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Notes to Financial Statements — May 31, 2000, 1999 and 1998

NOTE 1. DESCRIPTION OF THE PROGRAM

The following description of the Public Employees Federation Membership Benefits Program (the Program) provides only general information. Members should refer to the various benefit booklets for more complete information on Program benefits.

The Program was established by the New York State Public Employees Federation, AFL-CIO (PEF) under the terms of an Agreement and Declaration of Trust. The Program provides members of PEF who voluntarily choose to participate, with a variety of benefits including group life and disability insurance. The Program is funded entirely by contributions from participating members and investment income.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Program has also issued consolidated financial statements with its wholly owned subsidiary, PEF Travel, Corp. Such consolidated financial statements are the general purpose financial statements of the Program.

Method of Accounting – The accompanying financial statements are prepared using the accrual basis of accounting.

Reclassification – Certain account balances in the 1998 financial statements have been reclassified to conform to the current year presentation.

Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

Investment Valuation – Investments in United States Government and Government Agency obligations and equities are stated at fair value as determined by quoted market prices as provided by the investment custodian as of the last business day of the Program’s fiscal year. The short-term investment fund is stated at fair value which equals cost. The limited partnership investment is stated at appraised value.

Depreciation – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the following estimated useful lives of the related assets by the straight-line method:

Furniture and fixtures - 5 Years
Automobile - 5 Years
Telephone - 7 Years
Leasehold improvements - 10 Years

Depreciation expense totaled $14,343 in 2000, $12,560 for 1999, and $11,131 in 1998.

Estimated Waiver of Premium Benefits – The Program self-insures the waiver of group term life insurance premiums for certain members who become disabled. The benefit obligation represents management's estimate of the present value of premiums due during the expected period of disability for such members.

NOTE 3. PRIOR PERIOD ADJUSTMENT

The Program's net assets have been adjusted as of June 1, 1997 to reflect the elimination of a previously reported benefit obligation for estimated future death benefits, to restate the previously reported benefit obligation for estimated waiver of premium benefits, and to record its investment in a real estate limited partnership at fair value. The result of these adjustments is an increase the Program's net assets amounting to $4,529,967, of which $1,248,000 is applicable to estimated future death benefits, $2,497,960 is applicable to estimated waiver of premium benefits, and $784,007 is applicable to the limited partnership.
Estimated future death benefits were reported to reflect the present value of group term life insurance coverage provided to participating members age 70 and over. However, under the insurance arrangement, the insurance company assumes the financial risk of adverse experience. The Program's only obligation is to remit premiums, which are collected in the form of member contributions, to the insurance company.
Estimated waiver of premium benefits were reported to reflect the present value of in force group term life insurance coverage for certain disabled members that have elected the waiver option. However, during the duration of the insurance arrangement, which is ongoing, the insurance company assumes the financial risk of adverse experience. The Program’s only obligation is to remit premiums on behalf of the disabled members. As such, the benefit obligation for waiver of premium benefits is estimated to reflect the present value of premiums due during the expected period of disability.
The Program's investment in a real estate limited partnership was reported using the equity method. However, generally accepted accounting principles require employee benefit plans to report such investments at their fair value.

NOTE 4. TERMINATION OF THE PROGRAM

In the event of termination, the Program's Trustees shall apply the money and property of the Program to pay or provide for the payment of any and all of its obligations. Any remaining surplus shall be distributed in a manner that best effectuates the purposes of the Program. No part of the corpus or income of the Program may be used for purposes other than for the exclusive benefit of the members, or for the administrative expenses of the Program.

NOTE 5. Tax status

The Internal Revenue Service has advised the Program, in a letter dated June 19, 1992, that the Program is exempt from federal income taxes under the provisions of Section 501(c)(5) of the Internal Revenue Code.

NOTE 6. INVESTMENTS

Individual investments that represent more than 5% of the Program's total assets consist of the following:


In October 1993, the Program invested $450,000 as a 50% limited partner in a limited partnership with the British American Development Corporation, which is the general partner. The purpose of the limited partnership is to acquire, develop, improve, lease, operate and hold certain real property located in Colonie, New York. The property, which consists of approximately 8 acres of land and an office building, was last appraised at a value of $2,450,000 in August 1994.

The Program's investments appreciated (depreciated) in fair value as follows:

NOTE 7. EQUITY INTEREST IN PEF Travel, CORP.

The Program is the sole shareholder of the PEF Travel, Corp. (the Corporation), which was acquired to provide additional benefits to members of PEF in the form of travel arrangement assistance and discounts. The Program accounts for its interest in the Corporation under the equity method. Details of the equity interest in PEF Travel, Corp. account balance are as follows:

Summary financial information for the Corporation is as follows:

NOTE 8. PROPERTY and EQUIPMENT

Property and equipment, at cost, consist of the following:

NOTE 9. Related Party Transactions

The Program operates in the same office building as PEF. Certain administrative expenses are paid for by PEF and are then either charged directly to the Program or are allocated to the Program based upon estimates made by management. Such administrative expenses charged to the Program by PEF totaled $718,104 for 2000, $662,182 for 1999, and $675,738 for 1998.

Note 10. Lease Commitments

The Program leases office space from PEF under the terms of an operating lease that expires on February 14, 2008. Future minimum rental payments required under this lease are as follows:

Years Ending May 31,
2001 - $22,920
2002 - $22,920
2003 - $22,920
2004 - $22,920
2005 - $22,920
Thereafter - $63,030
Total $ 177,630

Rent expense amounted to $22,920 in each year presented.

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