR/NR. These prisons are built with one or more prisoner contracts in place at the time of the offering, but usually have no other revenue pledge. Approximately 100 are currently outstanding and there are three known defaults. • "Spec" Prisons NR/NR. Junk bonds and COPs. These jails are built on speculation that a prisoner contract will be signed before capitalized interest and reserves run out. The nine current defaults represent about 50% of all issues of this type ever sold. Construction on other "Spec" jails has been completed, but they are standing empty, and appear to be close to defaulting. The Gamut for Start-Up Jails After reviewing the nine prison defaults (as of October, 1993), we find that they share a number of serious problems, which the official statements failed to disclose. These include legal restrictions, regulatory road blocks, and legal gray areas which may be summarized as follows: 2 931249 1. Rental prisons are highly countercyclical. Jails are like convention centers. (1) Both types of projects are locally lease-financed. (2) When local economies slump, civic leaders are more likely to finance a risky venture in an effort to create new jobs and new business. (3) Both types of facilities are speculative and not likely to be self-supporting. (4) Both are launched in hard economic times when success is the most difficult. 2. In a recession, private prisons are bypassed. Weak finances force states to develop lower-cost alternatives such as work-release, electronic monitoring, and boot camps. Some states are abandoning "rent-a-cells" as their contracts expire -- and moving prisoners into their own facilities as they come on line. 3. "NIMBY" (Not in my backyard) refers to the tendency of voters to reject or oppose projects such as jails and garbage disposal facilities when they learn that they are to be built close to their property. Residents may overwhelmingly favor construction of a new prison. But neighbors close to the proposed site may strongly oppose it. The NIMBY syndrome must be monitored, because it may postpone a jail project indefinitely. 4. Feasibility studies. No body of feasibility work exists for tax-exempt correctional projects. However, some academics specializing in criminology are gaining recognition for the quality of their work in this area. Reputable consultants have almost unanimously had experience with poor projects, but the developers simply changed consultants and proceeded. Investors should check the consultant's experience on this point. Consultants should be paid fully in advance for their work. Fees should not be contingent upon the sale of bonds. Many jail feasibility studies are presented in official statements in ways that closely resemble prisoner contracts. Investors should always check this carefully. 5. Stabbings and riots. Legal uncertainties have arisen over the large-scale interstate transport of convicts. What state has jurisdiction when a Nevada convict stabs a Californian while both serve time in Colorado? This problem is not hypothetical. Prison privatization is forcing judges and legislators to ponder such questions. Injuries and lawsuits could be financially ruinous to owners of a small city or county jail -- if they happen to be underinsured. 6. Civil Rights liability/prisoner illness. Two major hidden costs which contracts pass through to issuers are the costs of liability awards and medical expense if an inmate becomes ill, or if one inmate injures another. A fairly new type of financial risk is civil rights liability suits. In these suits, inmates typically allege injury because of inadequate security. Many inmates tend to be litigious. Most prisons have heavily used law libraries. 7. Private jails are a short-term solution to long-term needs. Rather than transfer prisoners to rental jails, wardens prefer to enlarge their own. Private jails raise complaints from inmates and their supporters. And private prisons are unreliable in the long run. What will prison officials do when these convicts are returned to them in 5 to 7 years? 8. Administering "necessary force." Extreme tension and conflicts result from the cultural gap created when poorly trained guards find themselves supervising "prison wise" and violent convicts. Critics claim that inexperienced guards cannot properly handle such inmates. 3 91249 9. Staffing from local residents. Local officials are often told that they can staff their prisons with local residents, thereby creating new jobs. But jails require only one staff member for every five beds. Because inmates cook and clean, prisons are not labor-intensive. In actuality,few local jobs are created. Also,commercial managers often bring in outside staff. 10. White-collar prisoners are promised for local facilities. In many cases, habitual criminals, murders, and rapists are sent to local facilities -- even though the jails are not high security. Public outcries have caused prisoners to be transferred to their former prisons, and the new jails stand empty. 11. Remote jail locations are objected to by civil rights and prisoner's rights groups because this limits visits by friends, family, and others. Some states now have legislation prohibiting transfers of prisoners not only out of state, but between jurisdictions within states. 12. Low-to-mid security prisons are not designed to house violent felons. If localities focused on building expensive maximum security prisons, instead of inexpensive low-to- mid security prisons, they could easily find prisoners. Hard-core convicts are the fastest growing group, and the ones wardens want most to transfer out. THE FIRST COMPREHENSIVE RESEARCH INTO TAX-EXEMPT JAIL LEASING There has been no definitive study of this important and fast growing credit sector. From the municipal bond investor's viewpoint, the corrections field is a jumble of differing credit packages, types of issuers, and regionalized behavior. Not only are investors uninformed, but few issuers know what their neighbor is doing. This is primarily because that there are four different categories of sponsors (or issuers). Different types of sponsors almost never coordinate their efforts. This report is empirical research based on reviews of the official statements for the nine defaulted issues, and the analysis of the offering statements for six other prison COP issues. We examined tax-exempt prison issues ranging from Aaa/AAA (MBIA),to NR/NR with contracts,to "Spec"prisons without contracts. We spoke with professors of criminology, law enforcement officials and investment bankers. A total of eight Texas prison issues have recently defaulted -- with little fanfare. Zevala County Jail is a case in point. The jail defaulted after losing all of its inmates. All these prisoners were in the custody of Washington D.C. The District is one of the nation's major prisoner exporters because it has a high rate of crime and lacks the land on which to build more prisons. The prisoners were removed because of--among other things--wine was fermenting in the shower stalls, inmates were fighting with clubs, and guards were escorting prisoners on trips to Mexico. This 1989 COP-financed prison was originally built with no fence around its exercise yard, and was partly built of cinder blocks -- which are easy to dig through. Nine Defaults Out of 20 "Spec"Prisons For-profit Texas jails -- limited only by their ability to secure more tax-exempt money -- appear to have run their course. But in other states, the specter of competition and lack of contracts has not diminished the enthusiasm of promoters. Corrections is an unregulated field in which over-building is the norm. No jail is ever built just large enough to hold current inmates. It is sized for future prisoner populations. 4 931249 There is no central repository of information on correctional building -- at any level of government. There are some 70 corporate and local for-profit prisons in the U.S. But based on anecdotal evidence, we believe some 20 local for-profit "Spec" prisons have been or are being financed with tax-exempt securities. These include the nine default situations we discuss in this report. They range from fully completed facilities desperately seeking prisoners, to COP issues coming to market. Law enforcement officials state that they "...hear about another new "Spec" prison about once a week." To date, eight "Spec" prisons in Texas and one in Minnesota had opened, failed to attract prisoners, and then defaulted on their tax-exempt COPs. Nine of 25 Lease Defaults Municipal leasing originated in California the late 1970s. There have been some 25 lease defaults since the 1978 Minnesota Zoo Ride COPs failed in 1980. Also, Brevard County of all defaults, Florida nearly defaulted in 1993. Jail financings account for nine of all 25 lease defaults. At 36%, local for-profit jails have the highest default rate of any type/purpose ever funded by leases. Redefining Essentiality Essentiality has been taken by investors to mean that the lessee needs the facilities for its own use. Jails -- in their traditional role -- have always been considered so essential that the lessee would never nonappropriate. The jail housed the city's or county's own felons, and there was no feasible alternative to their court-ordered incarceration. By contrast, for-profit prison financings have never established essentiality. Nor have they achieved profitability. Their problems can best be classified under "political risk" --an unquantifiable gray area. No official statement we've examined for a lease-financed jail has adequately described political risk. And no analyst can ever hope to identify political risk without going beyond the official statement. "Essentiality" has become the buzz word for defining risk. The common denominator of lease projects which defaulted in the 1980s was "nonessentiality." The projects were an eclectic group -- zoo monorails, stage rigging (twice), retailing piers, and so on. Now lease defaults are going through their prison phase. A prison--or any other controversial project--can entail serious political risk, and demands far more scrutiny than other projects. A spokeswoman for the Brevard County Board --speaking of the near- default on the County Center, said, "if the bond community had a mechanism to gauge political attitudes, they would have discovered this project was unpopular from the beginning." This report is written to help investors who are considering the purchase of tax-exempt prison obligations. Prison and jail-backed securities raise questions peculiar to the field of corrections, and generally unfamiliar to most investors: A CHECKLIST FOR INVESTORS Q. What should the Prison Occupancy Agreement stipulate? A. Ideally, the occupancy agreement should be a three to five year contract -- with one or more renewal options. Per diem pay is the preferred funding arrangement because it makes the constant turnover of prisoners easier to account for. 5 931249 Also, a gross revenue pledge is highly desirable in prison leasing. The possibility always exists that a host community might develop friction with prison management, so debt service should always have a lien on revenues senior to that of the management contract. Contracts are usually based on "assessment fees." The fees reflect such features as government operating and housing cost per prisoner, amortization, and depreciation. The spread between costs, and the amount charged to the lessee per prisoner, covers the manager's profit and certain other costs. Obviously, the larger the spread, the greater the long-term appeal of the contract. The prison management business has been so successful that most managers (large and small) have had their contracts extended repeatedly when they come up for renewal. In fact, only two or three small jails have used more than one manager during their operating history. A major exception to this lucrative field is Pricor (a former industry leader) which announced its withdrawal from the adult corrections business a few years ago. The reason given was low return on capital. Q. How important is a first mortgage lien on a jail or prison? A. Most leases grant a security interest in a lease-financed project to the trustee --for investor protection. Legal assignments are not permitted in some states. But, in most, transferring title to a lessee is permitted -- as a remedy of default. In negotiating the private sale of prison lease obligations, some investors expressly waive their right to repossess. Judging from the official statements reviewed for this report, it appears that investors do not consider a security interest in a prison to be of material value. (In the case of six of the eight Texas prison defaults described herein, the lessees did not repossess the jails. Instead, the State initiated condemnation and the only realistic buyer was the Texas Department of Criminal Justice.) Re-entry and eviction is a common lease provision which a judge might overrule if the project is deemed to be essential. In case of nonpayment on a prison lease, a judge might not rule that the inmates be moved to another over-crowded prison. It seems more likely that a court would rule that the prisoners stay, and that the lessee and investor work out a repayment plan (for example, lower and longer debt service payments) to accommodate both parties. Also, some jail leases contain a version of the following language: "The trustee may re- enter and sell the property, but is subject to bankruptcy or other conditions, including judicial opinion." In most instances, "judicial opinion" means that the court will specifically weigh prison essentiality. Lease financing a prison is a win-win situation for small, rural counties who are infrequent borrowers. And these are exactly the kind of issuers bringing many current jail financings to market. For investors, foreclosure on an empty prison is not a practical option. The prison has already shown it cannot find prisoners. Also, following foreclosure, investors must pay local property taxes. 6 931249 Q. Are correctional facilities bonds ever rated or insured? A. Neither Moody's nor Standard & Poor's will rate a for-profit prison issue. On not-for-profit prisons, neither service will rate an issue if its sole payment source is a single contract. To back the prisoner contract, additional sources of revenue must also be pledged. General fund payments, property taxes and LOTTO revenues have all been used in various states. For an investment grade credit rating, both the prison contract, and the additional revenues pledged, must each independently cover debt service. The number of rated prison issues is low. Moody's rates a total of 17, of which 11 are state prisons. Standard & Poor's rates a similar number. Many of these state ratings fall less than one rating category below the state GO rating -- which reflects high essentiality. If annual general fund appropriations are pledged, the unrestricted balance must be sufficient to cover rent payments. It is also preferable that such balances be trending upward. If another source of revenue is pledged, it also must cover debt service alone. It is better that the lessee has few leases. Otherwise the lessee may prioritize its lease obligations and pay the least popular one (possibly the jail lease) last. The obligation to pay rent is usually semi-annual, and is subject to abatement if the project is not complete or untenantable. Provision for property/casualty, liability, and use and occupancy insurance should be included. Also, the "legislative intent" of the lessee should be evaluated. This means that the final project is reasonably close enough to the one originally proposed, that it still has strong advocacy. In the case of not-for-profit prisons, up-front funding of an equity interest in the leased property (and/or funding the DSR from proceeds) shows lessee commitment. Also, a "nonsubstitution clause" precluding the use of functionally similar property is a credit plus. The "issuer's" debt payment record should be examined. It is important to know if the lessee has ever defaulted. And, is there a history of defaults on similar lease-financed projects (like Texas jails)? Q. Is the prison supported by both the voters and elected officials? A. Weak support from elected officials -- who, in most cases, must semi-annually appropriate rent and negotiate management contracts -- is a definite credit negative. It is also highly relevant to know if an advisory referendum has ever been held. Or did voters -- no matter how long ago -- ever reject G.O. financing for the project? If so, the project has a dubious future. It is highly likely that citizens will protest to public officials and not reelect them. This heightens non-appropriation risk. If the project was voted down twice -- even if long ago and in some other form -- this, in public finance parlance --:is a "deal breaker." Standard & Poor's makes the following observation:"If a prison is built to make money by renting out space, there is always the possibility that the facility will not be self-supporting, much less profitable. The risk of nonappropriation is heightened when the motive for the prison is profit, not incarceration of a jurisdiction's own prisoners... ." In most jail financings, a call to the editor of the local newspaper, banker, or other community leader, will reveal whether or not a prison project is controversial. Community opinion may run so high that it is impossible to tell which side will win. (This was the case 7 931243 with Brevard County, Florida's new County Center.) One group sees prisons as a safety hazard, and does not want criminals housed in their communities. The opposing group sees a prison as "clean industry" which stimulates the economy by purchasing local goods and services, and by creating local jobs. There also may be opinion swings just before the election which can only be measured by a poll. Where a clear plurality cannot be established, any investment decision must be based on other credit issues such as those described herein. "NIMBY" After a governmental entity decides to erect a prison within a city or county, the exact location can be a sticking point. Controversy over exactly where to locate a prison can delay a project, or postpone it indefinitely. Residents often want a prison in their city or county, but not in their neighborhood. This is the "NIMBY" or not in my back yard syndrome. Before proceeding with such a financing, local entities should clearly decide on a location. Then, if necessary, they should allow a "cooling off" period before deciding whether to proceed. Q. Who should do the feasibility study on a lease-financed prison? A. Feasibility studies for tax-exempt correctional projects are the exception rather than the rule. Private demographers have produced such studies for clients, but these are generally not available to local units for financial planning. However, certain college academicians who study penal systems (criminologists) are becoming recognized for the accuracy of their projections, and the comprehensive nature of their work. It is clearly better to have a feasibility study done by a party with extensive experience. Reputable consultants almost universally have had their opinion rejected on poor projects. In these cases, the developer simply hired another consultant to approve the project. A 100% success record is suspect. It should be emphasized that the feasibility consultant should always be paid fully in advance for his/her work. Consultants should never work on a fee basis which is contingent on the sale of the issue. The consultant should certify in a legal document that he/she has no financial interest in the project being considered other than the fee for service already received. Q. Has any court or oversight agency ordered the issuer to relieve overcrowding? A. Forty of the 50 states are under such orders, but these mandates are not as common at the local level. When such an order exists, however, the ruling tends to validate project essentiality, and helps dispel any local notion that, in future years, appropriation can be optional. If there is a clear shortage of prison space, regardless of a court order, the need for a new or enlarged facility is less likely to be questioned during the annual appropriation process. If there are a large number of prison beds available in nearby communities, this weakens the case for adding cells. (However, transporting inmates across jurisdictional lines is more difficult and occurs less frequently than imagined.) 8 931249 Q. Is liability, property/casualty, and rental interruption insurance required? A. Many cities and counties which build prisons are surprised to find that their present insurance coverage cannot be extended -- even if they operate the prison themselves. A separate rider usually has to be added to their coverage. Should a locality privatize a prison by hiring a private manager, the contract usually requires the local unit to obtain and pay for specialized coverage. Convicts are a very litigious group, and individual lawsuits and class actions are commonplace. It is recommended that the project owner obtain as much liability insurance as is available, and further, that the owner seek maximum coverage of "civil rights liability" insurance described on page 3. Property/casualty coverage should be maintained at the greater of replacement cost or par value of bonds outstanding. Failing the above, the facility should at least obtain accreditation by the American Correctional Association. The ACA standards, which are applied by the Commission on Correctional Accreditation, are generally considered the benchmark level for prisons. Q. Are the architect and contractor experienced in prison construction? A. The lessee should covenant in the building contract that the facility will be built in accordance with state contracting codes, and to their respective Department of Justice specifications. Given the constraints of a fixed budget, issuers are well advised to use a turnkey, fixed-priced arrangement with an experienced contractor. These arrangements have, for the most part, produced very satisfactory results. Within a given area, there will usually be two or three contractors with prison building experience,while others have none. It is also important to check whether the architect designing the facility has designed prisons before. It is a credit negative if construction is issuer-managed. Prisons are more expensive to build compared to conventional buildings. If construction costs are under-estimated, project completion could be seriously compromised. Q. Is daily debt service over$10 per bed? A. In all types of prisons (except for state and federal), debt service should be between $8 and $10 per bed per diem. Prisons are not labor intensive-- and require only one guard, or other employee--for every five beds. This is because prisoners are usually required to cook and do housecleaning. Also, fewer guards are required at night. Prisons are financed in many different ways,so the debt service load--whether large or small -- should not burden the lives of prisoners. It should not adversely affect the ability of a public or private operator to meet all necessary operational requirements. The current national per diem charge averages $49.48, including debt service. There are regional differences of course, the higher costs being for jails in the east and for juveniles. 9 931249 Q. Is excess prison space being built or planned in the area? A. This is difficult for investors to ascertain. There is no regulation or control of correctional facility construction. Unregulated competition is a fact-of-life for holders of prison-backed COPs and bonds. Overbuilding is endemic to the field of corrections. No jail is ever built just large enough to house only the present prison population. It is over-sized to accommodate the level of convicts projected at some future date. Q. How long should vendors obligate themselves under any occupancy agreements? A. Longer contracts lessen the risk of changing managers too frequently over the 20-year life of a COP or bond. California grants 20-year agreements under its"Return-to-custody"local prison programs. In jail management, commercial operators tend to remain in place for long periods, regardless of contract length. Only a handful of jails have had more than one operator in their operating history. California grants 20-year agreements under its "Return-to-custody" local prison programs. In other states, three to five year periods are normal. Q. What size prisons are the most creditworthy? A. The fixed-cost advantages (starting at 400 beds) continue up to prisoner populations of about 1,000, however, at 1,000 inmates or more, prisons begin to lose economies of scale. They may be required to meet higher standards and provide specialized psychiatric or medical treatment for inmates. Virtually all prisons of over 1,000 beds are either state or federally operated. Small jails need professional management the most. A county in Louisiana is a typical example. Before privatization, the county paid $25 per prisoner per day for the 340 inmates in its jail and work camps. But the county was able to contract for outside management at $23 per day. This produced a savings of $240,000 annually. Due to this and other success stories, the Louisiana legislature passed a bill in 1992 allowing construction of private venture prisons. This cost savings is important to counties and cities everywhere, and also to state legislatures looking for ways to save money. Q. What should tax-exempt investors know about private sector managers and prisons? A. There is a vast quality range among managers. Any investor in a position to influence the selection of a manager should consider the caliber, reputation, and experience of firms submitting proposals. Some have exemplary records of performance and success. Others do not. Privatization can help alleviate the law enforcement crisis enabling municipalities to build and manage prisons without taxpayer money. Since the early 1980s, several dozen low to 10 931249 high-security prisons have been built by federal, state and local governments and have then been contracted out to private vendor managements. The American Federation of State, County, and Municipal Employees ("AFSCME") and other public sector unions have persuaded legislators in a number of states to disallow non- union staffing of prisons. Their position is that private-sector contractors will hire less- qualified employees in order to cut costs. Privatization is no longer being hailed as the single best solution to the nation's over- crowded prison system. Only 2% of all the nation's prisoners are attended to by private corporations. Outsiders see the corrections field as lucrative and growing. Companies with no previous experience try to sell their services to prison owners every year. In recent years, some companies with proven management skill--besides the many fledglings-- have entered the prison business. Corrections Corporation of American ("CCA") is an industry leader. Also, in recent years, Wackenhut Corp., the big Miami-based security company, has become a prison developer and operator. OTHER CONSIDERATIONS Many observers predict a limited role for private prisons even under a scenario of soaring corrections costs and swelling inmate populations. The major reasons for limited private sector involvement can be expressed in a single word -- "turf'. Police officials often regarded high prison population as proof of effective law enforcement. There is little sharing of prisoners even among neighboring law-enforcement jurisdictions. This is a hurdle which all start-up prisons must overcome. The Plight of Lease-Financed California Jails Almost every county in California-- even rural counties with few inhabitants -- operates at least one not-for-profit prison. For the year ending June 30, 1993, the Legislature shifted billions of dollars from cities, counties, and other local venues to schools. This is because California had to meet constitutionally mandated school funding under Proposition 98. The school mandate means less money for local governmental units which lack guaranteed levels of funding. But what happens when the revenue reductions become so big that essential government services must be eliminated or curtailed? Prison expense (for salaries, operation and maintenance, and COP debt service) is often the largest single expenditure item in a county's budget. Prison appropriations sometimes account for as much as 50% of the county budget. Almost all of these jails are lease-financed. If small county jails can no longer afford to operate, prisoners may be sent to other overcrowded and fiscally-stressed jails in the state. There will be a cascading effect into larger prisons. If staff and prisoners can be transferred to a different jail -- as is possible in California's huge penal system -- would a financially beleaguered city or county continue to pay rent on its empty jail? Or 11 931249 would a judge rule that the lessee could default and continue using the jail? As the economy continues to lag, this question takes on greater meaning in the analysis of lease financing. California's "Return-to-Custody"Program California has developed some innovative ways to finance space for prisoners. its "Return-to- Custody" program, started in 1987, allows the state to enter 20-year contracts with cities. These provide standardized 350 bed prisons. The state finances building of the prisons, which is then amortized for 20 years. Like other state leases, the appropriations are subject to Legislative action. While the inmates remain under the custody of the State Department of Corrections,the contractors provide their own staff and maintain tenure. The jails are COP-financed, and so far 12 series have financed 12 facilities. These COPs have been rated BBB+p by Standard & Poor's. The motives for the transaction are apparent. The cities benefit from the economic stimulation and new job opportunities. The State benefits because the cities have lower wage costs. Overall construction cost is also considerably less due to the waiver of certain contracting requirements. For-Profit Jails in Texas and Elsewhere "Speculative" prisons have been, or are being, built by ten Texas g9unties. This is in addition to the six N-Group prisons described below. Two major reasons are cit` for the N-Group defaults. First, communities in the Texas hinterlands were suffering severe economic downturns even before the current recession. The cities and counties which lease-financed these jails were desperate enough to undertake almost any scheme to stimulate their local economies and create jobs. The second reason why Texas finds itself at the center of speculative jail lease-financing is that an unusually high concentration of promoters and deal makers are active in the state. These individuals saw large profits in a business where demand was undergoing a sharp upturn -- and is likely to continue climbing. In most cases,these new"Correctional Consultants,"were ex-correction officials, investment bankers, architects, municipal finance consultants, and former county sheriffs. N-Group The Company which promoted the highest number of for-profit prisons in Texas was N-Group (in Houston). Most of these facilities were built in remote, rural counties. N-Group was very well politically connected. A former Governor of Texas was their attorney, and the former speaker of the house was their lobbyist. N-Group collected fees totaling $2.25 million from a Drexel Burnham Lambert sale of $75 million of prison COPs in 1989. Drexel is now defunct, but Drexel was well known for its junk bond operations before it closed. And the jail bonds sold could fit into this category. In its heyday, N-Group proposed prison-financings from Oregon to New Hampshire. A total of six N-Group "Jail Facility Financing Corporation" lease bond issues were sold. The six issuing counties were Angelina, Falls, Pecos, La Salle, San Saba, and Swisher. On August 1, 1992, all six N-Group jails defaulted after exhausting all capitalized interest and reserves. None ever held prisoners (except for one small, short-term group). 12 931249 San Saba is currently considering a second leasing for a 500-bed jail to be financed by $20 million in COPs. Investors must remember that San Saba's series 1989 COPs just defaulted -- costing investors over $6 million. After completion in 1991, and through the summer of 1992, five of the six N-Group jails failed to attract prisoners. A spokeswoman for the Texas Commission on Jails warned that the "Potential investor here would be a sophisticated buyer, who understands the risk." The Commission was not surprised that neither the state nor any of its agencies would "bail out" the prisons by transferring state prisoners to them. This attitude was fairly wide-spread among state officials. Such a transfer could have been accomplished under existing legislation. At least three of the $12.5 million issues were bought entirely by large institutional investors. Rather than repossess the jails, all three opted to have the State condemn the jails, and the only conceivable purchaser was the Texas Department of Criminal Justice. The investors all sold their rights in the prisons to the Department at fifty cents on the dollar or less. The other COPholders followed suit, selling their interest in the land and buildings at similar prices. Other Risky Jail COPs Although it was not an N-Group financings, Zavala County Correctional Center, Texas, defaulted on its$4,200,000 COPs in 1990. Other Texas counties to build speculative jails include Newton, Harris and Maverick. (Maverick has also defaulted.) Outside of Texas, speculative for-profit prisons have been built by Irvin County, Georgia, the City of Appleton, Minnesota, and Las Animas County, California. These are all lease-financed jails which, except for the nine described earlier, have not defaulted. The jails are virtually all low to medium-security institutions with 300 to 500 beds. The prisons described here are not meant to be a comprehensive list of for-profit jails -- or any other category of jails. A definitive compilation would be nearly impossible considering that the builder can be federal, state, local, or private. The purpose in this report was to call attention to the Texas defaults and to attempt to construct a "check list" for investors interested in prison COPs and leases. Since default of the six N-Group jails, the Texas Attorney General -- who has to approve all tax- exempt issues before sale -- has approved only one additional COP-financed jail. In this case, "...there was a long-term, firm contract in place." From Over-Crowding to Over-Capacity In 1991, with drug-related crime rising, and with a soaring murder rate in Houston and Dallas, Texas voters were persuaded to vote $2 billion in state G.O.s to build prisons and "restore law and order." This money was used to build prisons with 5,000 maximum-security beds--which are just now being completed. This year, Legislators will seek voter approval for an additional$1 billion to build another 5,000 beds. Opponents to this additional borrowing point out that debt service payments from the state general fund doubled to$81.3 million since 1990. But,the new prisons built, and the longer sentences, have had little impact on the rising rate of violent crime. 13 931249 Texas is also adding more medium-security jails. These medium-security jails will be scattered throughout Texas. Locations are determined almost entirely by political forces rather than objective criteria -- such as need or unemployment. The presence of an existing facility will have little influence. Many new prisons will be located very close to existing medium-security prisons. Texas may become overbuilt with prison cells the same way it was over-built with offices and condos ten years ago. This oversupply may be temporary as the prison population rises. But many jails could stand empty for years, and their COPs could default. All 50 states have on-going prison construction programs. Many of these are five-year programs ranging up to $3 billion, and will be financed by a combination of G.O. bonds and COPs. Prison construction has become a major public policy issue, requiring billions of dollars within the next few years. Many prison lease-bonds and COPs are coming to market. Investors are strongly urged to avoid states where large numbers of speculative for-profit prisons have been, or are being built. Even elsewhere, investors should insist on at least one firm contract--and a back-up source of revenues -- before committing themselves. NUVEEN RESEARCH John W. Illyes Senior Analyst 312.917.7865 September 1993 14 9x1249 \ I ' . EFL },, , tit �i 7 ; W -� f.. q {+v rt { I I i t t. t. I ' ;l' .i limy. b. S .r.. , " 1 M� s thy^ ft* yy \1 -r SSYr+ro--\_ Yt I /- ✓ t i A \ /ii �l a A : Rn µLL. r ex y._ ! Rli I , ^V ," ..� t W .iF f na•ty Y ok c$ i S y 4 ,, — i i T A.104.1; " ' i'p EXHIBIT rr ". , liN40/A/A/ ;irni e. $ +q n »rs,A RPZA mot 71111 ' '.• k ,h`o� Y yt fAs r I , M id ,:ztyt Ya 0O4sk } ra€ ' P s.: ra P4 afr �� I .✓ OFF rcG hk ..avR•A,,.. �, d .C gy �r14A .nr+arr, 1a,.d- ,r ` b - u� nJ 931219 I From farm to market ,,...., 4,!...... . . :,....,..r.,,,,, ,..1.,.,. . . : zi- ,. -a/stilt-Sail t Employees •Commercial developments ,:. ...4,4,/,,,,: M1 x oil Charles like West Ridge Mall have s y -k:,' �; 1 /iy "Re 3 ' S ry' IM.of encouraged more retailers Topeka to go west In Topeka �, '' t+^ 3. insh,uad RMdy vu plumbilg in By ANITA MILLER s - r y.att The Capital-Journalff r �apf the new s"s tGAIL I" hen the first shovel of dirt was ' III "' f Payless iltfil 1111 turnedo newrgionalshoppingmapeka Parlesx ,=r for anew broknolen more gmnl 31 Pay'tesc ShoeSource en yeah ago,it broke open than .. , 'r"+.' =. Shrebeing [h Retail and commercial development has m7.4,s- ' *ii ~�,- ' been erupting ever since from the farmland a 21 • s constructed el along a l-block stretch ofWana aker 17303.W. Road on either side of West RidgeMall y E.en though development went through a 1730Wan S. ker lull when leasing had to catch up with space available,developers say that stage Road. has pretty'much passed and new space n ow under construction on many of the —Jane remaining sites. - Rudolph 'Some often development slowed down - fine—Jane because land inventory is dCo up,"said ?�!}a. Journal Steve Sofro with Associated Commercial Brokers."The inventory of land available has diminished greatly"Sofro recently developed Prestigea Plans been at AT th and • ment prjemaket and area as involved en in other ommercial develop projects in ketha area as well. Much of the land in the vicinity of the • mall at the northwest corner plB VV.2lsl • flourish in West Tope a SIM andWanabedevelm oakeped hash continues to en wit retail or office build - {{NIsK ings.The most visible By ANITA MILLER years and is now called home by the Kansas Corporation Commis oparcels the undeveloped an W slaed lion,Kansas Association of School Boards,as well as other bust- millionbetweess Road anWannmract The CapitalJoumal messes and notfor-profit organizations. foot m square Road is a 13-acre tract Currently under construction is Cracker Barrel restaurant end a mall like between the mall and The ianamaker R • oad corn der continues to draw retail and Hampton Inn.Cracker Barrel,which is a country style family , West Ridge Mall USA—the highestpermari commercial development Here's a look at current activity: restaurant,is scheduled to open in January.Hampton Inn is to be ❑SA—the highest open in mid-January,the company said. and Sam's the retail corridor on Topeka Crossing Steve Sofro with Associated Commercial Brokers said there has am dyiflg is lh"Rein(lbe The largest development under construction is the Topeka Cross- been some interest by individuals in developing the remainder of l "Rein best mac g and Wanamaker Road the office park,which has three to four sites still undeveloped. Suing 0fmair d mall like West foot tugs by Robb, southeast large oil lsuppl bust business, Kmart going to heaven mall and West a Anchored e byH9bscWar,t majors for a Mall and Ftal-Martantl store and Builders Squere,lhemajortenants at the shopping can- West Ridge MaWest Ridge Mall, hlfiand We�Rrst triggered o"G®tPlaza longWane- Sam's is like dying and ter Mould be completed within the next few months.Already Hob- maker,remains one of the main drawing cards to the retail corn going to heaven for a by Lobby is open and the 107,80 ribboe-foot Kmart store is slated for a Thursday grand opening.A ribbon cutting rv111 be at 890 a.m. dor.Arlin Meats,mall manager for the Melvin Simon&Associates —Cnnunemi. endelsid aout(level Builders Squarthefire ow ed by'the same patent company as Kmart, development,says a new itee e,the Finish Line,is planned to open sot Sete decabper oper eloped eidoberone will open per or lien a .the first of the year,according loarepresan[ative of soon and another store that hasn't been announced yet will open by n Tile op ,properly_ the d11 space is Tenn Venture,Oer-en dPadc the end of the year In 1994,another five stores are planned to open Thas slowed fdevelo A"'Pace le leaved in the center en addition to the large storee, during the first six months By June,he expects the mall will be 92 slope to des&oulthatsemesayh tjaareea its there is 11500-square-feel of retail space that will be split between Percent occupied tlevese is representing Dan ilesds,zdevelop four other businesses.They include Ballard Sporting Goods,Meg "Ideally we like to get into the 95 to 96 percent range."Meats said. r who l=_cepresent thelandownerso[ gm Moils ice cream store.Beauty Warehouse and HFC(Household There"Ideally like to still in the areas ante." ing the the should o t says the slope is favorable Finance Corp 1 Dan Moore,a developer who is involved in the pro- mall that re undeveloped though Meats said interest has been and reades loproblems esttt .eateids jest said two outlying pad sites in the development are under con- l thatdre cl eloped. been that 17tdStrlet hill ave to be has struction.They are for a Payless ShoeSource store and a Perkinsexpressed West some incoe of them shopping center that sits catty cornered to been that l est Street to give Family Restaurant.Tvo undeveloped panels also remain south of the mall RidgeW.Plaza, and hopping center entert at was catty cobyMd to vin public expanded west of¢prop aker to the the Payless Shoe alocationbuilding Wanamaker.A large tract south of Simon Meats mid it is"coming alongfine,"wsdevetith a rgeafeafor- Kansaaecesstotheproperty.Hesaida Hobby lobby for a building of up to$O,OOo square space also merry by Cloth pWorldaling recently leased.Apubliaresfonce- Kansas City evelopernorehasnnopH0° remains undeveloped,Moore said. meatofthe occupied by is expelled in 30 days Theclothing store,Funce ash- on the property and is looking for tenants ion Bug,also recently expanded.Meats said there are nosy only fora proposed shopping center. Corporate Hon "ICs very attractive to real estate(level- This office park south of Huntoon and north of 1440 on the east three spaces remaining and interest has been expressed in one of opers and retailers,'Moore said. side of Wanamaker Hoed has been in development for several those for 1994 Moore also is handling the of meta f fee and a half acre parcel of property . ••ems_ nest east of Topeka Crossings,the new shop- New •lJ$Ine55 •••ms •n S.W.W n.m.k r ping center being built et the southeast car ` {, Hee of lath and R anamaker Road There Commercial development LroMinuea along S.W.Wanamaker Road near West l Is—wets pension space in the Ridge Mallaka Crossings irtHo bsLobb bur Here are the locations of businesses that are under construction along S.W.S ' L Areatall g tl a I Y LHobb't bb' ntl Wanamaker Road from S.W.Huntoon to 5.W.21st.Buildings are not to scale. i. r l ssi d t P r 't:R stag 'o TOPEKA rant addition,utoconstructionud mss .≤ In therein property west of eypllceuon benartl and Sam's that may some \l� • Pl am0lira l n•Idmoinn Hobby day longdeveloped.trmbut aoore cid litl:- ofth soon, a re. Creeksr le be coin rvere. Kmart Hobby be alore yet and hl P:. fefthe - Barrel — — Neal has _ .-led cofthe L— ii proJeLL alongto ter Builders "' 'It se t h l magnet e.The - 'g \ Square - Copal.,trade retailmarketl expanded a • 3 m and is n drawingP 1 1 used to go Econo \1-,� �.• • rv,.. shop in other a re said Lodge Petal ac...:., I aAdioonf t manager at WesttR Ridge — i_Mall,concurs nc ada t tr yea' up Hampton ' L "We've ha and wed've had tgoodyagic L Inn Traffic is up and we've had good ar i ` I,__ sales.With the increase in occupancy this i a W.Wn•m•Mo head year and next year.It will pistmarket make us Payless more dominant in thenrarket because we'll (Perkins Shcelessee have a better'memhandise min.It's a good t,. \1b Shoesour BEVT PAGE CPNTiaVEP OH RUT PAGE 931249 CLASSIFICATION OF FELONIES = EXHIBIT (Source: Colorado Revised Statutes) 1 OO06100 1 Premediated Homicide or Other felony resulting in death 2 Knowingly causing death (not premediated) 3 Child abuse resulting in bodily harm Trafficing in children Sexual exploitation of children (prostitution) 4 Sexual assualt on a child Aggravated incest (wounds, strikes or forces victim) Aggravated robbery (wounds or strikes the victim) Exploitation of a child (e.g. pornography) "Offenses against a person" (e.g. manslaughter) 5 Burglery Possession of burglery tools Escape from custody Possession of a weapon if previously convicted Distribution, manufacturing, or dispensing a controlled substance Trafficing in stolen property 6 Possession of contraband in a correctional facility Rioting Intent to commit a felony DEPARTMENT OF CRIMINAL JUSTICE November, 1992 TOTAL PROJECTED ADMISSIONS <EXPRESSED IN MONTHS> LENGTH PERCENT NUMBER OF PERCENTAGE AVG. OF STAY SERVED :LASS OFFENDERS OF TOTAL SENTENCE 1 21 0 . 6 480 480 100 . 0 2 59 1 . 9 414 181 43 . 8 3 640 20 . 0 142 69 48 .7 4 1232 38 . 6 64 29 45. 3 5 975 30 . 1 39 19 48 . 0 6 243 7 . 6 26 12 44 .2 TOTALS: 3, 186 100 . 0 -- 931249 r � my K C, .�.Ny1XWAE9�Q4E1N3d rto 'a J W a re 00 = WJZ we „awe CC P > = o a = aO >, i- m �W cnn- zlWO0C o0O z0 vmo 0 c� = v o In va vQ � o W L- (DMZ O LSI E. 4- cc 2 la alzsgor �' z 0 Q ? .� OCR 931249 I -. o s -a >• cc � 0aso zdo • ..• E ° i• cyan �3 °' as 03 C� ° = � o >, n 40 ° U rim aE o .O ° � sas c x ci an 'a- '' V •CU o w CU ..C 3L0 r a O C d Qom' ° . 0 oEa) Cu .- - x ° .OI- Ea = r — N EE ° w- c > C3 i' 'Ci � a> .rvip V) ° Et .=_ E ° *. in W = L in L x C ° .c w '> C S ≥ L1 0 . _ Y/0 C E n ._ p d E CC _as3 wa)� oo � ,it c it. 5 'C C ° x LO � '- o "° ° ° ° �Na:c ° 0 as CE scot� i C) z i- K } 931249 100 o y r, 0 N c - o o t Ct — o � E E o »- _ - a) 0 m . . o c 0 E ` o d = .- i 0 5 N .- = .O a) OC. cCo cCD 0 RI 0 E6 r >` n " �' ;0— L CD r i *.' en N 0.N V .c o a1 i- O a1 V Q C ai c� 0. >s C c 35 .142 .>, 0 0 Q d 0 = P ,c 35 4 CE C , 0 -a •y . 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L d N ≥ y ▪ .C o ate. cca w a a) n a) z OV V 'v `• pt y L C y H ale es O i = 3 C a '0 C •� a A o Q C ++ > ' > C E C "'' O i U CO a 8 � O 4) Ow- a CO O C C0 t a > Q ,= o ° o- to scz fin a) 7.? WC 1 I H. ... 0 O F- ., I-- *� I- *r 1- a) a = 0 931249 2 ° 2 m d « 3e 0 : 'C `►- .-. Y y m 0 OE ° — t "'' V as 0 Q E E °' carp 0 �. .0O 'yC yOOp. ° E0 ° • dal .� Q > Eyy V y E A d a .- � L .N ,o o 0 S ILO is ~ `i �= 0 N C C 'Z5 L t ° d 0v Om � � d U1 d C7 ? �pE >' E 000 C) _ ° ._ CL m co = m 'Noy ass0 .o ≥ y 00 a0o >._ ° ' Ewait o .- ° t L o Q) .- it G. in d cal a i V � as as d �. o "O y y 0 >' o) r_ o °'N N aw >1- 0.o o2 .. ° Q ° c� CA `—° �, CcQ- >'='o as c ° oar o .Q'= o N ° E >. Q. yi j V 03r >'Q N d t9 •L L Q E Q ti (a ° U >4 �\ Q Q C d O Q (s Q >."- s_ cCo on lEtE N y O O 3 Co 0 "- C C C to o coat N C1C ya 0 l0 .O al O O C 0 nu) il-ug d ...• c °c N Q. V m �' > ° doom -a ° c a- 0 ' < ... on cca -pow 3 N as au E CO F. t ,y,• 00 *+ :. y y y .yy p ao •. dam +- C — Nt y C CC O Nay = OEM-ONE — Oy " i 02 .� Oa. 0Cc ° I— p y 6 ct _ V C C. O co lCa) y , O .a) aO , ccEyV O ° Ci CnN ! Oil t3 'C0 Q V N3R 0St - 0 O. vi 0..C LL = a a 931249 r --c >+ N '3dd it a—- .>d al N y N �' o V N - .F L CD .- N N a N . .N m •- _ - L °' 3 °' EE O - aE = *r - . 4 o - Q � NOa. es CO O CDQ L •- N > d E 'c. •O c 4-. E - d 4-'.cOC7 > . > V o. fn •— .— .— O ( •! Eoc5 . " CI d0..• ow -1:3 G CA CD Zs N •0 O . . O L >, Z � cc3a � �, CD ennas = O co ° >I _ oc °' .cc. co c >6nc0 - oE Q' O = pcuO c9E J OOa. ELC� *:' O O Z '-CD E as 13 > Q s •° — V co Q � � .ccr... v 1- m K I 931249 M.D. Hopper 3656 W.C.R . 20 1 /2 Longmont , Co . 80504 Concern: Integrity of the inmates visitors , ( Safety-Drugs- Theft ) . A. Statistics furnished -by the St . Vrain School District on 12-6-1993. 1 . Over 100 children are bused twice daily thru intersection with drop off in trailer park and area . 2. Approximately 1800 activity buses pass thru intersection with stops on return at the Big 3. 3. Nearly as many visiting activity buses stop at the Big 3 when leaving area. B . Big 3 teen age employes. 1 . McDonalds 12-15 per night shift . 2. Burger King 9-10 per night shift . 3. Taco Bell 8-12 per night shift . EXHIBIT 03 -s z_ 931249 7 JAMES BOYD, JR. 151 State Highway 66 Longmont, Colorado 80501 December 7, 1993 Weld County Commissioners 915 10th Street Greeley, CO 80632 Dear Board of County Commissioners: I'm writing to express my strong support for construction of the proposed minimum security, pre-release correctional facility near Del Camino. I am a resident of SW Weld County at State Highway 66. As a businessman, I'm well aware of the positive economic impact construction and operation of the facility will have on Weld County. It will create needed jobs, increase the tax base and complement the existing commercial services at Del Camino Plaza. But, my support isn't based on economic considerations. I support the pre-release correctional facility because it is a responsible, effective and efficient way of coping with our mounting crime problem and overcrowded prisons. As a homeowner, I can appreciate concerns that such a facility might negatively impact nearby neighborhoods. No one wants to see their property values diminished or their family threatened. But I think the evidence is clear that this well-designed and fenced facility will enhance the area and pose no threat to surrounding residents. We are demanding longer terms for criminal sentences, but are unwilling to accept the necessary facilities. At some point, we must stop complaining about crime and accept responsibility for finding some answers. We have to stop ignoring society's problems in the false hope that "somebody else" will take care of them for us. This facility won't single-handedly solve this state's crime problem. But it is an innovative and progressive step in the right direction and needs to be built. I urge your support and approval of this facility. Sincerely, / ✓fathes Boyd, Jr. t-,6h «C, i- �°f'k12i2 931249 cry; Ae, ,c'x��- STEVEN BROWN, M.A., L.P.C. 1630 25TH AVENUE, SUITE K .. - _ GREELEY, CO. 80631 • (303) 352-3696 , , -- Weld County Commissioners P.O. Box 758 Greeley, CO. 80631 December 3, 1993 Dear Commissioners: I am writing to you in support of the pre-parole facility the Villa is asking to build in Weld County. I have worked with offenders for several years; Larimer County Community Corrections, Weld County jail, Colorado Department of Corrections (parole), and currently in private practice running two offender groups. I have been following the ongoing controversy over the construction of this type of facility in Weld County and I am convinced the negative comments, while sincere, are mostly unfounded. Fears come from a lack of understanding about what this type of facility will be. Without addressing each concern expressed over the past months allow me to challenge these arguments as a whole by looking at the other towns (counties) in Colorado and the nation which have similar facilities. Crime has not increased as critics say it will if a facility is built in this county. Employment has increased. I am sure you are all well briefed on the function and purpose of this intended facility and will not go into that. I will only ask you to look at reality rather than the "what ifs." Escapes for locked facilities are very rare and the escapees do not terrorize the community, their intent is to get out of town. Those who walk away from community corrections facilities, while this is much more frequent, still do not typically commit more thefts, assaults, etc. on their way out of town. While I share concern for the safety of my family and community I have learner fear is the greatest deterrent to getting anything accomplished. I am not afraid of having this facility in "my backyard." If Weld County does not allow this facility to be built another county will and we will miss the benefits. Thank you for your time and ask you to consider the above as you vote at the zoning hearing on December 8. Sincerely, Steven Brown, M.A., L.P.C. X i2c be .SS�..SSS 931249 25 June 93 County Commissioners Office Attn: Ms . Constance Harbert, Chairman P . 0 . Box 758 Greeley, CO 80632 Dear Ms . Harbert : As a resident of Southwestern Weld County I have had the opportunity to evaluate all of the issues concerning the location of a pre-parole facility in our community. One of the significant issues that may have been overlooked in all of these discussions is the fact that this facility is being promoted by individuals who live outside our community. Their motivations are not consistent with the community as exhibited by the petitions signed by over 1, 100 individuals opposing this project . Upon careful thought and consideration, I must state my opposition to this facility . I am aware that nine different communities along the front range have rejected similar proposals upon evaluation. I do not believe that it is in the best long term interests of the area to encourage or promote this type of development--regardless of its compatibility with the zoning regulations . This community is not prepared to serve as an experimental site to prove or disprove this business concept . The risks associated with this effort significantly outweigh any anticipated or perceived rewards; and the financial benefit for very few individuals should not take precedence over the wishes of a significant majority . As our representative on the Board of Commissioners, I am asking you to represent your constituents and oppose any and all efforts to locate this facility in unincorporated Southwest Weld County. Sincerely, Address : _i / / _ __ 3—yt/ City/ZIP : .1.2c-5,190 ,.;7_4',./c> 'c.-- �- 9---2-<.---- / 7) �-� ��,5 ?� Telephone : //j4 —, / / . 2 010-1-- l xi , i i- 931249 11820 WCR 15 Longmont, Co. 80504 July 7, 1993 County Commissioners Office P.O. Box 758 Greeley, Co. 80632 Dear Ms. Kirkmeyer, If you agree with me that as a County Commissioner, your first duty is to further the welfare and safety of the people of Weld County, then you will join me in opposing a proposed prison in southwest Weld County. Such a facility will have a great negative impact on what is now an eviable place to live. The problems that a prison will cause for the people who live in the area are obvious, I will not list them here. The only benefit will go to the private company that plans to run this prison for profit. I hope that you can be counted on to put the interests of the residents of Weld county above those of the monied corporations. Please preserve Weld County as a place where people want to live. Please be so kind as to forward this letter to the other County Commissioners. Sincerely, 1-16\Dert H y orth > ? N1ti€ &xh�h 931249 I/i 1, OLIULllL.. June 28 , 1993 Weld County Commissioners P.O. Box 758 Greeley, CO 80632 Dear Commissioners, I am writing you concerning the proposed pre-parole correctional facility to be built by the Villa in the Del Camino area. My dad moved to the farm that we presently farm when he was two years old. During the past seventy years he has seen many changes in the area. Some of these changes are considered by some to be progress , and some from an agricultural standpoint have not been progress . We consider the pre-parole facility to be a detriment to the community . I attended both of the meetings about the facility and several reasons standout why this facility should not be located in our area. Using June Gordon' s , a citizens representative, interpretation of the House bill #1327 , the inmates who will end-up at this facility may not have always been classified as non-violent criminals . Are we to assume that being re-classified to a non- violent criminal status generally assures the parole officers that this person has been fully rehabilitated? I think not . This facility may not be the right prescription for helping the inmates function as normal adults again and maintain a good job. What incentive is their for them to receive an A for their short ninety day stay at the facility considering the fact that they will be paroled one way or another? Persons not fully rehabilitated sometimes end up returning to the prison system after a brief period of freedom. We employed a person once who we believe had served a jail sentence and was supposedly rehabilitated, after he worked for us , he worked several different jobs in Longmont . One of his jobs involved being a security officer for a company in Longmont . The shock came when he along with some cohorts were convicted of committing a very violent crime at a very dear friend and neighbors house. While a crime such as the one he committed occurred even though a jail was not in the area, the Villa' s facility could increase the crime rate in our area. This could happen in a number of ways . Undoubtedly friends and family members of the inmates will make visits to the facility . While many visitors will make a brief visit and be on their way, others may be of the type who do not intend to make their stay short potentially leading to more crimes (violent and non-violent) . While the Villa has assured us that security will not be a xh,b;- 931249 01 /1,)-Ike ✓Vvvv ✓ problem, the dormitory style floor-plan could pose a risk to the area' s residents as well as the workers . As I understand it , any uprising that becomes out of control requires n es safety e of the ancedoce f a a S.W .A.T. team from Canon-City. How and workers be upheld while the S .W .A.T. team travels to Del Camino? if this Consider the economic impact to the county facility is built : The possible decline in real estate values resulting in reduced property tax receipts. The additional sheriff's required for the safety of the resident' s in the area. The improvements needed to roads surrounding the facility. Do the benefits outweigh the costs? The answer should be a resounding no. Sincerely, Artie Elmquist Elmquist e724 s-25 rLonlaye Rd. E Longmont , CO 80504 931249 V\ / <- c ::'t t i S ' l LCta t. ./ ?)„,_ tt !Lcty- . f./ _€ ✓ _l r c C < < c %C r t _f .'p t Li f',.' L/ .. ✓-e —:: - ,-Z., / / ice ey/e' fLcc✓ /( .c / 4 tF s £ r 9 r ,C ,2 r€ t. -? , / / ` . - l -T . c 21-6 -« 1 " . c n- 4 �/d`t r is A F g ( /% C Q'E / t A i - qq • v t �... ,/ l� // - 1 � , c' . �" 931249 7/ lAL(.2tt'CC/LL/LU / •. t..,_'r_i t.. 7..,„ 1 ! i • r l , ', J t /�.y .- �� y7�- ..[ �a r !:� L? 'Y p i f. :j i .r — F �t ,r z� -1 -'t . . ( r'-Ln c. ,-t7 j L; r i 4_ r �, s •e -5 t " = k.:��.-•-•(---( :t -Cwt.! •' • se i' � - iJ, :Le. fj / 11� 1/4_ /c-.,- :7 '; / -/<I z -r ,< - -1 .� .ems #"--i" : c.-- /✓✓ , S-77.44. t,t4--ct7,_c fbl- is r /// ',�-/s /�� ti 4 '(.�t.. �.ti_rr '' '� 11(.//v l� t -.> ✓ r: iw� /; -. _. (.'� C,t, '1( L /75 . -7 y Y ifr, �,. 4 W..S- `- , 1 `7 t \ /,' (1)(.. it.I L / (t'. - .. I t C X A. // .t ./ �/ 7 r, I ii,;r" ux c f / i ? At i 1 1'!! 1 i - ;----.W21/, / 1 931249 Xwxx -; 1 - f i ' l � n _ r' ' r i b 'l. (4 -1.lt_�ci`— i t 1'.-s._�,-c�r _.t- '1'—�' 1..-1/1-17 r 4 . :, 1 1 i 7. 1, a %fy r / / y / 7 , (t tj r . , J I �'�\ • ! �. /�l,,joy. �jt .� r/' t i A / .);n , . . _ry�7ir� �. �.� C , t 7 / G' / '7 / f 1 �� n ,' n , - .� i . i 931249 7442: fik (jon54/7c_e_ gar her 1 ' 1 . sir 025 r hfr10 , /?rej4,ar•dc, (40/� 44r.,-paY0 / -74cil/• ' e L/17c.� ,seueA U�" o* .ttn are LF,,,,,, ,;)-15 a .�1 ��ff�� r ,c5 /�� SiC�rl,�ctt/) � //>ChM -, �7z� air 6_, .`--ilun Cai ski]. , 12e,;, c:E ar,.., . Co b y ha‘c c e r common IA eo oppsed heir . /alert) if e Js s PM/3CA Rnan CIO) 4/? .. . rrt-e On 1 0C4 fi?on CCal? / -71 .1 Chi ,n n o I et Core r 9O /1,1c-a a..-sreo, /�Iciae.; . iii Ce#ecid 0 q/ i is - it 4re .. r a/A su s 4 Y/^ cbc /C ci- U souls 01 6 ,s.-/-7,13a-y }al:I iir 74 Oc/cfr �e . ,^ ivoi-Q_ of doo r �s Ge,m,� ss e4� e rP ter)/ p opk a s; c.c,cAi . -7//icr/744,/ 6%n ,,,-.7 :774.7w m'L n-nti-- (as CV( 'CPO S/ / Y' sue' - (fsI �i � 931249 (�``\ ° �� I1si-f Yr/Yz /da/yin /,/, /ail 1 C l d �! //ICd iLLS7LtL '� (Cr LL f� i 6 to , '--c_I—' ,l` C.% y:'4'—t7-- '/ 5� JLi 71r.") > I 2J .4 a' /.. < 9 — ZI-e-2-- t ,zrrei _ tit° �- LE-Ee G4 rt c- - C / rid 1' l r. y tCaf ✓.i 6-Z.C-L L t/__- l! .7t - L°aE FT J .'lCf o_ ( e I) (I "`://re, ti't' s__ / L � tE "ri / -c ( \ C. pJ�4z-G' ��i� f r' L / � �t-csrlcJ✓�GLrLr ?-1- x., e „ i_-e,1( ,,,te ._P _7,4 j±:rj et_,j, -'ic.-df.A. [iX il 7: ...67 9d(i L., f e < I/-'-°'F `Cfc_4G LA ei.-( ti,f iE�si' CE G...- G� ��dt - 1 '. Y cX ., ,; --Litt( �i. ��,-6-t !I^__e. ,! E �.< < .:. - / /z. /' n- ti c. [ ci 4-/`L »LL.T:.ljj 'f t0f//1_ -�c .-CL h'c6 e �2 {. / s V 7,1 r=' // 2 . -rLt r {/!<LE,Yr 61-4--(,/_ ._,etiL/ '7t.,ta` / a , s-It ( G ...£ _ � )/.,l-/ L,�_ ,,,,c__. _trite cj rre 4,(.;" r,e er, e _ 4 i./ / / l/ i yfI„} '<.₹x r ('-L.z- '? rit2L1"-LC LYx.,cErc(It z -C_�tc "E, ,. / Thelma Swarts Jl' ! rcti- ' ..-4--e-7-7-7-/-1___ r� � %1 LLon 8 gmont, co 90504 1249 f7l�x i9.3 7 z./ `_ 6600 Weld Co . Rd. 26 Longmont , CO 80504 July 1 , 1993 County Commissioners Office ATTN: Ms . Constance Harbert , Chairman P. O. Box 758 Greeley, CO 80632 Dear Ms . Harbert : I have been a resident and dairy farmer in the southwestern part of Weld County for almost 10 years. Our small community fought against having the sanitation department put in the middle of our area , but that was a lost cause . I am now fighting to keep the pre-parole facility out . The original people that wanted to put the facility in our neighborhood do not live here nor were any of us aware of what they were doing . We do not want hundreds of visitors, going to and from the facility , in our area. I cannot see any good coming out of a facility of that type being built so close to other people . If they think there is so much of a demand for this type of prison let them put it away from others. Being our representative on the Board of Commissioners, I am hoping you will represent us by opposing any efforts to put the facility in Southwest Weld County . Thank you, (211)14LC'' Dolores French V Xhcb, 931249 25 June 93 County Commissioners Office Attn: Ms . Constance Harbert, Chairman P . O. Box 758 Greeley, CO 80632 Dear Ms . Harbert : As a resident of Southwestern Weld County I have had the opportunity to evaluate all of the issues concerning the location of a pre-parole facility in our community. One of the significant issues that may have been overlooked in all of these discussions is the fact that this facility is being promoted by individuals who live outside our community. Their motivations are not consistent with the community as exhibited by the petitions signed by over 1, 100 individuals opposing this project . Upon careful thought and consideration, I must state my opposition to this facility. I am aware that nine different communities along the front range have rejected similar proposals upon evaluation. I do not believe that it is in the best long term interests of the area to encourage or promote this type of development--regardless of its compatibility with the zoning regulations . This community is not prepared to serve as an experimental site to prove or disprove this business concept . The risks associated with this effort significantly outweigh any anticipated or perceived rewards; and the financial benefit for very few individuals should not take precedence over the wishes of a significant majority . As our representative on the Board of Commissioners, I am asking you to represent your constituents and oppose any and all efforts to locate this facility in unincorporated Southwest Weld County. Sincerely, ct/ ret 31J' Address: 7'36 Lc /Ca Lt{_ (3.1) IC c z. (T? City/ZIP : 7j � 1�t .jrzca : U .5O Telephone: Li vl/i Ig_3 76 931249 I! .i LY? IIr _. .i I_'f�l , i r,ln_n Iii I V.. f, i.Y.. f i,p- )I' •II" . i n .,�.I'I� , .',.-i !� 'I'. ! ;r', ' v i I' r• a pIl I !i , C'. 'kl 'f + I '''C'.� .r..,. , .{ I _. it IVY* J. '. •/ ,� nl" YII ' I,.� `li... _il f ( �I' --]t •. �, 1'fl iIW r I 1 y a: CiT. , %AA h (:/ ,,A0 co )0,,' 'I C_ '931249 June 28 , 1933 _'_ . County Commissioners Office Attn : Ms. Constance Harbert, Chairman P. O. Box 758 Greeley , CO 80632 Dear Ms. Harbert: We are residents of Southwestern Weld County. We have evaluated the concerns of the location of a pre-parole facility in our neighborhood . Our main concern is that the promoters of the prison are outsiders to our community and do not reflect the opinions of the people inside the community . Pe-titions opposing the prison have been signed by over 1 , 100 individuals residing in our community. After much thought and consideration , we are definitely opposed to this facility . We understand that nine other communities in the front range have rejected similar proposals after evaluation. We do not encourage or promote the prison even if zoning regulations are compatible. The benefits of such a facility do not outweigh the risks involved . The wishes of the majority who live in the community should take precedence over the benefits of a few. You are our representative on the Board of Commissioners. We are asking you to represent your constituents and oppose all efforts to locate this facility in unincorporated Southwest Weld County . Sincerely , at/CL) at/C 'a) G rr D. Curtis in Curtis 117 5 WCR 15 11755 WCR 15 Longmont, CO 80504 Longmont, CO 80504 lS D�10 "10 931249 r 4-- _ , ,, y,22.y.yy l . c/L- / - ' ,fi ` � v ---- --- -- Sig azze ei;712ce J.— —- --- ------Su' 2,„? _e_e/ a2y r\i376 i /e/6w,ezr-, ea2.e. c_os-ey \ , 1\0,3 7 702. 6'57_5- '7E 9: 1249 June 27, 1993 WELD COUNTY BOARD OF COMMISSIONERS Box 758 Greeley, Colorado 80632 Members of the Board: We have lived in our home for 8 1/2 years, and we moved out of Denver to get away from the violence. At the time we moved to the rural Longmont area, our sons were in Sth and 6th Grades. Until now, we haven 't been sorry for that move. All four of us are most definitely opposed to the Board allowing not only a Pre-Parole prison in our Del Canino area, but also opposed to any kind of prison. It is strictly absurd! You say it will bring in more jobs. That is not so. Yes, it may bring in a few minimum wage jobs, but the damage that it would bring to our property value as well as our peaceful , and safety is beyond our imagination! We pay your salaries, and we DO NOT WANT the likes of a prison anywhere near us! `7 F 931249 We have been told that these prisoners are "non- violent . " Just because they are "non-violent, " doesn 't mean that their "friends" won 't steal us blind or damage our property should they decide to take a stroll after dark. We do not want our peaceful surroundings interrupted by insecurities and the decrease of land value just because you can 't seem to find any other place to build this prison. Why not put it at the airport, Lowry AFB, Rocky Flats? These places are already decreased in value and no one wi l l want to l i ve around those areas anyway, for obvious reasons. We the undersigned, residents of 9762 1-25 Access Road, Longmont, Colorado, County of Weld, ARE VERY MUCH OPPOSED TO HAVING A MINIMUM SECURITY, PRE-PAROLE PRISON BUILT ANYWHERE NEAR DEL CAMINO. Respectfully, RE5 cj\rR \ aCkr---c_Q RODNEY R. MCDANIEL (41 YEARS OLD M. ERNESTINE MCD IEL (42 YEARS OLD) DEREK J. MCD (21 YEARS OLD) DUSTIN E. MCDANIEL (19 YEARS OLD) 931249 25 June 93 County Commissioners Office Attn: Ms . Constance Harbert, Chairman I P . O. Box 758 __ Greeley, CO 80632 Dear Ms . Harbert : As a resident of Southwestern Weld County I have had the opportunity to evaluate all of the issues concerning the location of a pre-parole facility in our community. One of the significant issues that may have been overlooked in all of these discussions is the fact that this facility is being promoted by individuals who live outside our community. Their motivations are not consistent with the community as exhibited by the petitions signed by over 1, 100 individuals opposing this project . Upon careful thought and consideration, I must state my opposition to this facility. I am aware that nine different communities along the front range have rejected similar proposals upon evaluation. I do not believe that it is in the best long term interests of the area to encourage or promote this type of development--regardless of its compatibility with the zoning regulations . This community is not prepared to serve as an experimental site to prove or disprove this business concept . The risks associated with this effort significantly outweigh any anticipated or perceived rewards; and the financial benefit for very few individuals should not take precedence over the wishes of a significant majority. As our representative on the Board of Commissioners, I am asking you to represent your constituents and oppose any and all efforts to locate this facility in unincorporated Southwest Weld County. Sincerely, ,A\ Address: DEAct v. `�o�1F,Ne �1Y City/ZIP: Soa`i Qn. Ro a - Loyvr1rc o+c: Co %o (7=.9 Telephone : ca - Li kA, III 91.243 0,i 1 ell I--3 �7 6 Hello