<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
OR
/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 1-9373
SUMMIT TAX EXEMPT BOND FUND, L.P.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3323104
- - --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification
No.)
625 Madison Ave., New York, N.Y. 10022
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
N/A
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
<PAGE>
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
- - ---------------------------------------------------------------------------------------------------
ASSETS
Participating first mortgage bonds, net $ 84,295,027 $ 84,262,524
Assets held for sale, net 45,243,550 45,243,550
Temporary investments 1,925,952 1,500,760
Cash 104,848 200,227
Promissory notes receivable, net 7,198,559 7,243,567
Deferred bond selection fees, net 1,970,815 2,008,329
Interest receivable 892,280 890,798
Deferred financing fees, net 484,688 516,644
Other assets 7,499 15,306
------------- ------------
Total assets $ 142,123,218 $141,881,705
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Loan payable $ 13,680,866 $ 13,680,866
Deferred income 1,590,010 1,666,349
Due to affiliates 342,347 70,950
Accrued expenses 211,727 300,669
Accrued interest -- 84,821
------------- ------------
Total liabilities 15,824,950 15,803,655
------------- ------------
Commitments and contingencies
Partners' capital
Limited partners (7,906,234 BUC$ issued and outstanding) 126,631,733 126,415,919
General partners (333,465) (337,869)
------------- ------------
Total partners' capital 126,298,268 126,078,050
------------- ------------
Total liabilities and partners' capital $ 142,123,218 $141,881,705
------------- ------------
------------- ------------
- - ---------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
2
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1994 1993
<S> <C> <C>
- - --------------------------------------------------------------------------------------------------
REVENUES
Interest income from participating first mortgage bonds $1,600,164 $1,758,587
Income from assets held for sale, net 813,498 452,761
Interest income from promissory notes 159,885 132,375
Interest income from temporary investments 7,381 5,943
---------- ----------
2,580,928 2,349,666
---------- ----------
EXPENSES
Interest expense 252,320 209,922
Management fees 167,969 167,969
Loan servicing fees and expenses 82,834 82,834
General and administrative 78,924 127,851
Amortization of deferred bond selection fees 37,514 37,514
Amortization of deferred financing fees 31,956 24,411
Legal expense 15,000 95,000
---------- ----------
666,517 745,501
---------- ----------
Net income $1,914,411 $1,604,165
---------- ----------
---------- ----------
ALLOCATION OF NET INCOME
Limited partners $1,876,123 $1,572,082
---------- ----------
---------- ----------
General partners $ 38,288 $ 32,083
---------- ----------
---------- ----------
Net income per BUC $ .24 $ .20
---------- ----------
---------- ----------
- - --------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1993 $126,415,919 $(337,869) $126,078,050
Net income 1,876,123 38,288 1,914,411
Distributions (1,660,309) (33,884) (1,694,193)
------------ --------- ------------
Partners' capital (deficit)--March 31, 1994 $126,631,733 $(333,465) $126,298,268
------------ --------- ------------
------------ --------- ------------
- - -----------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
3
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------
1994 1993
<S> <C> <C>
- - ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 1,702,111 $ 1,960,640
Cash received from assets held for sale, net 813,498 452,761
Interest paid (337,142) (209,922)
Fees and expenses paid (154,461) (133,637)
----------- ------------
Net cash provided by operating activities 2,024,006 2,069,842
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchase of temporary investments (425,192) (314,914)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (1,694,193) (1,694,193)
Funds borrowed -- 13,680,866
Repayment of loan payable -- (45,620)
Financing fees paid -- (484,420)
Repayment of loan from affiliate -- (3,000,000)
Loans made to affiliates -- (10,000,000)
----------- ------------
Net cash used in financing activities (1,694,193) (1,543,367)
----------- ------------
Net increase (decrease) in cash (95,379) 211,561
Cash at beginning of period 200,227 151,621
----------- ------------
Cash at end of period $ 104,848 $ 363,182
----------- ------------
----------- ------------
- - ----------------------------------------------------------------------------------------------------
SCHEDULE RECONCILING NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 1,914,411 $ 1,604,165
----------- ------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion of valuation allowance (32,503) (32,503)
Accretion of deferred income (31,331) (31,331)
Amortization of deferred bond selection fees 37,514 37,514
Amortization of deferred financing fees 31,956 24,411
Changes in:
Promissory notes receivable, net 45,008 39,553
Interest receivable (1,482) (22,438)
Other assets 7,807 163,179
Deferred income (45,008) (39,553)
Due to affiliates 271,397 298,482
Accrued expenses (88,942) 28,363
Interest payable (84,821) --
----------- ------------
Total adjustments 109,595 465,677
----------- ------------
Net cash provided by operating activities $ 2,024,006 $ 2,069,842
----------- ------------
----------- ------------
- - ----------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
4
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1994
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of March 31, 1994 and the results of its
operations and its cash flows for the three months ended March 31, 1994 and
1993. However, the operating results for the interim periods may not be
considered indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1993.
Certain balances for the prior period have been reclassified to conform with
the current financial statement presentation.
B. Related Parties
For several properties collateralizing the participating first mortgage bonds
(``FMBs'') which are classified as Assets Held for Sale in the financial
statements (The Mansions, securing a $19,450,000 bond; High Pointe Club,
securing an $8,900,000 bond; Greenway Manor, securing a $12,850,000 bond and
Cedar Creek, securing an $8,100,000 bond), the original owners of the underlying
properties and obligors of the FMBs have been replaced with entities affiliated
with the Related Tax Exempt Bond Associates, Inc. (the ``Related General
Partner'') which have not made equity investments. These entities have assumed
the day-to-day responsibilities and obligations of the underlying properties.
Buyers are being sought who would make equity investments in the underlying
properties and assume the nonrecourse obligations for the FMBs. Although these
properties are not producing sufficient cash flow to fully service the debt (see
Note C), the Partnership has no present intention to declare a default on such
FMBs.
In 1992, the Partnership loaned approximately $540,000 to The Mansions, Cedar
Creek and Cypress Run properties to enable them to pay property taxes. The loans
to The Mansions and Cedar Creek are self-amortizing over two years with interest
at 8.5% per annum beginning in June 1992. The Cypress Run loan requires interest
only payments commencing July 1, 1992 and principal payable in full at the end
of the two-year period. The loans made to The Mansions and Cedar Creek
(approximately $220,000) were recorded as a reduction in income from assets held
for sale because the FMBs are classified as Assets Held for Sale paying interest
on a cash flow basis. Due to the delinquent property taxes on the Cypress Run
property, an allowance for possible loss was established on this loan during
1993.
Effective April 1, 1994, Mansion Apartment Project Investors, Inc., the owner
of the property underlying The Mansion's FMB, sold its ownership interest in The
Mansions to Independence Apartments Associates, L.P., an unrelated third party
(``Independence''). Independence assumed the obligations under the Partnership's
$19,450,000 FMB as well as $400,000 of the $452,000 mortgage note with a lender
affiliated with the Related General Partner by assignment from the seller. In
addition, Independence paid $700,000 in cash. Notwithstanding the assumption by
Independence of the FMB, the Partnership has agreed to forbear on its rights and
remedies in declaring an interest payment default under the FMB loan documents
provided Independence makes minimum monthly interest payments to the Partnership
equal to approximately $81,000 per month together with payments to the
replacement reserve escrow account of approximately $4,500 per month. The
forbearance period expires September 30, 1994.
The General Partners and their affiliates perform services for the
Partnership which include but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing services and other administrative services.
The General Part-
5
<PAGE>
<PAGE>
ners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1994 1993
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------
Prudential-Bache Properties, Inc. (``PBP'') and affiliates
General and administrative $ 24,016 $ 31,579
Management fee 83,984 83,984
-------- --------
108,000 115,563
-------- --------
Related General Partner and affiliates
Loan servicing fees and expenses 82,834 82,834
General and administrative 6,049 12,735
Management fee 83,985 83,985
-------- --------
172,868 179,554
-------- --------
$280,868 $295,117
-------- --------
-------- --------
</TABLE>
The General Partners are paid, in aggregate, an annual management fee equal
to .5% of the total invested assets (which equals the original face amount of
the total FMBs).
An affiliate of the Related General Partner receives loan servicing fees in
the amount of .25% per annum of the principal amount outstanding on mortgage
loans serviced by the affiliate.
A division of Prudential Securities Incorporated (``PSI''), an affiliate of
PBP, receives a fee for the purchase, sale, and safekeeping of the Partnership's
temporary investments. This account is maintained in accordance with the
Partnership Agreement.
Several executive officers and directors of the Related General Partner own
less than 1% of the outstanding BUC$.
C. Assets Held for Sale
Assets Held for Sale and the related income thereon are as follows:
<TABLE>
<CAPTION>
Net cash received
for the three
months ended
Carrying Face March 31,
Call Maturity Value Amount --------------------
Date Date of FMB of FMB 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------
Cedar Creek, Dec. 1998 Dec. 2006 $ 7,798,550 $ 8,100,000 $134,672 $112,535
McKinney, Tx
High Pointe Club, June 1998 June 2006 7,545,000 8,900,000 135,000 22,175
Harrisburg, Pa
The Mansions, May 1998 May 2010 17,600,000 19,450,000 318,826 318,051
Independence, Mo
Greenway Manor Oct. 1998 Sept. 2006 12,300,000 12,850,000 225,000 --
St. Louis, Mo*
------------ ----------- -------- --------
$45,243,550 $49,300,000 $813,498 $452,761
------------ ----------- -------- --------
------------ ----------- -------- --------
</TABLE>
* On June 30, 1993, the original owner of the property was replaced by an owner
who did not make an equity investment and the FMB was classified as an Asset
Held for Sale. Prior to this classification, cash received was recorded as
interest income from participating first mortgage bonds.
D. Commitments and Contingencies
On or about October 18, 1993, a putative class action, entitled Kinnes, et
al. v. Prudential Securities Incorporated et al., No. CIV-93-654 was filed in
the United States District Court for the District of Arizona, purportedly on
behalf of investors in the Partnership, against the Partnership, PBP, Prudential
Securities
6
<PAGE>
<PAGE>
Incorporated and a number of other defendants. Plaintiffs allege claims for
violation of The Racketeering Influenced and Corrupt Organizations Act of 1970
(``RICO'') statutes, breach of fiduciary duty, fraud and deceit, negligence, and
an accounting. Plaintiffs seek unspecified compensatory, punitive and treble
damages, and rescission, including costs and attorney fees, but the only relief
sought against the Partnership is an accounting. No claims for monetary relief
have been asserted against the Partnership in this action. Certain defendants
filed a motion to dismiss on December 22, 1993. The court has stayed all
proceedings in the case pending a decision on a motion before the Judicial Panel
on Multi-District Litigation to transfer the case. On April 14, 1994, the
Judicial Panel on Multi-District Litigation entered an order transferring Kinnes
and several other cases to a single judge in the United States District Court
for the Southern District of New York for consolidated or coordinated pre-trial
proceedings. Plaintiffs have stated that they intend to file a consolidated
amended complaint in the Multi-District Litigation proceeding.
On or about November 16, 1993, a putative class action entitled Dan Connelly
et al. v. Prudential-Bache Securities Inc. et al., No. CIV-93-713 was filed in
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership against the Partnership, PBP, Prudential
Securities Incorporated and a number of other defendants. An amended complaint
was filed on December 6, 1993. Plaintiffs allege fraud, breach of fiduciary
duty, negligent misrepresentation, malpractice and violation of the federal
securities laws and RICO statutes. Plaintiffs seek unspecified compensatory,
punitive and treble damages, disgorgement and restitution of all earnings,
profits, compensation and benefits received by defendants and rescission
including costs and attorney fees and an accounting. Plaintiffs have filed a
motion to consolidate the Connelly case with the Kinnes action. The court has
stayed all proceedings in the case pending a decision on a motion before the
Judicial Panel on Multi-District Litigation to transfer the case. On May 4,
1994, the clerk of the Judicial Panel on Multi-District Litigation entered a
conditional transfer order transferring Connelly and five other cases as ``Tag
Along'' actions to the Multi-District Litigation proceedings in New York, unless
a party objects by May 19, 1994 to this transfer. The ultimate outcome of this
litigation as well as the impact on the Partnership cannot presently be
determined. Accordingly, no provision for any loss that may result upon
resolution of this matter has been made in the accompanying financial
statements.
On January 3, 1992, a putative class action, entitled Levine v.
Prudential-Bache Properties, Inc. et al. No. 92 C 0052 was filed in the United
States District Court for the Northern District of Illinois against the General
Partners and others, including Prudential Securities Incorporated. Plaintiffs
comprise a total of seven individual investors who have brought suit on behalf
of themselves and a class of others who purchased interests in: the Partnership;
Summit Tax Exempt, L.P. II and Summit Tax Exempt, L.P. III (collectively, the
``Bond Funds''). Plaintiffs are also suing derivatively on behalf of the Bond
Funds. Defendants include, among others, the General Partners and Assignor
Limited Partner in the Bond Funds.
This complaint alleges that the plaintiffs purchased the Bond Funds in
reliance on offering materials and oral representations that were false and
misleading. The complaint includes counts for alleged violations of RICO,
federal and state securities laws, common-law fraud, breach of fiduciary duty
and negligence. Plaintiffs seek rescission, compensatory and punitive damages,
treble damages under RICO, and attorneys' fees and costs.
On August 10, 1992, defendants filed motions to dismiss on the grounds, among
others, that all of plaintiffs' claims were barred by the applicable statutes of
limitations and that plaintiffs otherwise failed to state any claims against
defendants. In lieu of responding to the motions to dismiss, on March 17, 1993,
plaintiffs were granted leave to file an amended complaint. Plaintiffs' amended
complaint was filed on March 31, 1993; on April 30, 1993, defendants moved to
dismiss and that motion is fully briefed. On November 10, 1993, Plaintiffs moved
to voluntarily dismiss certain defendants from the litigation, including PBP,
and for leave to amend the action against the remaining defendants. Plaintiffs
subsequently determined to voluntarily dismiss all defendants, but then decided
not to dismiss PBP and Prudential Securities Incorporated, in light of the
pending motion before the Judicial Panel on Multi-District Litigation, which
seeks transfer of the action.
On or about March 16, 1994, the court entered an order in Levine v.
Prudential-Bache Properties, Inc., voluntarily dismissing without prejudice all
claims against the Related General Partner, all of its affiliates that were
named as defendants, and certain other defendants. Pursuant to a stipulation
dated March 3, 1994, the defendants that were dismissed from the action by the
court's order have agreed to toll the statutes of limitations until December 25,
1995, subject to certain limitations and conditions set forth in the
stipulation.
7
<PAGE>
<PAGE>
The action continues to pend against PBP and Prudential Securities Incorporated.
On April 14, 1994, the Judicial Panel on Multi-District Litigation deferred the
transfer of the Levine action to the United States District Court for the
Southern District of New York in order to allow the United States District Court
for the Northern District of Illinois to decide the Prudential defendants'
pending motion to dismiss.
A derivative action entitled Litman et al. v. Prudential-Bache Properties,
Inc. et al. No. 12137 was filed in Delaware Chancery Court, against the General
Partners and the parent company of PBP. Plaintiffs are individual investors who
purchased Partnership interests. Defendants include the General Partners of the
Partnership and also Bache Group, Inc. Plaintiffs' initial complaint, which was
filed as a putative class action alleging breach of fiduciary duty, was
dismissed as legally insufficient. On April 30, 1992, plaintiffs filed an
amended complaint.
The amended complaint, which was solely a derivative action brought on behalf
of the Partnership, alleges that the defendants breached their fiduciary duties
in managing the affairs of the Partnership. Plaintiffs seek an indeterminate
amount of damages as well as attorneys' fees and costs. On June 5, 1992,
defendants filed a motion to dismiss the amended complaint in its entirety on
several grounds, including statute of limitations and failure to state a claim.
On January 4, 1993, defendants' motion was granted, and the amended complaint
was dismissed without leave to replead.
On February 2, 1993, plaintiffs filed a notice of appeal. On February 16,
1993, defendants filed a cross-appeal which appealed the court's failure to
dismiss plaintiffs' claims on statute of limitations grounds. After hearing oral
argument, the Delaware Supreme Court on November 18, 1993 remanded the action to
the Chancery Court for the limited purpose of determining whether plaintiffs'
claims were time-barred. On January 14, 1994, the Chancery Court concluded that
they were. After hearing all arguments, the Delaware Supreme Court on April 21,
1994 affirmed the decision of the Chancery Court dismissing the action for the
reasons set forth in the Chancery Court memorandum opinion of January 14, 1994.
On March 6, 1991, a derivative action entitled Virginia First Savings Bank
F.S.B., et al. v. Tax Exempt Bond Associates, Inc., et al., No. L91-726 was
filed in Virginia Circuit Court against the General Partners and others.
Plaintiffs are one named and other unknown individual investors who are
purportedly suing on behalf of the Partnership. Defendants include, among
others, the Partnership and its General Partners. The complaint alleges breach
of fiduciary duty. Plaintiffs seek an indeterminate amount of damages.
Defendants have moved to dismiss the complaint on the grounds that (i)
plaintiffs are precluded from bringing the action by a previous decision; (ii)
plaintiffs failed to adequately plead a valid derivative claim and that (iii)
the court lacks jurisdiction over certain defendants.
The General Partners intend to vigorously defend the Partnership and
themselves in these actions but the reasonably possible loss to the Partnership
is not presently subject to estimation. The General Partners may be entitled to
indemnification pursuant to the terms of the Partnership Agreement.
PBP is also named as a defendant, together with other parties, in pending
legal proceedings involving other limited partnerships. Although a number of
cases have been resolved, others are still pending. PBP intends to defend itself
vigorously against such actions.
E. Subsequent Events
In May 1994, a distribution of approximately $1,660,000 and $34,000 was paid
to the limited partners and General Partners, respectively, for the quarter
ended March 31, 1994.
8
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership has invested in eleven tax-exempt participating first
mortgage bonds (``FMBs'') issued by various state or local governments or their
agencies or authorities. The FMBs are secured by participating first mortgage
loans on multi-family residential apartment projects.
Interest payments from FMBs are anticipated to provide sufficient liquidity
to meet the operating expenditures of the Partnership in future years and to
fund distributions.
The loan payable has a variable interest rate; therefore, future levels of
interest expense will fluctuate in correlation to movements in the 30 day
commercial paper interest rate.
The first quarter distribution of approximately $1,660,000 ($.21 per BUC) was
paid to limited partners in May 1994 from cash flow from operations. The
Partnership anticipates funding future cash distributions from cash flow from
operations.
Results of Operations
Net income increased by approximately $310,000 for the quarter ended March
31, 1994 as compared to the corresponding period in 1993 for reasons discussed
below.
Interest income from debt service for the FMBs decreased by approximately
$158,000 for the three months ended March 31, 1994 as compared to the
corresponding period in 1993. This decrease is primarily due to interest
received from the Greenway Manor property being classified with income from
assets held for sale in 1994 and a decrease in the rate paid on the North Glen
FMB due to an amendment to its forbearance agreement in 1993. These reductions
were partially offset by an increase in the interest paid on the Thomas Lake,
Sunset Terrace, East Ridge and Martin's Creek FMBs.
Income received from FMBs that are currently classified as assets held for
sale (see Note C to the financial statements) increased by approximately
$361,000 for the three months ended March 31, 1994 as compared to the
corresponding period in 1993. This increase is primarily due to interest
received from the Greenway Manor property being classified with income from
assets held for sale in 1994 and, to a lesser extent, increased cash flow
received from the High Pointe Club and Cedar Creek properties.
General and administrative expenses decreased by approximately $49,000 for
the three months ended March 31, 1994 as compared to the corresponding period in
1993 primarily due to the timing of certain expenses in the respective years and
a general decrease in the costs associated with the administration of the
Partnership.
Legal expense decreased by approximately $80,000 for the quarter ended March
31, 1994 as compared to the corresponding period in 1993 due primarily to costs
associated with the Greenway foreclosure in 1993 and lower legal costs related
to the litigation described in Note D to the financial statements.
9
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<PAGE>
Property Information
The following table lists the FMBs that the Partnership owns with occupancy
rates of the underlying properties as of April 24, 1994:
<TABLE>
<CAPTION>
Face
Amount of Rate Paid-
Property Location FMB Occupancy Stated Rate*
<S> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------
The Mansions Independence, Mo $ 19,450,000 92.2% 6.65%-8.50%(A)
Martin's Creek Summerville, SC 7,300,000 97.0 7.95%-7.00%(B)
East Ridge Mt. Pleasant, SC 8,700,000 97.5 7.10%-7.00%(B)
High Pointe Club Harrisburg, Pa 8,900,000 97.5 6.15%-8.50%(A)
Cypress Run Tampa, Fl 15,750,000 94.1 8.50%-8.50%
Thomas Lake Eagan, Mn 12,975,000 97.6 7.75%-8.50%(C)
North Glen Atlanta, Ga 12,400,000 94.3 6.00%-8.50%(C)
Greenway Manor St. Louis, Mo 12,850,000 96.4 7.10%-8.50%(A)
Clarendon Hills Hayward, Ca 17,600,000 97.1 5.33%-5.52%(C)
Cedar Creek McKinney, Tx 8,100,000 98.8 6.74%-8.50%(A)
Sunset Terrace Lancaster, Ca 10,350,000 95.6 7.25%-8.00%(C)
------------
$134,375,000
------------
------------
* The rate paid represents the cash paid during 1994 while the stated rate represents the
interest rate of the FMB.
- - ---------------------------------------------------------------------------------------------
(A) The rate paid is the current cash flow from the property. See Note C to the financial
statements.
(B) As discussed on the following page, the stated rate on the restructured FMBs will
increase from 6.0% to 8.25% over the remaining term of the FMB.
(C) See below and on the following pages for discussion of rates paid.
</TABLE>
Clarendon Hills, Hayward, California
On May 31, 1992, the sale of the Clarendon Hills property to a third party
was closed. Net proceeds made available to the Partnership were approximately
$1,441,000 and were recorded as deferred income. The Partnership used a portion
of the net proceeds to retire a loan due to the Related General Partner and to
fund loans to the owners of certain properties encumbered by FMBs held by the
Partnership to enable them to pay property taxes. The $6,600,000 promissory note
to Clarendon Hills Investors Inc. issued at the time of the sale of the property
has been assigned to the Partnership. This promissory note requires monthly
interest payments of 8.0% per annum with the principal due on December 31, 2003.
Beginning June 1, 1992, debt service payments relating to the FMB commenced at a
rate of 5.52% pursuant to the terms of the sale and modification of the FMB.
Pursuant to the terms of the sale, beginning with the November 1993 payment and
through the March 1994 payment, the debt service payments were reduced by 50% of
the property tax increase resulting solely from the sale of the property. The
aggregate reduction for this period was $21,820. Payments on the FMB and the
note are current.
High Pointe Club, Harrisburg, Pennsylvania
In 1988, the original owner of the underlying property and obligor of the FMB
was replaced by an affiliate of the Related General Partner who did not make an
equity investment. Additional financing for cost overruns in construction costs
was obtained in the amount of $3,250,000 from a major money center bank in the
form of a first mortgage bond and a pro rata share ($3,180,000) of the
$10,000,000 loan obtained in 1990. The Partnership received debt service
payments on the FMB at a pay rate of 6.15% and 3.40% per annum for the three
months ended March 31, 1994 and 1993, respectively. Although this property is
still not producing sufficient cash flow to fully service the debt, the
Partnership has no present intention to declare default on this FMB.
In November 1989, a settlement agreement was reached between the previous
developer of High Pointe Club Apartments (the ``Property'') and USF&G, the
construction performance bonding company for the Property. The terms of the
settlement required USF&G to pay $600,000 to the previous developer. Prior to
such agreement, the previous developer agreed to place the settlement proceeds
in escrow to later be
10
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shared with the subsequent developer (``Greenhill Project Investors, Inc.'') or
its successors and assigns pursuant to an arbitration proceeding.
On April 23, 1993, the previous developer agreed to release the escrowed
funds to RHA Inv., Inc. (``RHA''), the successor to Greenhill Project Investors,
Inc. RHA continues to have certain obligations to, among others, the Partnership
including the payment of accrued and unpaid interest as well as the repayment of
certain loans guaranteed by the Partnership. As a result, the General Partners
of the Partnership and RHA are determining which of RHA's obligations will be
satisfied by proceeds received from escrow. The Partnership's claim on the
escrowed funds is not recorded in the accompanying financial statements.
The Mansions, Independence, Missouri
In 1989, the original owner of the underlying property and obligor of the FMB
was replaced by an affiliate of the Related General Partner who did not make an
equity investment. For the three months ended March 31, 1994 and 1993, the
property made debt service payments at an annualized pay rate of approximately
6.65% and 6.60%, respectively. All previously past due and unpaid property taxes
have been paid. The Partnership made a loan to the owner of the property
underlying the FMB for approximately $134,000 for payment of 1992 property
taxes. This loan, made in June 1992, is self-amortizing over two years with
interest at 8.5% per annum payable monthly. Payments on this loan are current
and are included in income from assets held for sale. The original developer
still owes a principal amount of $452,000 to a lender affiliated with the
Related General Partner which is secured by a second mortgage note on the
property.
Effective April 1, 1994, Mansion Apartment Project Investors, Inc., the owner
of the property underlying The Mansions FMB, sold its ownership interest in The
Mansions to Independence Apartments Associates, L.P., an unrelated third party
(``Independence''). Independence assumed the obligations under the Partnership's
$19,450,000 FMB as well as $400,000 of the $452,000 mortgage note by assignment
from the seller. In addition, Independence paid $700,000 in cash.
Notwithstanding the assumption by Independence of the FMB, the Partnership has
agreed to forbear on its rights and remedies in declaring an interest payment
default under the FMB loan documents provided Independence makes minimum monthly
interest payments to the Partnership equal to approximately $81,000 per month
together with payments to the replacement reserve escrow account of
approximately $4,500 per month. The forbearance period expires September 30,
1994.
Cedar Creek, McKinney, Texas
In 1988, the original owner of the underlying property and obligor of the FMB
was replaced by an affiliate of the Related General Partner who did not make an
equity investment. For the three months ended March 31, 1994 and 1993, the
property made debt service payments at an annualized pay rate of approximately
6.74% and 5.60%, respectively. Although this property is not producing
sufficient cash flow to fully service the debt, the Partnership has no present
intention to declare default on this FMB. All previously past due and unpaid
property taxes have been paid. To bring taxes current, the Partnership made a
loan to the owner of the property underlying the FMB for approximately $86,000
for payment towards 1991 and 1992 property taxes. This loan, made in June 1992,
is self-amortizing over two years with interest at 8.5% per annum payable
monthly. The property is current on these tax loan payments and are included in
income from assets held for sale.
East Ridge and Martin's Creek, South Carolina
During the year ended December 31, 1990, the terms of the East Ridge and
Martin's Creek FMBs with a $16,000,000 face value (carrying value $14,700,000,
including valuation allowance of $1,300,000) were modified when the equity
interests in those properties and the related obligations of the FMBs were sold
from an affiliate of the Related General Partner to a third party borrower. As
part of this transaction, the minimum pay rates on the FMBs increase in annual
increments from 6.0% in 1990 to 8.25% in 1997. The difference between the
minimum scheduled pay rate and the original stated rate is payable out of
available future cash flow or, ultimately, from sales or refinancing proceeds.
During the three months ended March 31, 1994, the Partnership received 7.10% and
7.95% from the East Ridge and Martin's Creek properties, respectively. The
minimum scheduled pay rate was 6.75% through February 28, 1994 and increased to
7.0% on March 1, 1994. In addition, in 1990, the Partnership received $950,000
in 13% second mortgage promissory notes calling for monthly interest and
principal payments through December 1996. These notes are partially secured by
letters of credit and payments are current through March 31, 1994.
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Cypress Run, Tampa, Florida
The Partnership made a second mortgage loan to the owner of the property
underlying the FMB for approximately $320,000 for the payment of past due 1991
property taxes. This loan, made in June 1992, requires monthly interest only
payments at 8.5% with the principal due on July 1, 1994. Due to past due 1993
and 1992 property taxes, an allowance for possible loss was established on this
loan during 1993; however, interest payments on the loan as well as the FMB are
current.
Thomas Lake, Eagan, Minnesota
Pursuant to a forbearance agreement entered into in 1991, debt service
payments were made at the pay rate of 7.75% per annum for the three months ended
March 31, 1994. The pay rate is scheduled to increase in annual increments to
the original stated rate of 8.5% as of December 1996. The difference between the
pay rate and the original stated rate is deferred and is payable out of
available future cash flow or, ultimately, from sales or refinancing proceeds.
The property also paid deferred base interest for the three months ended March
31, 1994 in the amount of approximately $21,000. In May 1992, Summit Tax Exempt
Funding Corp., an affiliate of the Partnership, made a second mortgage loan in
the amount of $220,000 secured by a second mortgage on the property toward the
payment of prior year property taxes. In January 1993, as part of the new credit
facility, this loan was assigned to the Partnership. The loan requires interest
only payments at the Citibank, N.A. prime rate (6.25% at March 31, 1994) plus
2.0% per annum, payable monthly. Principal is due in a balloon payment on April
15, 1995. Interest on this loan is current.
North Glen, Atlanta, Georgia
Pursuant to a forbearance agreement entered into in 1991, interest payments
to the Partnership were scheduled to return to the stated rate of 8.5% per annum
for 1993. Due to continuing soft market conditions, the General Partners entered
into an extension of the forbearance agreement in April 1993 which allows the
owner to make debt service payments at the pay rate of 6.0% through December
1995 at which time the rate is scheduled to increase to the original stated rate
of 8.5%. The difference between the pay rate and the stated rate is payable out
of available future cash flow or, ultimately, from sales or refinancing
proceeds.
The Partnership made a loan in the amount of $126,000 to the owner of the
property underlying the FMB for payment of past due property taxes. This loan,
made in April 1993, requires interest only payments at 8.5% per annum, payable
monthly, commencing on April 30, 1993 with the entire principal balance due on
April 30, 1996. Due to the forbearance agreement, an allowance for possible loss
was established for this loan during 1993; however, interest payments on this
loan are current.
Greenway Manor, St. Louis, Missouri
Due to the failure to pay 1990 real estate taxes, the general partner of
Greenway Manor was removed in May 1991 and a third party management company was
installed and subsequently appointed as receiver to protect the Partnership's
interest while negotiations proceeded with the new general partner of Greenway
Manor for the payment of 1990 and 1991 property taxes. Due to a breakdown of
negotiations with Greenway Manor with regard to its payment of the delinquent
property taxes and interest payments (not paid from March to August 1992), the
Partnership instituted foreclosure proceedings against Greenway Manor. On July
20, 1992, the Greenway Manor partnership filed for bankruptcy under Chapter 11
of the United States Bankruptcy code. Pursuant to a 1992 court order, the
receiver paid the Partnership the cash flow remaining after paying the past due
real estate taxes, property operating costs and escrowing for the then current
year's real estate taxes. On June 30, 1993, the court dismissed the bankruptcy
proceeding at which time the owner of the property and obligor of the FMB agreed
to transfer the deed-in-lieu of foreclosure to an affiliate of the Related
General Partner who has not made an equity investment. Interest payments to the
Partnership for the three months ended March 31, 1994 and 1993 equated to an
annualized rate of 7.10% and 6.60%, respectively. Although this property is not
producing sufficient cash flow to fully service the debt, the Partnership has no
present intention to declare default on this FMB.
Sunset Terrace, Lancaster, California
Due to soft market conditions, the General Partners entered into a
forbearance agreement with the Sunset Terrace property effective June 1992. The
property began paying debt service at a pay rate of 7.0% in May 1992 which
increased to 7.25% in May 1993. The minimum pay rate is scheduled to further
increase in annual increments to the original stated rate of 8.0% as of May
1996. The difference between the pay rate
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and the stated rate is payable from available future cash flow or ultimately
from sales or refinancing proceeds.
General
The determination as to whether it is in the best interest of the Partnership
to enter into forbearance agreements on the FMBs or, alternatively, to pursue
its remedies under the loan documents, including foreclosure, is based upon
several factors including, but not limited to, property performance, owner
co-operation and projected legal costs.
The difference between the stated interest rates and the rates paid by the
FMBs is not accrued as interest income for financial reporting purposes. The
accrual of interest at the stated interest rate will resume once a property's
ability to pay the stated interest rate has been adequately demonstrated.
Interest income of approximately $102,000 and $209,000 was not recognized for
the quarters ended March 31, 1994 and 1993, respectively.
From time to time, certain property owners have elected to supplement the
cash flow generated by the properties to meet the required bond interest
payments. There can be no assurance that in the future any property owner will
elect to supplement property cash flow to satisfy bond interest requirements if
necessary.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings--Incorporated by reference to Note D to the financial
statements filed herewith in Item 1 of Part I of the Registrant's
Quarterly Report.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--On October 21, 1993, an affiliate of Prudential-Bache
Properties, Inc., Prudential Securities Incorporated (``PSI''), settled,
without admitting or denying the allegations contained therein, civil
and administrative proceedings with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and
various state regulators. These proceedings concerned, among other
things, the sale by PSI of limited partnership interests, including
interests of the Registrant, during the period 1980 through 1990. The
settlement has no impact on the Registrant itself.
The Office of the United States Attorney for the Southern District of
New York is conducting an investigation relating to the sale by PSI of
limited partnership interests during the period 1980 through 1990. In
connection with this investigation, PSI has received grand jury
subpoenas and other requests for information. PSI has been complying
with and intends to continue to comply with these requests and the
investigation is ongoing. Furthermore, in the ordinary course of PSI's
business, it receives inquiries and document requests from various
states and regulatory authorities concerning the sales activities of
certain of its employees, some of which in the past, and may in the
future, relate to the Registrant.
Item 6. Exhibits and Reports on Form 8-K--
(a) Exhibits:
4(a)--Partnership Agreement, incorporated by reference to Exhibit A
to the Prospectus of Registrant, dated February 19, 1986, filed
pursuant to Rule 424(b) under the Securities Act of 1933, File No.
33-2421.
4(b)--Amended and Restated Certificate of Limited Partnership,
incorporated by reference to Exhibit 4 to Registration Statement on
Form S-11, File No. 33-2421.
(b) Reports on Form 8-K--No reports on Form 8-K were filed during
the quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Summit Tax Exempt Bond Fund, L.P.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Robert J. Alexander Date: May 13, 1994
----------------------------------------
Robert J. Alexander
Vice President
Chief Accounting Officer for the
Registrant
By: Related Tax Exempt Bond Associates, Inc.
A Delaware corporation, General Partner
By: /s/ Alan P. Hirmes Date: May 13, 1994
----------------------------------------
Alan P. Hirmes
Vice President
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