UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - --- ACT OF 1934
For the fiscal year ended December 31, 1995
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-5333
Securities registered pursuant Beneficial Unit Certificates
to Section 12(b) of the Act:
Name of each exchange on which registered: American Stock Exchange
Securities registered pursuant to None
Section 12(g) of the Act:
Indicate by check mark 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 X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of BUC$ held by unaffiliated BUC$holders of the
Registrant as of March 28, 1996 was $79,744,844.
DOCUMENTS INCORPORATED BY REFERENCE
Agreement of Limited Partnership, dated February 19, 1986, included as
part of the Registration Statement filed with the Securities and Exchange
Commission of December 24, 1985 pursuant to Rule 424(b) of the Securities Act of
1933, is incorporated by reference into Part IV of this Annual Report on Form
10-K.
Index to exhibits may be found on page 41
Page 1 of 51
<PAGE>
PART I
Item 1. Business.
General
- - -------
Summit Tax Exempt Bond Fund, L.P. (the "Registrant"), a Delaware
limited partnership, was formed on December 18, 1985 and will terminate on
December 31, 2020 unless terminated sooner under the provisions of the
Registrant's Agreement of Limited Partnership (the "Partnership Agreement"). The
Registrant was formed to invest in tax-exempt participating first mortgage
revenue bonds ("First Mortgage Bonds" or "FMBs") issued by various state or
local governments or their agencies or authorities. These investments were made
with proceeds from the initial sale of 7,906,234 Beneficial Unit Certificates
("BUC$"). The FMBs are secured by participating first mortgage loans ("Mortgage
Loans") on multi-family residential apartment properties ("Properties")
developed by unaffiliated developers. The Properties are eleven garden apartment
projects located in eight states. The Registrant's fiscal year for book and tax
purposes ends on December 31.
The Registrant is engaged solely in the business of investing in
FMBs; therefore, presentation of industry segment information is not applicable.
General Partners
- - ----------------
The general partners of the Registrant are Prudential-Bache
Properties, Inc. ("PBP") and Related Tax Exempt Bond Associates, Inc. (the
"Related General Partner") (collectively, the "General Partners"). Related BUC$
Associates, Inc. (the "Assignor Limited Partner"), which acquired and holds
limited partnership interests on behalf of those persons who purchase BUC$, has
assigned to those persons substantially all of its rights and interest in and
under such limited partnership interests. The Related General Partner and the
Assignor Limited Partner are under similar ownership.
Competition
- - -----------
The General Partners and/or their affiliates have formed, and may
continue to form, various entities to engage in businesses which may be
competitive with the Registrant.
The Registrant's business is affected by competition to the extent
that the underlying Properties from which it derives interest and, ultimately,
principal payments, may be subject to competition relating to rental rates and
amenities from comparable neighboring properties.
Structure of First Mortgage Bonds
- - ---------------------------------
The principal and interest payments on each FMB are payable only from
the cash flows, including proceeds in the event of a sale, from the Properties
underlying the FMBs. None of these FMBs constitute a general obligation of any
state or local government, agency or authority. The FMBs are secured by the
Mortgage Loans on the underlying Properties and the structure of each Mortgage
Loan mirrors the structure of the corresponding FMB.
Unless otherwise modified , the principal of the FMBs will not be
amortized during their respective terms (which range from 17 to 24 years) and
will be required to be repaid in lump sum "balloon" payments at the expiration
of the respective terms or at such earlier times as the Registrant may require
pursuant to the terms of the bond documents. The Registrant has a right to
require redemption of the FMBs approximately twelve years after their issuance.
The Registrant anticipates holding the FMBs for approximately 12 to 15 years
from the date of issuance; however, it can and may elect to hold until maturity.
In addition to the stated base interest rates ranging from 5.23% to
8.50% per annum, each of the FMBs provides for "contingent interest" consisting
of (a) an amount equal to 50% to 100% of net property cash flow and
-2-
<PAGE>
50% to 100% of net sale or refinancing proceeds until the borrower has paid,
during the post-construction period, annually compounded interest at a rate
ranging from 8.875% to 9.34% on a cumulative basis, and thereafter (b) an amount
equal to 25% to 50% of the remaining net property cash flow and 25% to 50% of
remaining net sale or refinancing proceeds until the borrower has paid interest
at a simple annual rate of 16% over the term of the FMB. Both the stated and
contingent interest are exempt from federal income taxation.
In order to protect the tax exempt status of the FMBs, the owners of
the Properties are required to enter into certain agreements to own, manage and
operate such Properties in accordance with the requirements of the Internal
Revenue Code.
-3-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
The following table lists the FMBs that the Registrant owns, together
with the occupancy and rental rates of the underlying properties:
<TABLE>
<CAPTION>
Carrying Average Minimum
Face Amount Final Interest Stated Pay Rate at
Closing Amount at December Completion Rate Paid Interest December 31,
Property Date of Bond 31, 1995 (F) Date in 1995* Rate* 1995*
- - -------- -------- ----------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Mansion,
Independence, MO 5/13/86 $ 19,450,000 $ 18,646,804 12/87 5.70%(D) 5.23% 5.23%
Martin's Creek,
Summerville, SC 5/20/86 7,300,000 6,777,426 5/86 7.00 (C) 8.25 7.25 (C)
East Ridge,
Mt. Pleasant, SC 5/20/86 8,700,000 8,437,325 5/86 6.90 (C) 8.25 7.25 (C)
High Pointe Club,
Harrisburg, PA 7/29/86 8,900,000 7,554,651 4/91 6.10 8.50 (B)
Cypress Run,
Tampa, FL 8/14/86 15,402,428 13,902,586 6/88 6.70 8.50 (B)
Thomas Lake,
Eagan, MN 9/02/86 12,975,000 13,217,487 2/88 8.30 (E) 8.50 8.25 (A)
North Glen,
Atlanta, GA 9/30/86 12,400,000 11,113,192 12/87 6.00 8.50 6.00 (A)
Greenway Manor,
St. Louis, MO 10/09/86 12,850,000 13,744,484 12/87 8.60 (E) 8.50 8.50
Clarendon Hills,
Hayward, CA 12/08/86 17,600,000 14,934,389 7/89 5.52 5.52 5.52
Cedar Creek,
McKinney, TX 12/29/86 8,100,000 8,175,536 2/88 6.60 8.50 (B)
Sunset Terrace,
Lancaster, CA 2/12/87 10,350,000 8,165,179 2/87 6.10 8.00 (B)
------------ ------------
$134,027,428 $124,669,059
============ ============
</TABLE>
Occupancy Rental Rates No. of
February 11, at December Rental
Property 1996 31, 1995 Units
- - -------- ------------ ------------ -----
The Mansion,
Independence, MO 93.2% $ 410-685 550
Martin's Creek,
Summerville, SC 96.5 425-625 197
East Ridge,
Mt. Pleasant, SC 97.0 490-725 200
High Pointe Club,
Harrisburg, PA 98.3 520-680 240
Cypress Run,
Tampa, FL 86.4 420-720 408
Thomas Lake,
Eagan, MN 96.7 654-1056 216
North Glen,
Atlanta, GA 97.9 510-745 284
Greenway Manor,
St. Louis, MO 98.1 450-550 312
Clarendon Hills,
Hayward, CA 100.0 775-1,300 285
Cedar Creek,
McKinney, TX 97.1 475-799 250
Sunset Terrace,
Lancaster, CA 81.4 460-680 184
*The rate paid represents the interest recorded by the Registrant while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate payable pursuant to the applicable forbearance
agreement, if any.
(A) The minimum pay rates on the FMBs are scheduled to increase to the stated
interest rate over the remaining terms of the FMBs.
(B) The minimum pay rate is the current cash flow of the property.
(C) The minimum pay rate on the FMB increases in increments from 6% in 1990 to
8.25% in 1997. The actual pay rate is adjusted as of the property's fiscal
year end based on audited financial statements to no less than the minimum
pay rate.
(D) Includes contingent interest paid during 1995.
(E) Includes receipt of deferred base interest relating to prior periods.
(F) The FMBs are carried at their estimated fair values at December 31, 1995.
-4-
<PAGE>
Bond Modifications/Forbearance Agreements
- - -----------------------------------------
Effective with the May 1, 1995 payment date, the Sunset Terrace FMB
has made payments based on the monthly net cash flow generated by the operations
of the underlying property in accordance with the agreement outlined below.
Effective as of August 1, 1995, the obligor of the Sunset Terrace FMB entered
into a forbearance agreement. In accordance with the terms of this agreement,
the obligor of the FMB is paying debt service on the FMB to the extent of cash
flow generated by the underlying property. The difference between the pay rate
and the stated rate of this FMB is deferred and payable out of available future
cash flow. In addition, pursuant to the agreement, the obligor has replaced the
property manager and leasing agent with a new property manager who is an
affiliate of the Related General Partner. Other terms of the agreement call for
the deed to be transferred to the Registrant or its designee no later than
January 30, 1997 should the obligor be unable to bring the FMB fully current on
all interest due and payable (including deferred base interest) on or before
that date. These and other obligations are secured by a guarantee from an
affiliate of the obligor.
In November 1989, a $600,000 settlement was reached between the
previous developer of High Pointe Club Apartments and USF&G, the construction
performance bonding company for High Pointe property. Prior to this settlement,
the previous developer agreed to place the settlement proceeds in escrow later
to be 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. In April
1995, RHA paid to the Registrant approximately $721,0000 consisting of the
settlement proceeds plus accrued interest. These funds were applied as partial
payment toward accrued and unpaid interest due under the High Pointe Club FMB.
During April 1995, the Registrant made a loan in the amount of
approximately $721,000 to the new owner of the Cypress Run property toward
payment of delinquent 1992 and 1993 property taxes. This loan is self-amortizing
over three years and carries an 8.5% annual interest rate. This loan was
recorded in income as a reduction of interest income from FMBs because the
Cypress Run FMB is paying interest on a cash flow basis.
On April 1, 1994, Mansion Apartment Project Investors, Inc., ("MAPI")
, an affiliate of the Related General Partner who replaced the original
developer of The Mansion property, sold the ownership interest in the property
to an unrelated third party for $700,000 in cash and the assumption of the
obligation under the Registrant's $19,450,000 FMB as well as a $400,000 second
mortgage note payable to a lender affiliated with the Related General Partner
taken by assignment from the seller. Notwithstanding the assumption of the FMB,
the General Partners agreed to forbear on the Registrant's rights and remedies
in declaring an interest payment default under the FMB loan documents provided
the new borrower made minimum monthly interest payments to the Registrant equal
to approximately $81,000 per month (5% per annum) together with payments to a
replacement reserve escrow account of approximately $4,500 per month and
complied with all other covenants and obligations.
Effective October 18, 1994, The Mansion FMB was modified. The
modification provides for a base pay rate of 5.23%. In addition, the contingent
interest feature has been changed. Under the modified FMB, an additional .386%
per year (primary contingent interest) is due and payable from 100% of cash flow
above the base pay rate. If not paid, the difference between the minimum pay
rate and the primary contingent interest rate is deferred and is payable from
future cash flow and sale or refinancing proceeds. Remaining cash flow and sale
or refinancing proceeds, if any, are paid to the Registrant in an amount equal
to 35% of net cash flow until the borrower receives a 12.5% cumulative return on
its investment together with the return of the initial investment. Then, the
Registrant is entitled to 50% of remaining cash flow and net sale or refinancing
proceeds until the owner has paid interest at a cumulative annual rate of 16%.
Notwithstanding The Mansion owner's obligation to pay amounts due as primary
contingent interest, the Registrant has agreed, until 1998, that the obligation
to pay such amounts will be considered satisfied subject to those amounts being
contributed by The Mansion's owner toward certain designated repairs to the
property. The Mansion's owner will nevertheless be obligated to pay amounts due
from remaining cash flow if available above the primary contingent interest
rate.
-5-
<PAGE>
The net cash proceeds from the sale of the ownership interest in The
Mansion by MAPI of approximately $105,0000 (net of $400,000 escrow for certain
repairs, a $50,000 second mortgage note principal payment, and closing costs),
paid to the Registrant to reduce accrued and unpaid interest, was recorded by
the Registrant as deferred income and is being amortized as interest income over
the remaining life of The Mansion FMB. The balance of the deferred income
relating to The Mansion FMB was approximately $94,000 and $101,000 at December
31, 1995 and 1994. All other accrued and unpaid interest on The Mansion FMB
which had been reserved for financial statement purposes was forgiven.
In June 1992, the Registrant made a $320,000 second mortgage loan to
the owner of the property underlying the Cypress Run FMB for the payment of 1991
property taxes. This loan required monthly interest only payments at a rate of
8.5% per annum with the principal due on July 1, 1994. Interest payments on the
loan as well as the FMB were current through June 1994; however, due to the
borrower's bankruptcy, the loan remains outstanding and the borrower has been
notified of the default (see below for discussion of borrower's bankruptcy
filing). An allowance for possible loss was recorded for the entire loan amount
in 1993.
As a result of the failure to pay 1992 and 1993 real estate taxes,
the Registrant initiated steps to enforce its rights and remedies under the
Cypress Run FMB in July 1994. These remedies include acceleration of the loan
and a $350,000 draw on an irrevocable letter of credit issued on behalf of the
owner of Cypress Run as security relating to obligations under the Rental
Performance Agreement. Pursuant to the terms of the bond documents,
approximately $348,000 of the proceeds received from the draw on the letter of
credit has been recorded as a reduction of the FMB with the balance applied as
interest. In response, on July 15, 1994, the owner of the property filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code and continued
to operate the property as a debtor-in-possession. The bankruptcy filing
operated as a stay against the enforcement of the Registrant's remedies which
include foreclosure. At the initial hearing, the court consented, among other
things, to allow the Registrant to receive the monthly net cash flow generated
by the property as its debt service payments for at least the initial 120 days
of the proceedings.
On November 10 ,1994, an Order Modifying Stay together with a
Settlement Stipulation was entered by the Court which granted the Registrant
relief from the Automatic Stay. This order became effective on March 31, 1995
unless sale of the property, subject to the Registrant's approval, was closed
beforehand.
On March 31, 1995, pursuant to the Court Order, ownership of the
Cypress Run property was transferred to an affiliate of the Related General
Partner. The affiliate has not made an equity investment in the underlying
property; however, it has assumed the day-to-day responsibilities and
obligations of operating the property. The Registrant continues to receive the
monthly net cash flow generated by the property as payment toward debt service.
Due to the failure to pay 1990 and 1991 property taxes and interest
from March to August 1992, the Registrant instituted foreclosure proceedings
against Greenway Manor. On July 20, 1992, the Greenway partnership filed for
bankruptcy under Chapter 11 of the United Sates Bankruptcy Code. Pursuant to a
1992 court order, the receiver paid the Registrant the cash flow remaining after
paying past due taxes, property operating costs and escrowing for 1992 taxes. On
June 30, 1993, the court dismissed the bankruptcy proceedings at which time the
owner of the property and obligor under the FMB agreed to transfer the
deed-in-lieu of foreclosure to an affiliate of the Related General Partner.
For several properties collateralizing FMBs (High Pointe Club
securing an $8,900,000 FMB; Greenway Manor, securing a $12,850,000 FMB and Cedar
Creek, securing an $8,100,000 FMB) the original owners of the underlying
properties and obligors of the FMBs were replaced by affiliates of the Related
General Partner who have not made equity investments in the underlying
properties. These entities have assumed the day-to-day responsibilities and
obligations of operating the underlying properties. Buyers are being sought who
would make equity investments in the underlying properties and assume the
nonrecourse obligations for the FMB's. Although certain of these properties are
not producing sufficient cash flow to fully service the debt, the Registrant has
no present intention to declare a default on these FMBs.
-6-
<PAGE>
On May 31, 1992, Clarendon Hills Investors, Inc. (CHI"), an affiliate
of the Related General Partner who had replaced the developer of the Clarendon
Hills property, sold its ownership interest in the property to an unrelated
third party (the "Purchaser") for $26,200,000. The Purchaser paid $2,000,000 in
cash, assumed the $17,600,000 obligation of the Registrant's FMB and issued to
CHI a $6,600,000 promissory note which in turn, was assigned to the Registrant.
The $6,600,000 promissory note bears interest at the rate of 8.0% per annum
payable in equal monthly installments until December 2003 at which time the
entire unpaid principal and interest will be due and payable. The $1,441,209 in
net cash proceeds of the sale (net of certain closing costs), paid by the
purchaser to the Registrant to reduce accrued and unpaid interest, was recorded
by the Registrant as deferred income and is being amortized as interest income
from FMBs over the remaining life of the Clarendon Hills FMB. The balance of the
deferred income relating to the Clarendon Hills FMB was approximately $992,000
and $1,117,000 at December 31, 1995 and 1994.
In connection with the sale of the Clarendon Hills property by CHI,
the FMB collateralized by the property was modified to provide for, among other
things: the discharge of all accrued and unpaid interest relating to a previous
owner (which for financial statements purposes has been fully reserved); a
reduction of the base interest rate to 5.52% per annum on the $17,600,000 FMB;
and a further reduction of the base interest during the first four years from
closing of an amount equal to 50% of the increase in property taxes (if any)
over the fiscal 1992 property tax bill resulting solely from this sale (limited
to $35,000 per annum). In addition, the contingent interest feature was modified
to assign annual cash flow as follows: (1) to pay the Registrant its 5.52% base
rate of the FMB and to pay the 8.0% interest owed on the promissory note; (2) to
pay the Purchaser the next $220,000 representing return on its investment; and
then (3) to pay the Registrant 65% of cash flow until the Registrant receives an
interest rate equal to 8.25% per annum on $24,200,000 ($17,600,000 FMB and
$6,600,000 promissory note) for each respective year on a non-cumulative basis.
Any remaining cash flow is then shared 65% by the Purchaser and 35% by the
Registrant.
The FMBs for the East Ridge and Martin's Creek properties were
modified in 1990 when the equity interest in the properties and the related
obligations of the FMBs were sold by an affiliate of the Related General Partner
to an unrelated third party. The modifications provide for the minimum pay rate
increases from 6.0% per annum in 1990 to 7.5% per annum in March 1996. Beginning
in March 1997, the pay rate will be 8.25% per annum. The difference between the
minimum interest rate and the original stated rate is deferred and is payable
out of available future cash flow. As part of this modification, the Registrant
received $950,000 in 13% second mortgage notes with monthly interest and
principal payments through December 1996. These notes are also partially secured
by letters of credit. Deferred income equal to the amount of the promissory note
was recorded in the statements of financial condition. As a result of this
transaction, income is recognized only as and when the Registrant receives
payment on the promissory notes. The balances of both the promissory notes and
deferred income was approximately $57,000 and $251,000 at December 31, 1995 and
1994, respectively. There was no loss recorded on this transaction because the
allowance previously established for these FMBs was in excess of the concessions
granted. At December 31, 1995 and 1994, the valuation allowance relating to debt
restructuring was approximately $296,000 and $366,000, respectively. Such
allowance is accreted as interest income over the remaining term of the FMBs as
long as the estimated fair value of the underlying properties is in excess of
the carrying value of the related FMB.
During 1991, a forbearance agreement was finalized with the owners of
the North Glen property. The General Partners further modified the North Glen
forbearance agreement in April 1993 to allow the owner to make debt payments at
a pay rate of 6.0% per annum through December 1995 at which time the rate was
scheduled to increase to the stated rate of 8.5% per annum, however, the General
Partners extended the forbearance agreement through December 15, 1997.
The pay rate for the Thomas Lake property is scheduled to increase in
annual increments to the original stated rate of 8.5% per annum in December
1996.
During 1992, a forbearance agreement was finalized with the owner of
the Sunset Terrace property. Terms of the agreement call for a reduced pay rate
of 7.0% per annum through May 1993 with scheduled annual increments to the
original stated rate of 8.0% in May 1996.
-7-
<PAGE>
With respect to all of these FMBs, the difference between the pay
rate and the original stated rate is deferred and payable out of available
future cash flow or ultimately from sales or refinancing proceeds and is not
accrued for financial statement purposes. The determination as to whether it is
in the best interest of the Registrant 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. These factors include, but
are not limited to, property performance, owner cooperation and projected legal
costs.
The following FMB's interest income exceeded 15% of the Registrant's
total revenue for one or more of the three years in the period ended December
31, 1995:
1995 1994 1993
---- ---- ----
Cypress Run * 17% 17%
The Mansion * 16% *
*FMB's interest income was less than 15% of the Registrant's total
revenue for the year.
Credit Facility
- - ---------------
On January 15, 1993, the Registrant entered into a loan agreement
with an unaffiliated lender for a $15,000,000 credit facility with the maturity
date of January 14, 1998 and an option to extend for two years for an additional
fee. The debt service requirements include monthly interest only payments with a
variable interest rate equal to the 30-day commercial paper interest rate (5.85%
and 5.90% at December 31, 1995 and 1994, respectively, plus 4.05% with principal
due at maturity. The facility is collateralized by a pledge of the FMBs and
associated collateral of East Ridge, Martin's Creek, The Mansion, Thomas Lake
and Sunset Terrace. The initial proceeds from this facility were used to repay a
$10,000,000 credit facility guaranteed by the Registrant, to repay a $3,000,000
noninterest-bearing working capital loan made to the Registrant from the Related
General Partner and to pay associated closing costs. The $10,000,000 credit
facility had been used to pay for costs incurred to complete construction of the
properties securing the High Pointe Club and Clarendon Hills FMBs and to fund a
loan toward the payment of property taxes on the Thomas Lake property. The
$3,000,000 working capital loan was used to supplement distributions commencing
with the fourth quarter 1988 distribution. The unused portion of the
Registrant's $15,000,000 credit facility is to be used for future working
capital requirements and other cash requirements, as necessary, subject to
approval of the lender.
In conjunction with the Registrant's credit facility and the
repayment of the previously existing $10,000,000 credit facility, the Registrant
was assigned nonrecourse notes in the amount of $6,600,000, $3,180,000 and
$220,000 for the Clarendon Hills, High Pointe Club and Thomas Lake properties,
respectively. The Clarendon Hills promissory note, secured by a deed of trust,
requires monthly interest only payments of 8.0% per annum with the principal due
on December 31, 2003. The unsecured High Pointe Club note also requires monthly
interest only payments of 8.0% per annum with the principal due on December 31,
2003. Since the High Pointe Club property is paying interest on a cash flow
basis, interest on the promissory note is only recorded when cash flow is
received in excess of the stated rate. No interest on the High Pointe Club
promissory note has been received or recorded through December 31, 1995. The
assigned High Pointe Club note is subordinate to the High Pointe Club FMB and
has been fully reserved. The Thomas Lake promissory note in the principal amount
of $220,000, which is secured by a second mortgage on the property, matured in
April 1995 and was modified and extended. The modified loan is self-amortizing
over thirty months at an 8.5% interest rate. Clarendon Hills and Thomas Lake
promissory notes are current on their interest payments through December 31,
1995.
Employees
- - ---------
The Registrant has no employees. Management and administrative
services for the Registrant are performed by the General Partners and their
affiliates pursuant to the Partnership Agreement. See Note 6 to the financial
statements in Item 8.
-8-
<PAGE>
Item 2. Properties
The Registrant does not own or lease any property.
Item 3. Legal Proceedings
This information is incorporated by reference to Note 7 to the
financial statements in Item 8.
Item 4. Submission of Matters to a Vote of BUC$holders
None
PART II
Item 5. Market for the Registrant's BUC$ and Related BUC$holder Matters
As of March 1, 1996, there were 7,358 holders of record owning
7,906,234 BUC$. The Registrant's BUC$ are listed on the American Stock Exchange
under the SUA symbol; however, the limited partner interests themselves are not
listed.
The high and low prices for each quarterly period of the last two
years for which the BUC$ were traded are as follows:
1995 1995 1994 1994
Low High Low High
--- ---- --- ----
March 31 8 1/2 9 7/8 10 1/2 11 3/8
June 30 9 3/8 10 1/4 9 7/8 10 7/8
September 30 9 3/4 10 1/4 9 1/4 10 1/8
December 31 9 1/2 10 3/8 8 1/4 9 3/8
Quarterly cash distributions per BUC paid during 1995 and 1994 were
as follows:
Quarter ended 1995 1994
------------- ---- ----
March 31 $.21 $.21
June 30 $.21 $.21
September 30 $.21 $.21
December 31 $.21 $.21
There are no material restrictions upon the Registrant's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement. Cash distributions paid in 1995 and 1994 were funded from
current and previously undistributed cash flow from operations. Approximately
$791,000 of the $6,641,000 and $1,069,000 of the $6,641, 000 paid to BUC$holders
in 1995 and 1994, respectively, represents a return of capital under generally
accepted accounting principles (GAAP). (The return of capital on a GAAP basis is
calculated as BUC$holder distributions less net income allocated to
BUC$holders). The Registrant currently expects that cash distributions will be
paid in the foreseeable future from adjusted cash flow from operations. For
discussion of other factors that may affect the amount of future distributions,
see Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7.
-9-
<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial data of the
Registrant. This data should be read in conjunction with the financial
statements of the Registrant and the notes thereto contained in Item 8.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income from
participating first
mortgage bonds $ 9,246,436 $ 9,376,790 $ 9,642,390 $ 8,363,679 $ 8,938,697
============ ============ ============ ============ ============
Interest expense $ 1,391,496 $ 1,156,858 $ 967,361 $ 9,166 $ 30,025
============ ============ ============ ============ ============
Provision for loss on
impairment of assets $ 500,000 $ 1,350,000 $ 1,905,000 $ 0 $ 0
============ ============ ============ ============ ============
Net income $ 5,969,215 $ 5,685,890 $ 4,135,774 $ 6,462,572 $ 7,126,669
============ ============ ============ ============ ============
Net income per BUC $ 0.74 $ 0.71 $ 0.51 $ 0.80 $ 0.88
============ ============ ============ ============ ============
Total assets $136,278,329 $136,021,035 $141,881,705 $134,028,372 $133,938,510
============ ============ ============ ============ ============
Loan payable $ 13,680,866 $ 13,680,866 $ 13,680,866 $ 45,620 $ 319,940
============ ============ ============ ============ ============
Distributions to
BUC$holders $ 6,641,238 $ 6,641,238 $ 6,641,238 $ 6,641,238 $ 6,641,238
============ ============ ============ ============ ============
Distributions per BUC $ 0.84 $ 0.84 $ 0.84 $ 0.84 $ 0.84
============ ============ ============ ============ ============
</TABLE>
-10-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Capital Resources and Liquidity
- - -------------------------------
The Registrant has invested in eleven tax-exempt 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.
At the beginning of the year, the Registrant had cash and temporary
investments of approximately $2,090,000. After payment of distributions and
receipt of the net cash flow from operations, Registrant ended the year with
approximately $1,976,000 in cash and temporary investments. The fourth quarter
distribution of approximately $1,660,000 ($.21 per BUC) was paid to BUC$holders
in February 1996 from current and previously undistributed cash flow from
operations. The Registrant anticipates funding future cash distributions from
current and previously undistributed cash flow from operations.
Interest payments from FMBs are anticipated to provide sufficient
liquidity to meet the operating expenditures of the Registrant in future years
and to fund distributions.
The Registrant's 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.
As discussed in more detail in Note 3 to the financial statements in
Item 8, the Registrant received net proceeds of approximately $105,000 in April
1994 in connection with an affiliate's sale of its ownership interest in The
Mansion to an unrelated third party. The Registrant has recorded the proceeds as
deferred income.
Management is not aware of any trends or events, commitments or
uncertainties that will impact liquidity in a material way except as discussed
here and in the financial statements in Item 8. The Registrant's investments in
mortgage loans are secured by a Registrant interest in properties which are
diversified by location so that if one area of the country is experiencing
downturns in the economy, the remaining properties may be experiencing upswings.
Results of Operations
- - ---------------------
Pursuant to a review of the Registrant's financial statements by
the SEC staff in 1996 and in accordance with others in the industry, the
Registrant agreed that it will account for its investments in the FMBs as debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115") effective January 1, 1994, and has restated its 1995 and 1994
financial statements to reflect this change in accounting treatment.
The change in accounting treatment does not affect cash flow or
payments received by the Partnership from the properties, level of distributions
to BUC$Holders, the tax-exempt nature of the Partnership's net income, or the
obligation under the FMBs.
The Registrant has a right to require redemption of the FMBs
approximately twelve years after their issuance. The Registrant anticipates
holding the FMBs for approximately 12 to 15 years from the date of issuance;
however, it can elect to hold until maturity. As such, SFAS 115 requires the
Registrant to classify these investments as "available for sale." Accordingly,
effective January 1, 1994, investments in FMBs are carried at their estimated
fair values, with unrealized gains and losses reported in a separate component
of partners' capital. The cumulative effect of adopting this accounting was a
decrease in partners' capital at January 1, 1994 of approximately $7,693,000 due
to unrealized holding losses. This accounting also resulted in cumulative net
unrealized losses of approximately $2,899,000 and $4,283,000 at December 31,
1995 and 1994, respectively. Again, unrealized holding gains or losses do not
affect the cash flow generated from property operations, distributions to
BUC$holders, the characterization of the tax-exempt income stream or the
financial obligations under the FMBs.
-11-
<PAGE>
The Registrant periodically evaluates each FMB to determine
whether a decline in fair value below the FMB's cost basis is other than
temporary. Such a decline is considered to be other than temporary if, based on
current information and events, it is probable that the Registrant will be
unable to collect all amounts due according to the existing contractual terms of
the bonds. If the decline is judged to be other than temporary, the cost basis
of the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as realized loss.
Because the FMBs are not readily marketable, the Registrant
estimates fair value for each bond as the present value of its expected cash
flows using an interest rate for comparable tax-exempt investments. This process
is based upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon determination
of an appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Registrant's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.
Prior to 1994, the Registrant accounted for its investments in
FMBs as loans collateralized by real estate, carried at cost less reserves, if
needed, for possible losses. The Registrant classified FMBs as Assets Held for
Sale when the original owner of the property and obligor of the FMB was replaced
by an affiliate of the Related General Partner, who had not made an equity
investment in the property. Because the Registrant has not declared default and
has no present intention to do so, these assets have been reclassified from
Assets Held for Sale to FMBs upon adoption of SFAS 115. Such FMBs were written
down to the estimated fair value of the underlying properties at the time the
original owners were replaced.
1995 vs. 1994
- - -------------
Net income increased approximately $283,000 for the year ended
December 31, 1995 as compared to the corresponding period in 1994 primarily due
to the amount of losses on impairment of assets recorded in the respective years
and for the following reasons below.
Interest income from FMBs decreased by approximately $130,000 for the
year ended December 31, 1995 as compared to the corresponding period in 1994
primarily due to reduced debt service payments received from the Sunset Terrace
and Cedar Creek FMBs.
Interest income from promissory notes decreased by approximately
$35,000 for the year ended December 31, 1995 as compared to the corresponding
period in 1994. This decrease resulted primarily from the repayment of the
Cypress Run tax loan in 1994 resulting in no interest income in 1995.
Interest income from temporary investments increased approximately
$29,000 for the year ended December 31, 1995 as compared to the corresponding
period in 1994 primarily due to higher interest rates and invested balances.
Interest expense increased approximately $235,000 for the year ended
December 31, 1995 as compared to the corresponding period in 1994 due to
interest rate increases during 1995 on the Registrant's loan.
General and administrative expenses increased approximately $66,000
for the year ended December 31, 1995 as compared to the corresponding period in
1994 primarily due to the timing of certain accruals recorded in the respective
years and increased costs associated with the administration of the Registrant.
Losses on impairment of assets of $500,000 and $1,350,000 were
recorded during the years ended December 31, 1995 and 1994, respectively, to
write down the cost basis of certain FMBs to recognize other-than-temporary
impairment.
-12-
<PAGE>
Legal expenses increased approximately $131,000 for the year ended
December 31, 1995 as compared to the corresponding period in 1994 primarily due
to the legal costs incurred with respect to the Cypress Run bankruptcy
proceedings, debt modifications and the Kinnes litigation discussed in Note 7 to
the financial statements in Item 8.
1994 vs. 1993
- - -------------
Net income increased approximately $1,550,000 for the year ended
December 31, 1994 as compared to the corresponding period in 1993 primarily due
to the amounts of losses on impairment of assets and uncollectible receivables
recorded in the respective years and the reasons discussed below.
Interest income from FMBs decreased by approximately $266,000 for the
year ended December 31, 1994 as compared to the corresponding period in 1993.
This decrease primarily resulted from the Cypress Run bankruptcy and a
modification to the North Glen forbearance agreement in 1993. These decreases
were offset, in part, by increased interest received from Sunset Terrace, Thomas
Lake, High Pointe Club and Cedar Creek.
Interest income from promissory notes decreased by approximately
$22,000 for the year ended December 31, 1994 as compared to the corresponding
period in 1993. This decrease resulted from reduced interest received on the
Cypress Run tax loan in 1994 as compared to 1993.
Interest income from temporary investments increased by approximately
$18,000 for the year ended December 31, 1994 as compared to the corresponding
period in 1993 primarily due to higher interest rates and invested balances.
Interest expense increased by approximately $189,000 for the year
ended December 31, 1994 as compared to the corresponding period in 1993 due to
interest rate increases during 1994.
General and administrative expenses decreased by approximately
$63,000 for the year ended December 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 Registrant.
A $1,350,000 loss on impairment of assets was recorded during the
year ended December 31, 1994 to write down the cost basis of certain FMBs to
recognize other-than-temporary impairment.
Legal expenses decreased approximately $121,000 for the year ended
December 31, 1994 as compared to the corresponding period in 1993. This decrease
was primarily because of non-recurring costs associated with the Greenway
foreclosure in 1993 and lower legal costs related to the Levine litigation
described in Note 7 to the financial statements in Item 8.
-13-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
Property Information
- - --------------------
The following table lists the FMBs that the Registrant owns with
occupancy rates of the underlying properties as of February 11, 1996:.
<TABLE>
<CAPTION>
Carrying
Amount Average Stated Minimum Pay
Face Amount at December Interest Rate Interest Rate at December
Property Location of Bond 31,1995 (F) Occupancy Paid in 1995* Rate* 31,1995*
- - -------- -------- ------------- ------------ --------- ------------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Mansion Independence, MO $ 19,450,000 $ 18,646,804 93.2% 5.70% (D) 5.23% 5.23%
Martin's Creek Summerville, SC 7,300,000 6,777,426 96.5 7.00 (C) 8.25 7.25 (C)
East Ridge Mt. Pleasant, SC 8,700,000 8,437,325 97.0 6.90 (C) 8.25 7.25 (C)
High Pointe Club Harrisburg, PA 8,900,000 7,554,651 98.3 6.10 8.50 (B)
Cypress Run Tampa, FL 15,402,428 13,902,586 86.4 6.70 8.50 (B)
Thomas Lake Eagan, MN 12,975,000 13,217,487 96.7 8.30 (E) 8.50 8.25 (A)
North Glen Atlanta, GA 12,400,000 11,113,192 97.9 6.00 8.50 6.00 (A)
Greenway Manor St. Louis, MO 12,850,000 13,744,484 98.1 8.60 (E) 8.50 8.50
Clarendon Hills Hayward, CA 17,600,000 14,934,389 100.0 5.52 5.52 5.52
Cedar Creek McKinney, TX 8,100,000 8,175,536 97.1 6.60 8.50 (B)
Sunset Terrace Lancaster, CA 10,350,000 8,165,179 81.4 6.10 8.00 (B)
---------- ----------
$134,027,428 $124,669,059
============ ============
</TABLE>
*The rate paid represents the interest recorded by the Registrant while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate pursuant to the payable applicable forbearance
agreement, if any.
(A) The minimum pay rates on the FMBs are scheduled to increase to the stated
interest rate over the remaining terms of the FMBs.
(B) The minimum pay rate is the current cash flow of the property.
(C) The minimum pay rate on the FMB increases in increments from 6% in 1990 to
8.25% in 1997. The actual pay rate is adjusted as of the property's fiscal
year end based on audited financial statements to no less than the minimum
pay rate.
(D) Includes contingent interest paid during 1995.
(E) Includes receipt of deferred base interest relating to prior periods.
(F) The FMBs are carried at their estimated fair values at December 31, 1995.
-14-
<PAGE>
General
- - -------
The determination as to whether it is in the best interest of the
Registrant 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. These factors include, but are not limited to, property
performance, owner cooperation and projected legal costs.
The difference between the stated interest rates and the rates paid
on certain FMBs is not accrued for financial statement purposes, although it is
deferred and payable from available future cash flow and sale or refinancing
proceeds. Interest income relating to these FMBs of approximately $1,571,000,
$1,707,000, and $1,639,000 was not recorded for the years ended December 31,
1995, 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 FMB
interest payments. There can be no assurance that in the future any property
owner will continue to elect to supplement property cash flow to satisfy FMB
interest requirements if necessary. The owner of the Sunset Terrace property
supplemented the cash flow generated by the property to meet the required
interest payments in 1994. No property owner made supplementary payments in
1995.
-15-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
(a) 1. Financial Statements Page
-------------------- ----
Independent Auditors' Report 17
Statements of Financial Condition as of December
31, 1995 and 1994 18
Statements of Income for the years ended December
31, 1995, 1994 and 1993 19
Statements of Changes in Partners' Capital
(Deficit) for the years ended December 31, 1995,
1994 and 1993 20
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 21
Notes to Financial Statements 23
-16-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Summit Tax Exempt Bond Fund L.P.
New York, New York
We have audited the accompanying statements of financial condition
of Summit Tax Exempt Bond Fund L.P. (a Delaware Limited Partnership) as of
December 31, 1995 and 1994, and the related statements of income, changes in
partners' capital (deficit) and cash flows for each of the three years in the
period ended December 31, 1995. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and
financial statement schedule are the responsibility of the General Partners. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the General Partners, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Summit Tax Exempt Bond Fund L.P. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 2, the accompanying financial statements and
the financial statement schedule have been restated to account for the
Partnership's investments in tax-exempt participating first mortgage revenue
bonds as debt securities.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
March 20, 1996 (August 12, 1996 as to Notes 2 and 3 and the financial statement
schedule)
-17-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Participating first mortgage bonds-at fair value $124,669,059 $123,655,232
Temporary investments 1,350,000 1,915,874
Cash and cash equivalents 626,391 173,689
Promissory notes receivable, net 6,823,335 7,071,156
Deferred bond selection fees, net 1,708,218 1,858,273
Interest receivable, net 829,565 944,367
Deferred financing fees, net 260,985 388,816
Other assets 10,776 13,628
------------ ------------
Total assets $136,278,329 $136,021,035
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Loan payable $13,680,866 $13,680,866
Deferred income 1,143,191 1,469,174
Accounts payable and accrued expenses 124,850 120,685
Due to affiliates 49,262 46,422
------------ ------------
Total liabilities 14,998,169 15,317,147
------------ ------------
Contingencies
Partner's capital (deficit):
BUC$holders (7,906,234 BUC$
issued and outstanding) 124,555,445 125,346,852
General partners (375,838) (359,686)
Net unrealized loss on participating
first mortgage bonds (2,899,447) (4,283,278)
------------ ------------
Total partners' capital 121,280,160 120,703,888
------------ ------------
Total liabilities and partners' capital $136,278,329 $136,021,035
============ ============
</TABLE>
See accompanying notes to financial statements
-18-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Interest income:
Participating first mortgage bonds $ 9,246,436 $ 9,376,790 $ 9,642,390
Promissory notes 577,562 612,090 634,449
Temporary investments 74,084 45,394 27,565
----------- ----------- -----------
Total revenues 9,898,082 10,034,274 10,304,404
----------- ----------- -----------
Expenses:
Interest expense 1,391,496 1,156,858 967,361
Management fees 671,875 671,875 671,875
General and administrative 405,528 339,975 403,230
Loan servicing fees 335,068 335,938 335,938
Legal expense 347,014 215,854 336,667
Amortization of deferred bond selection fees 150,055 150,056 150,056
Amortization of deferred financing fees 127,831 127,828 122,503
Provision for uncollectible receivables 0 0 1,276,000
Loss on impairment of assets 500,000 1,350,000 1,905,000
----------- ----------- -----------
Total expenses 3,928,867 4,348,384 6,168,630
----------- ----------- -----------
Net income $ 5,969,215 $ 5,685,890 $ 4,135,774
=========== =========== ===========
Allocation of Net Income
BUC$holders $ 5,849,831 $ 5,572,171 $ 4,053,059
=========== =========== ===========
General partners $ 119,384 $ 113,719 $ 82,715
=========== =========== ===========
Net income per BUC $ 0.74 $ 0.71 $ 0.51
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
-19-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Participating First
Total BUC$holders General Partners Mortgage Bonds
<S> <C> <C> <C> <C>
Partners' capital (deficit) -
December 31, 1992 $128,719,050 $129,004,098 $ (285,048)
Net income 4,135,774 4,053,059 82,715
Distributions (6,776,774) (6,641,238) (135,536)
------------ ------------ -----------
Partners' capital (deficit) -
December 31, 1993 126,078,050 126,415,919 (337,869)
Cumulative effect through
January 1, 1994 of
accounting change (Note 2) (7,693,373) 0 0 $ (7,693,373)
Net income 5,685,890 5,572,171 113,719 0
Distributions (6,776,774) (6,641,238) (135,536) 0
Net change in fair value of
participating first mortgage bonds 3,410,095 0 0 3,410,095
------------ ------------ ----------- ------------
Partners' capital (deficit) -
December 31, 1994 120,703,888 125,346,852 (359,686) (4,283,278)
Net income 5,969,215 5,849,831 119,384 0
Distributions (6,776,774) (6,641,238) (135,536) 0
Net change in fair value of
participating first mortgage bonds 1,383,831 0 0 1,383,831
------------ ------------ ----------- ------------
Partners' capital (deficit) -
December 31, 1995 $121,280,160 $124,555,445 $ (375,838) $ (2,899,447)
============ ============ =========== ============
</TABLE>
See accompanying notes to financial statements
-20-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
------------ ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Interest received $ 10,472,273 $ 9,720,452 $ 9,856,931
Loan made to property affiliate (721,266) 0 0
Fees and expenses paid (1,749,628) (1,766,476) (1,534,070)
Interest paid (1,391,496) (1,241,679) (882,540)
------------ ----------- -----------
Net cash provided by operating activities 6,609,883 6,712,297 7,440,321
------------ ----------- -----------
Cash flows from investing activities:
Net (purchase) sale of temporary investments 565,874 (415,114) (485,040)
Income deferred upon assumption of bond
obligations by new debtor 0 105,477 0
------------ ----------- -----------
Net cash provided by (used in)
investment activities 565,874 (309,637) (485,040)
------------ ----------- -----------
Cash flows from financing activities:
Funds borrowed 0 0 13,680,866
Principal repayments on promissory note 53,719 0 0
Repayment of loan payable 0 0 (45,620)
Financing fees paid 0 0 (639,147)
Repayment of loan from affiliate 0 0 (3,000,000)
Principal payment received on bond 0 347,576 0
Distributions paid (6,776,774) (6,776,774) (6,776,774)
Loans made to affiliate, net 0 0 (10,126,000)
------------ ----------- -----------
Net cash used in financing activities (6,723,055) (6,429,198) (6,906,675)
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents 452,702 (26,538) 48,606
Cash and cash equivalents at
beginning of year 173,689 200,227 151,621
------------ ----------- -----------
Cash and cash equivalents at
end of year $ 626,391 $ 173,689 $ 200,227
============ =========== ===========
</TABLE>
(continued)
-21-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Schedule reconciling net income to net cash
provided by operating activities
Net income $ 5,969,215 $ 5,685,890 $ 4,135,774
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of valuation allowance (129,996) (130,012) (130,012)
Amortization of deferred income (131,881) (130,241) (125,322)
Amortization of deferred bond selection fees 150,055 150,056 150,056
Amortization of deferred financing fees 127,831 127,828 122,503
Loss on impairment of assets 500,000 1,350,000 1,905,000
Provision for uncollectible receivables 0 0 1,276,000
Changes in:
Promissory notes receivable, net 247,821 172,411 166,177
Interest receivable 114,802 (53,569) (192,137)
Other assets 2,852 1,678 147,873
Deferred income (247,821) (172,411) (166,177)
Accounts payable and accrued expenses 4,165 (179,984) 116,292
Accrued interest expense 0 (84,821) 84,821
Due to affiliates 2,840 (24,528) (50,527)
----------- ----------- -----------
Total adjustments 640,668 1,026,407 3,304,547
----------- ----------- -----------
Net cash provided by operating activities $ 6,609,883 $ 6,712,297 $ 7,440,321
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
-22-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - General
Summit Tax Exempt Bond Fund, L.P. (the "Partnership"), a Delaware
limited partnership, was formed on December 18, 1985 and will terminate on
December 31, 2020 unless terminated sooner under the provisions of the Agreement
of Limited Partnership (the "Partnership Agreement"). The Partnership was formed
to invest in tax-exempt participating first mortgage revenue 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 (the "Properties"). The general partners of the
Partnership (the "General Partners") are Prudential-Bache Properties, Inc.
("PBP") (a wholly-owned subsidiary of Prudential Securities Group, Inc.) and
Related Tax Exempt Bond Associates, Inc. (the "Related General Partner").
Related BUC$ Associates, Inc. (the "Assignor Limited Partner"), which acquired
and holds limited partnership interests on behalf of those persons who purchase
Beneficial Unit Certificates ("BUC$"), has assigned to those persons
substantially all of its rights and interest in and under such limited
partnership interests. The Related General Partner and the Assignor Limited
Partner are under common ownership. As of December 31, 1995, the Partnership had
invested in a total of eleven FMBs.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The books and records of the Partnership are maintained on the
accrual basis of accounting in accordance with generally accepted accounting
principles.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the General Partners to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
b) Participating first mortgage bonds and promissory notes
receivable
Pursuant to a review of the Partnership's financial statements by
the SEC staff in 1996 and in accordance with others in the industry, the
Partnership agreed that it will account for its investments in the FMBs as debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115") effective January 1, 1994, and has restated its 1995 and 1994
financial statements to reflect this change in accounting treatment.
The change in accounting treatment does not affect cash flow or
payments received by the Partnership from the properties, level of distributions
to BUC$Holders, the tax-exempt nature of the Partnership's net income or the
obligation under the FMBs.
The Partnership has a right to require redemption of the FMBs
approximately twelve years after their issuance. The Partnership anticipates
holding the FMBs for approximately 12 to 15 years from the date of issuance;
however, it can elect to hold until maturity. As such, SFAS 115 requires the
Partnership to classify these investments as "available for sale." Accordingly,
effective January 1, 1994, investments in FMBs are carried at their estimated
fair values, with unrealized gains and losses reported in a separate component
of partners' capital. The cumulative effect of adopting this accounting was a
decrease in partners' capital at January 1, 1994 of approximately
-23-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 2 - Summary of Significant Accounting Policies (continued)
$7,693,000 due to unrealized holding losses. This accounting
also resulted in cumulative net unrealized losses of approximately $2,899,000
and $4,283,000 at December 31, 1995 and 1994, respectively. Again, unrealized
holding gains or losses do not affect the cash flow generated from property
operations, distributions to BUC$holders, the characterization of the tax-exempt
income stream or the financial obligations under the FMBs.
The Partnership periodically evaluates each FMB to determine
whether a decline in fair value below the FMB's cost basis is other than
temporary. Such a decline is considered to be other than temporary if, based on
current information and events, it is probable that the Partnership will be
unable to collect all amounts due according to the existing contractual terms of
the bonds. If the decline is judged to be other than temporary, the cost basis
of the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as realized loss.
Because the FMBs are not readily marketable, the Partnership
estimates fair value for each bond as the present value of its expected cash
flows using an interest rate for comparable tax-exempt investments. This process
is based upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon determination
of an appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Partnership's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.
Prior to 1994, the Partnership accounted for its investments in
FMBs as loans collateralized by real estate, carried at cost less reserves, if
needed, for possible losses. The Partnership classified FMBs as Assets Held for
Sale when the original owner of the property and obligor of the FMB was replaced
by an affiliate of the Related General Partner, who had not made an equity
investment in the property. Because the Partnership has not declared default and
has no present intention to do so, these assets have been reclassified from
Assets Held For Sale to FMBs upon adoption of SFAS 115. Such FMBs were written
down to the estimated fair value of the underlying properties at the time the
original owners were replaced.
From time to time, the Partnership has advanced funds to the
owners of certain properties in the form of promissory notes collateralized by
second mortgages on these properties. These promissory notes are carried at cost
less a valuation allowance where appropriate. The Partnership periodically
evaluates the collectibility of both interest and principal of these investments
to determine whether a reserve is necessary.
For both FMBs and promissory notes, interest income is recognized
at the stated rate when collectibility of future amounts is reasonably assured.
Interest income from FMBs with modified terms where the collectibility of future
amounts is uncertain is recognized based upon expected cash receipts.
c) Temporary investments
Temporary investments at December 31, 1995 represent tax-exempt
Municipal Preferred Stock which are carried at cost which approximates market
value. Temporary investments at December 31, 1994 represent tax-exempt floating
rate municipal bonds which are carried at cost plus accrued interest which
approximates market value.
-24-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 2 - Summary of Significant Accounting Policies (continued)
d) Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash in banks,
and investments in short-term instruments with an original maturity of three
months or less, for which cost approximates market value.
e) Income taxes
The Partnership is not required to provide for, or pay, any
Federal income taxes. Income tax attributes that arise from its operations are
passed directly to the BUC$holders. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
f) Profit and loss allocations and distributions
Net profits or losses and distributions are allocated 98% to the
BUC$holders and 2% to the General Partners in accordance with the Partnership
Agreement.
g) Deferred bond selection fees
The General Partners were paid bond selection fees (equal to 2%
of the gross proceeds from the initial offering) for evaluating and selecting
FMBs, negotiating the terms of mortgage loans and coordinating the development
effort with property developers and government agencies. These fees have been
capitalized and are being amortized over the terms of the FMBs. The accumulated
amortization as of December 31, 1995 and 1994 was approximately $1,383,000 and
$1,233,000, respectively.
h) Deferred financing fees
Financing fees incurred in connection with the Partnership's
credit facility were capitalized and are being amortized over five years (the
life of the credit facility). The accumulated amortization at December 31, 1995
and 1994 was approximately $378,000 and $251,000, respectively.
i) Fair value of financial instruments
As described in Note 2.b. above, the Partnership's investments in
FMBs are carried at estimated fair values. The Partnership has determined that
the fair value of its remaining financial instruments, including its temporary
investments, cash and cash equivalents, promissory notes receivable and loan
payable approximate their carrying values.
j) Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to the current year's presentation.
NOTE 3 - Participating First Mortgage Bonds
The principal and interest payments on each FMB are payable only from
the cash flows, including proceeds in the event of a sale, from the Properties
underlying the FMBs. None of these FMBs constitute a general
-25-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 - Participating First Mortgage Bonds (continued)
obligation of any state or local government, agency or authority. The FMBs are
secured by the mortgage loans on the underlying Properties and the structure of
each mortgage loan mirrors the structure of the corresponding FMB.
Unless otherwise modified, the principal of the FMBs will not be
amortized during their respective terms (which range from 17 to 24 years) and
will be required to be repaid in lump sum "balloon" payments at the expiration
of the respective terms or at such earlier times as the Partnership may require
pursuant to the bond documents, The Partnership has a right to require
redemption of the FMBs approximately twelve years after their issuance. The
Partnership anticipates holding the FMBs for approximately 12 to 15 years from
the date of issuance; however, it can and may elect to hold until maturity.
In addition to the stated base interest rates ranging from 5.23% to
8.50% per annum, each of the FMBs which have not been modified provides for
"contingent interest" consisting of (a) an amount equal to 50% to 100% of net
property cash flow and 50% to 100% of net sale of refinancing proceeds until the
borrower has paid, during the post-construction period, annually compounded
interest at a rate ranging from 8.875% to 9.34% on a cumulative basis, and
thereafter (b) an amount equal to 25% to 50% of the remaining net property cash
flow and 25% to 50% of remaining net sale or refinancing proceeds until the
borrower has paid interest at a simple annual rate of 16% over the term of the
FMB. Both the stated and contingent interest are exempt from federal income
taxation.
In order to protect the tax-exempt status of the FMBs, the owners of
the Properties are required to enter into certain agreements to own, manage and
operate such Properties in accordance with the requirements of the Internal
Revenue Code.
Effective with the May 1, 1995 payment date, the Sunset Terrace FMB
has made payments based on the monthly net cash flow generated by the operations
of the underlying property in accordance with the agreement outlined below.
Effective as of August 1, 1995, the obligor of the Sunset Terrace FMB entered
into a forbearance agreement. In accordance with the terms of this agreement,
the obligor of the FMB is paying debt service on the FMB to the extent of cash
flow generated by the underlying property. The difference between the pay rate
and the stated rate of this FMB is deferred and payable out of available future
cash flow. In addition, pursuant to the agreement, the obligor has replaced the
property manager and leasing agent with a new property manager who is an
affiliate of the Related General Partner. Other terms of the agreement call for
the deed to be transferred to the Partnership or its designee no later than
January 30, 1997 should the obligor be unable to bring the FMB fully current on
all interest due and payable (including deferred base interest) on or before
that date. These and other obligations are secured by a guarantee from an
affiliate of the obligor.
In November 1989, a $600,000 settlement was reached between the
previous developer of High Pointe Club Apartments and USF&G, the construction
performance bonding company for the High Pointe property. Prior to this
settlement, the previous developer agreed to place the settlement proceeds in
escrow later to be 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. In April 1995, RHA paid to the Partnership approximately
$721,0000 consisting of the settlement proceeds plus accrued interest. These
funds were applied as partial payment toward accrued and unpaid interest due
under the High Pointe Club FMB.
During April 1995, the Partnership made a loan in the amount of
approximately $721,000 to the new owner of the Cypress Run property toward
payment of delinquent 1992 and 1993 property taxes. This loan is self-amortizing
over three years and carries an 8.5% annual interest rate. This loan was
recorded in income as a reduction of interest income from FMBs because the
Cypress Run FMB is paying interest on a cash flow basis.
-26-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 - Participating First Mortgage Bonds (continued)
On April 1, 1994, Mansion Apartment Project Investors, Inc. ("MAPI"),
an affiliate of the Related General Partner who replaced the original developer
of The Mansion property, sold the ownership interest in the property to an
unrelated third party for $700,000 in cash and the assumption of the obligation
under the Partnership's $19,450,000 FMB as well as a $400,000 second mortgage
note payable to a lender affiliated with the Related General Partner taken by
assignment from the seller. Notwithstanding the assumption of the FMB, the
General Partners agreed to forbear on the Partnership's rights and remedies in
declaring an interest payment default under the FMB loan documents provided the
new borrower made minimum monthly interest payments to the Partnership equal to
approximately $81,000 per month (5% per annum) together with payments to a
replacement reserve escrow account of approximately $4,500 per month and
complied with all other covenants and obligations.
Effective October 18, 1994, The Mansion FMB was modified. The
modification provides for a base pay rate of 5.23%. In addition, the contingent
interest feature has been changed. Under the modified FMB, an additional .386%
per year (primary contingent interest) is due and payable from 100% of cash flow
above the base pay rate. If not paid, the difference between the minimum pay
rate and the primary contingent interest rates is deferred and is payable from
future cash flow and sale or refinancing proceeds. Remaining cash flow and sale
or refinancing proceeds, if any, are paid to the Partnership in an amount equal
to 35% of net cash flow until the borrower receives a 12.5% cumulative return on
its investment together with the return of the initial investment. Then, the
Partnership is entitled to 50% of remaining cash flow and net sale or
refinancing proceeds until the owner has paid interest at a cumulative annual
rate of 16%. Notwithstanding The Mansion owner's obligations to pay amounts due
as primary contingent interest, the Partnership has agreed, until 1998, that the
obligation to pay such amounts will be considered satisfied subject to those
amounts being contributed by The Mansion's owner toward certain designated
repairs to the property. The Mansion's owner will nevertheless be obligated to
pay amounts due from remaining cash flow if available above the primary
contingent interest rate.
The net cash proceeds from the sale of the ownership interest in The
Mansion by MAPI of approximately $105,000 (net of a $400,000 escrow for certain
repairs, a $50,000 second mortgage note principal payment, and closing costs),
paid to the Partnership to reduce accrued and unpaid interest, was recorded by
the Partnership as deferred income and is being amortized as interest income
over the remaining life of The Mansion FMB. The balance of the deferred income
relating to The Mansion FMB was approximately $94,000 at December 31, 1995. All
other accrued and unpaid interest on The Mansion FMB which previously had been
reserved for financial statement purposes was forgiven.
In June 1992, the partnership made a $320,000 second mortgage loan to
the owner of the property underlying the Cypress Run FMB for the payment of 1991
property taxes. This loan required monthly interest only payments at a rate of
8.5% per annum with the principal due on July 1, 1994. Interest payments on the
loan as well as the FMB were current through June 1994; however, due to
bankruptcy, the loan remains outstanding and the borrower has been notified of
the default (see below for discussion of borrower's bankruptcy filing). An
allowance for possible loss was established for this loan in 1993.
As a result of the failure to pay 1992 and 1993 real estate taxes,
the Partnership initiated steps to enforce its rights and remedies of the
Cypress Run property in July 1994. These remedies include acceleration of the
loan and a $350,000 draw on an irrevocable letter of credit issued of behalf of
the owner of Cypress Run as security relating to obligations under the Rental
Performance Agreement. Pursuant to the terms of the bond documents,
approximately $348,000 of the proceeds received from the draw on the letter of
credit has been recorded as a reduction of the FMB with the balance applied as
interest. In response, on July 15, 1994, the owner of the property filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code and continued
to operate the
-27-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 - Participating First Mortgage Bonds (continued)
property as a debtor-in-possession. The bankruptcy filing operated as a stay
against the enforcement of the Partnership's remedies which include foreclosure.
At the initial hearing, the court consented, among other things, to allow the
Partnership to receive monthly net cash flow generated by the property as its
debt service payments for at least the initial 120 days of the proceedings.
On November 10, 1994, an Order Modifying Stay together with a
Settlement Stipulation was entered by the Court which granted the Partnership
relief from the Automatic Stay. This order became effective on March 31, 1995
unless a sale of the property, subject to the Partnership's approval, was closed
beforehand.
On March 31, 1995, pursuant to the Court Order, ownership of the
Cypress Run property was transferred to an affiliate of the Related General
Partner. The affiliate has not made an equity investment in the underlying
property; however, it will assume the day-to-day responsibilities and
obligations of operating the property. The Partnership continues to receive the
monthly net cash flow generated by the property as payment toward debt service.
Due to the failure to pay 1990 and 1991 property taxes and interest
from March to August 1992, the Partnership instituted foreclosure proceedings
against Greenway Manor. On July 20, 1992, the Greenway 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 past due taxes, paying operating costs and escrowing for 1992
taxes. On June 30, 1993, the court dismissed the bankruptcy proceeding at which
time the owner of the property and obligor under the FMB agreed to transfer the
deed-in-lieu of foreclosure to an affiliate of the Related General Partner.
On May 31, 1992, Clarendon Hills Investor, Inc. ("CHI"), an affiliate
of the Related General Partner who had replaced the developer of the Clarendon
Hills property, sold its ownership interest in the property to an unrelated
third party (the "Purchaser") for $26,200,000. The Purchaser paid $2,000,000 in
cash, assumed the $17,600,000 obligation of the Partnership's FMB and issued a
$6,600,000 promissory note to CHI which in turn was assigned to the Partnership.
The $6,600,0000 promissory note bears interest at the rate of 8.0% per annum
payable in equal monthly installments until December 2003 at which time the
entire unpaid principal and interest will be due and payable. The $1,441,209 in
net cash proceeds of the sale (net of certain closing costs), paid by CHI to the
Partnership to reduce accrued and unpaid interest, was recorded by the
Partnership as deferred income and is being amortized as interest income from
FMBs over the remaining life of the Clarendon Hills FMB. The balance of the
deferred income relating to the Clarendon Hills FMB was approximately $992,000
and $1,117,000 at December 31, 1995 and 1994, respectively. All other accrued
and unpaid interest on the Clarendon Hills FMB was forgiven.
In connection with the sale of the Clarendon Hills property by CHI,
the FMB collateralized by the property was modified to provide for, among other
things: the discharge of all accrued and unpaid interest relating to a previous
owner (which for financial statement purposes had been fully reserved); a
reduction of the base interest rate to 5.52% per annum on the $17,600,000 FMB;
and a further reduction of the base interest during the first four years from
closing of an amount equal to 50% of the increase in property taxes (if any)
over the fiscal 1992 property tax bill resulting solely from this sale (limited
to $35,000 per annum). In addition, the contingent interest feature was modified
to assign annual cash flow as follows: (1) to pay the Partnership its 5.52% base
rate of the FMB and to pay the 8.0% interest owed on the promissory note; (2) to
assign the Purchaser the next $220,000 representing return on its investment;
and then (3) to pay the Partnership 65% of cash flow until the Partnership
receives an interest rate equal to 8.25% per annum on $24,200,000 ($17,600,000
FMB and $6,600,000 promissory note) for each respective year on a non-cumulative
basis. Any remaining cash flow is then shared 65% by the Purchaser and 35% by
the Partnership.
-28-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 - Participating First Mortgage Bonds (continued)
The FMBs for the East Ridge and Martin's Creek properties were
modified in 1990 when the equity interest in the properties and the related
obligations of the FMBs were sold by an affiliate of the Related General Partner
to an unrelated third party. The modifications provide for the minimum pay rate
increases from 6.0% per annum in 1990 to 7.5% per annum in March 1996. Beginning
in March 1997, the pay rate will be 8.25% per annum. The difference between the
minimum interest rate and the original stated rate is deferred and is payable
out of available future cash flow. As part of this modification, the Partnership
received $950,000 in 13% second mortgage notes with monthly interest and
principal payments through December 1996. These notes are also partially secured
by letters of credit. Deferred income equal to the amount of the promissory note
was recorded in the statements of financial condition. As a result of this
transaction, income is realized only as and when the Partnership receives
payment on the promissory notes. The balances of both the promissory notes and
deferred income was approximately $57,000 and $251,000 at December 31, 1995 and
1994, respectively. There was no loss recorded on this transaction because the
valuation allowance previously established for these FMBs was in excess of the
concessions granted. At December 31, 1995 and 1994, the allowance relating to
debt restructuring was approximately $296,000 and $366,000, respectively. Such
allowance is accreted as interest income over the remaining term of the FMBs as
long as the estimated fair value of the underlying properties is in excess of
the carrying value of the related FMB.
During 1991, a forbearance agreement was finalized with the owners of
the North Glen property. The General Partners further modified the North Glen
forbearance agreement on April 1993 to allow the owner to make debt payments at
a pay rate of 6.0% per annum through December 1995 at which time the rate was
scheduled to increase to the stated rate of 8.5% per annum, however, the General
Partners extended the forbearance agreement through December 15, 1997.
The pay rate for the Thomas Lake property is scheduled to increase in
annual increments to the original stated rate of 8.5% in December 1996.
In May 1992, Summit Tax Exempt Funding Corp., an affiliate of the
Partnership, made a loan in the amount of $220,000 secured by a second mortgage
on the Thomas Lake Property toward the payment of past due property taxes. In
January 1993, this loan was assigned to the Partnership as part of the
transaction in which the Partnership obtained a new credit facility. The loan
requires interest only payments at the Citibank, N.A. prime rate (8.5% at
December 31, 1994) plus 2.0% per annum, payable monthly. Principal was due in
full on April 15, 1995 but the loan was modified and extended. The modified loan
is self-amortizing over thirty months at an 8.5% interest rate.
During 1992, a forbearance agreement was finalized with the owner of
the Sunset Terrace property. Terms of the agreement call for a reduced pay rate
of 7.0% per annum through May 1993 with scheduled annual increments to the
original stated rate of 8.0% per annum in May 1996.
In 1992, the Partnership loaned approximately $220,000, in the
aggregate, to the owners of The Mansion and Cedar Creek properties to enable
them to pay property taxes. The loans were self-amortizing over two years with
interest at 8.5% per annum beginning June 1992. These loans were recorded in
operating results as a reduction in income from assets held for sale in 1992
because the FMBs were paying interest on a cash flow basis. Subsequent principal
payments relating to these loans were recorded as income. These loans were fully
repaid in the second quarter of 1994.
-29-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 - Participating First Mortgage Bonds (continued)
For several properties collateralizing FMBs (High Pointe Club
securing an $8,900,000 FMB; Greenway Manor, securing a $12,850,000 FMB and Cedar
Creek, securing an $8,100,000 FMB) the original owners of the underlying
properties and obligors of the FMBs were replaced by affiliates of the Related
General Partner who have not made equity investments in the underlying
properties. These entities have assumed the day-to-day responsibilities and
obligations of operating the underlying properties. Buyers are being sought who
would make equity investments in the underlying properties and assume the
nonrecourse obligations for the FMB's. Although certain of these properties are
not producing sufficient cash flow to fully service the debt, the Partnership
has no present intention to declare a default on these FMBs.
The difference between the stated interest rates and the rates paid
on certain FMBs is not accrued for financial statement purposes, although it is
deferred and payable from available future cash flow and sale or refinancing
proceeds. Interest income relating to these FMBs of approximately $1,571,000,
$1,707,000, and $1,639,000 was not recorded for the years ended December 31,
1995, 1994 and 1993, respectively.
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. These factors include, but are not limited to, property
performance, owner cooperation and projected legal costs.
The following FMB's interest income exceeded 15% of the Partnership's
total revenue for one or more of the three years in the period ended December
31, 1995:
1995 1994 1993
---- ---- ----
Cypress Run * 17% 17%
The Mansion * 16% *
*FMB's interest income was less than 15% of the Partnership's total
revenue for the year.
The cost basis of the FMBs at December 31, 1995 and 1994 was
$127,568,506 and $127,938,510, respectively. The net unrealized loss on FMBs
consists of gross unrealized gains and losses of $3,150,835 and $6,050,282,
respectively, at December 31, 1995 and $1,855,513 and $6,138,791, respectively,
at December 31, 1994.
-30-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 - Participating First Mortgage Bonds (continued)
Descriptions of the various FMBs owned by the Partnership at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Minimum Carrying
Average Pay Rate Stated Amount
Interest Rate at December Interest at December
Property Location Paid in 1995* 31,1995* Rate* Call Date Maturity Date Face Amount 31, 1995 (E)
- - -------- -------- ------------- -------- ----- --------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Mansion Independence, MO 5.70% (B) 5.23% 5.23% April 2006 April 2008 $ 19,450,000 $ 18,646,804
Martin's Creek Summerville, SC 7.00 (D) 7.25 8.25 Mar. 2000 May 2010 7,300,000 6,777,426
East Ridge Mt. Pleasant, SC 6.90 (D) 7.25 8.25 Mar. 2000 May 2010 8,700,000 8,437,325
High Pointe Club Harrisburg, PA 6.10 (A) 8.50 June 1998 June 2006 8,900,000 7,554,651
Cypress Run Tampa, FL 6.70 (A) 8.50 Aug. 1998 Aug. 2006 15,402,428 13,902,586
Thomas Lake Eagan, MN 8.30 (C) 8.25 8.50 Aug. 1998 Aug. 2006 12,975,000 13,217,487
North Glen Atlanta, GA 6.00 6.00 8.50 Aug. 1998 Aug. 2008 12,400,000 11,113,192
Greenway Manor St. Louis, MO 8.60 (C) 8.50 8.50 Oct. 1998 Sept. 2006 12,850,000 13,744,484
Clarendon Hills Hayward, CA 5.52 5.52 5.52 Dec. 2003 Dec. 2003 17,600,000 14,934,389
Cedar Creek McKinney, TX 6.60 (A) 8.50 Dec. 1998 Dec. 2006 8,100,000 8,175,536
Sunset Terrace Lancaster, CA 6.10 (A) 8.00 Feb. 1999 Feb. 2007 10,350,000 8,165,179
------------ ------------
$134,027,428 $124,669,059
============ ============
</TABLE>
*The rate paid represents the interest recorded by the Partnership while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate payable pursuant to the applicable forbearance
agreement, if any.
(A) Pay rate is based on the net cash flow generated by the property.
(B) Includes contingent interest paid during the year ended December 31, 1995.
(C) Includes receipt of deferred base interest related to prior periods.
(D) The actual pay rate is adjusted as of the property's fiscal year-end based
on audited financials to no less than the minimum pay rate.
(E) The FMBs are carried at their estimated fair values at December 31, 1995.
-31-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 4 - Loan Payable
On January 15, 1993, the Partnership entered into a loan agreement
with an unaffiliated lender for a $15,000,000 credit facility with a maturity
date of January 14, 1998 and an option to extend for two years for an additional
fee. The debt service requirements include monthly interest only payments with a
variable interest rate equal to the 30-day commercial paper interest rate (5.85%
and 5.90% at December 31, 1995 and 1994, respectively plus 4.05% with principal
due at maturity. The facility is collateralized by a pledge of the FMBs and
associated collateral of East Ridge, Martin's Creek, The Mansion, Thomas Lake
and Sunset Terrace. The initial proceeds from this facility were used to repay a
$10,000,000 credit facility guaranteed by the Partnership, to repay a $3,000,000
noninterest-bearing working capital loan made to the Partnership from the
Related General Partner and to pay associated closing costs. The $10,000,000
credit facility had been used to pay for costs incurred to complete construction
of the properties securing the High Pointe Club and Clarendon Hills FMBs and to
fund a loan toward the payment of property taxes on the Thomas Lake property.
The $3,000,000 working capital loan was used to supplement distributions
commencing with the fourth quarter 1988 distribution. The unused portion of the
Partnership's $15,000,000 credit facility is to be used for future working
capital requirements and other cash requirements, as necessary, subject to the
approval of the lender.
In conjunction with the Partnership's credit facility and the
repayment of the previously existing $10,000,000 credit facility, the
Partnership was assigned nonrecourse notes in the amount of $6,600,000,
$3,180,000 and $220,000 from the Clarendon Hills, High Pointe Club and Thomas
Lake properties, respectively. The Clarendon Hills promissory note, secured by a
deed of trust, requires monthly interest only payments of 8.0% per annum with
the principal due on December 1, 2003. The unsecured High Pointe Club note also
requires monthly interest only payments of 8.0% per annum with the principal due
on December 31, 2003. Since the High Pointe Club property is paying interest on
a cash flow basis, interest on the promissory note is only recorded when cash
flow is received in excess of the stated rate. No interest on the High Pointe
Club promissory note has been received or recorded through December 31, 1995.
The assigned High Pointe Club note is subordinate to the High Pointe Club FMB
and has been fully reserved. The Thomas Lake promissory note in the principal
amount of $220,000, which is secured by a second mortgage on the property,
matured in April 1995 and was modified and extended. The modified loan is
self-amortizing over thirty months at an 8.5% interest rate. Clarendon Hills and
Thomas Lake promissory notes are current on the interest payments through
December 31, 1995.
-32-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 5 - Income Taxes
Following is a reconciliation of net income for financial statement
purposes with net income for Federal income tax reporting purposes:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net income per financial statements $ 5,969,215 $ 5,685,890 $ 4,135,774
Loss on impairment of assets 500,000 1,350,000 1,905,000
Provision for uncollectible
receivable 0 0 830,000
Uncollected interest on FMBs 1,570,781 1,707,305 1,693,376
Property tax loan deferred for
tax reporting purposes, net 0 0 325,969
Nondeductible interest expense 374,452 311,255 247,524
Uncollected interest on
promissory notes 254,400 254,400 243,248
Amortization of bond selection fees 150,055 150,056 150,056
Amortization of valuation allowance (130,001) (130,012) (130,012)
Loss from debt restructure 0 (3,632,747) 0
Other, net (84,697) (196,913) (224,618)
----------- ----------- -----------
Net income for tax purposes $ 8,604,205 $ 5,499,234 $ 9,176,317
=========== =========== ===========
</TABLE>
Net income for tax purposes is generally exempt from Federal income
tax. The differences between the tax and book bases of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments, the recording of distributions and the Partnership's accounting for
the FMBs at fair value for book purposes and cost for tax purposes.
Effective October 1, 1995 the Related General Partner has assumed
from PBP, the responsibilities and duties of the Tax Matters Partner as defined
in the Partnership Agreement.
-33-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 6 - Related Parties
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 and other administrative services. The General
Partners 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>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Prudential-Bache Properties, Inc.
and affiliates
General and administrative $ 93,392 $ 93,000 $ 108,729
Management fee 335,937 335,937 335,937
----------- ----------- -----------
429,329 428,937 444,666
----------- ----------- -----------
Related Tax Exempt Bond Associates, Inc.
and affiliates
General and administrative 39,723 28,246 41,427
Management fee 335,938 335,938 335,938
Loan servicing fees 335,068 335,938 335,938
----------- ----------- -----------
710,729 700,122 713,303
----------- ----------- -----------
$ 1,140,058 $ 1,129,059 $ 1,157,969
=========== =========== ===========
</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, is responsible for the purchase, sale, and safekeeping of the
Partnership's temporary investments. This account is maintained in accordance
with the Partnership Agreement. In addition, PSI owns 2,600 BUC$ at December 31,
1995.
Several executive officers and directors of the Related General
Partner own less than 1% of the outstanding BUC$.
-34-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 7 - Contingencies
On or about October 18, 1993, a putative class action, captioned
Kinnes et al v. Prudential Securities Group, Inc. et al. (93 Civ. 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, PSI and a number of other defendants. On November 16, 1993, a putative
class action captioned Connelly et al v. Prudential-Bache Securities Inc. et al.
(93 Civ. 713) , 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 Incorporated and a number of other
defendants. On January 3, 1992, a putative class action, captioned Levine v.
Prudential-Bache Properties Inc. et al. (92 Civ. 52), was filed in the United
States District Court for the Northern District of Illinois purportedly on
behalf of investors in the Partnership against the General Partners, PSI and a
number of other defendants. Subsequently the Related General Partner exited the
Levine litigation by way of settlement.
By order dated April 14, 1994, the Judicial Panel on Multidistrict
Litigation transferred the Kinnes case, by order dated May 4, 1994, the Connelly
case, and by order dated July 13, 1994, the Levine case, to a single judge of
the United States District Court for the Southern District of New York and
consolidated for pretrial proceedings under the caption In re Prudential
Securities Incorporated Limited Partnerships Litigation (MDL Docket No. 1005).
On June 8, 1994 plaintiffs in the transferred cases filed a complaint that
consolidated the previously filed complaints and named as defendants, among
others, PSI, certain of its present and former employees and the General
Partners. The Partnership was not named a defendant in the consolidated
complaint, but the name of the Partnership was listed as being among the limited
partnerships at issue in the case.
On August 9, 1995 PBP, PSI and other Prudential defendants entered
into a Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The consolidated action
remains pending against the Related General Partner and certain of its
affiliates.
The Related General Partner has been engaged in settlement
negotiations with counsel for the plaintiffs. In the event a settlement cannot
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend against this action.
-35-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 8 - Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
1995 Quarter ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income from participating
first mortgage bonds $ 2,359,498 $ 2,320,794 $ 2,274,988 $ 2,291,156
============ ============ ============ ============
Provision for loss on impairment of assets $ 0 $ 0 $ 0 $ 500,000
============ ============ ============ ============
Net income $ 1,689,483 $ 1,562,255 $ 1,590,145 $ 1,127,332
============ ============ ============ ============
Net income per BUC $ 0.21 $ 0.19 $ 0.20 $ 0.14
============ ============ ============ ============
1994 Quarter ended
March 31 June 30 September 30 December 31
Interest income from participating
first mortgage bonds $ 2,413,662 $ 2,399,131 $ 2,148,302 $ 2,415,695
============ ============ ============ ============
Provision for loss on impairment of assets $ 0 $ 0 $ 0 $ 1,350,000
============ ============ ============ ============
Net income $ 1,914,411 $ 1,870,368 $ 1,594,240 $ 306,871
============ ============ ============ ============
Net income per BUC $ 0.24 $ 0.23 $ 0.20 $ 0.04
============ ============ ============ ============
</TABLE>
NOTE 9 - Subsequent Events
In February 1996, distributions of approximately $1,660,000 and
$34,000 were paid to the BUC$holders and General Partners, respectively, for the
quarter ended December 31, 1995.
-36-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. The
Registrant's affairs are managed and controlled by the General Partners. Certain
information concerning the directors and officers of the General Partners are
set forth below.
The Related General Partner assumed the responsibility of the Tax
Matters Partner as of October 1, 1995.
Prudential-Bache Properties, Inc.
PBP and its directors and executive officers, and any persons holding
more than ten percent of the Registrant's BUC$ are required to report their
initial ownership of such BUC$ and any subsequent changes in that ownership to
the Securities and Exchange Commission on Forms 3, 4 and 5. Such executive
officers, directors and persons who own greater than ten percent of the
Registrant's BUC$ are required by Securities and Exchange Commission regulations
to furnish the Registrant with copies of all Forms 3, 4 or 5 they file. All of
these filing requirements were satisfied on a timely basis for the current year.
In making these disclosures, the Registrant has relied solely on written
representations of PBP's directors and executive officers and persons who own
greater than ten percent of the Registrant's BUC$ or copies of the reports they
have filed with the Securities and Exchange Commission during and with respect
to its most recent fiscal year.
The directors and executive officers of PBP with regard to managing
the Registrant are as follows:
Name Position
---- --------
Thomas F. Lynch, III President, Chief Executive
Officer, Chairman of the
Board of Directors and
Director
Barbara J. Brooks Vice President-Finance and
Chief Financial Officer
Eugene D. Burak Vice President
Chester A. Piskorowski Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
THOMAS F. LYNCH, III, age 37, is the President, Chief Executive
Officer, Chairman of the Board of Director, and a Director of PBP. He is a
Senior Vice President of Prudential Securities Incorporated ("PSI"), an
affiliate of PBP. Mr. Lynch also serves in various capacities for other
affiliated companies. Mr. Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 47, is the Vice President-Finance and Chief
Financial Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also
serves in various capacities for other affiliated companies. She has held
several positions within PSI since 1983. Ms. Brooks is a certified public
accountant.
-37-
<PAGE>
EUGENE D. BURAK, age 50, is a Vice President of PBP. He is a First
Vice President of PSI. Prior to joining PSI in September 1995, he was a
management consultant for three years and was with Equitable Capital Management
Corporation from March 1990 to May 1992. Mr. Burak is a certified public
accountant.
CHESTER A. PISKOROWSKI, age 52, is a Vice President of PBP. He is a
Senior Vice President of PSI and is the Senior Manager of the Specialty Finance
Asset Management area. Mr. Piskorowski has held several positions within PSI
since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 53, is a Director of PBP. He is a Senior Vice
President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management, Inc., an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.
NATHALIE P. MAIO, age 45, is a Director of PBP. Ms. Maio is a Senior
Vice President and Deputy General Counsel of PSI and supervises non-litigative
legal work for PSI. She joined the Law Department of PSI in 1983, presently, she
also serves in various capacities for other affiliated companies.
James M. Kelso ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director effective June 30, 1995.
Effective June 30, 1995, Thomas F. Lynch, III was elected President, Chief
Executive Officer, Chairman of the Board of Directors and Director. Robert J.
Alexander ceased to serve as Vice President effective August 25, 1995.
Eugene D. Burak was elected Vice President effective October 9, 1995.
There are no family relationships among any of the foregoing
directors or executive officers. All of the foregoing directors and executive
officers have indefinite terms.
The Related General Partner
Based on a review of Forms 3 and 4 and amendments thereto furnished
to the Registrant pursuant to Rule 16a-3(e) during its most recent fiscal year
and Form 5 and amendments thereto furnished to the Registrant with respect to
its most recent fiscal year and written representations pursuant to Item
405(b)(2)(i) of Regulation S-K, neither the Related General Partner nor its
directors or officers or beneficial owners of more than 10% of the Units, failed
to file, on a timely basis, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year.
The directors and executive officers of the Related General Partner
with respect to the Partnership and their positions with the Related General
Partner are as follows:
Name Position
---- --------
J. Michael Fried President and Director
Stuart J. Boesky Vice President
Alan P. Hirmes Vice President
Lawrence J. Lipton Treasurer
Stephen M. Ross Director
Lynn A. McMahon Secretary
-38-
<PAGE>
J. MICHAEL FRIED, 51, is President and a Director of the Related
General Partner. Mr. Fried is President, a Director and a principal shareholder
of Related Capital Company ("Capital"), a real estate finance and acquisition
affiliate of the Related General Partner. In that capacity, he is the chief
executive officer of Capital, and is responsible for initiating and directing
all of Capital's syndication, finance, acquisition and investor reporting
activities. Mr. Fried practiced corporate law in New York City with the law firm
of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Capital in 1979.
Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna
cum laude; from Long Island University Graduate School with a Master of Science
degree in Psychology; and from Michigan State University with a Bachelor of Arts
degree in History.
STUART J. BOESKY, 39, is a Vice President of the Related General
Partner. Mr. Boesky practiced real estate and tax law in New York City with the
law firm of Shipley & Rothstein from 1984 until February 1986 when he joined
Capital where he presently serves as Managing Director. From 1983 to 1984 Mr.
Boesky practiced law with the Boston law firm of Kaye, Fialkow, Richard &
Rothstein and from 1978 to 1980 was a consultant specializing in real estate at
the accounting firm of Laventhol & Horwath. Mr. Boesky graduated from Michigan
State University with a Bachelor of Arts degree and from Wayne State University
School of Law with a Juris Doctor degree. He then received a Master of Law
degree in Taxation from Boston University School of Law.
ALAN P. HIRMES, 41, is a Vice President of the Related General
Partner. Mr. Hirmes has been a Certified Public Accountant in New York since
1978. Prior to joining Capital in October 1983, Mr. Hirmes was employed by
Weiner & Co., certified public accountants. Mr. Hirmes is also a Managing
Director of Capital. Mr. Hirmes graduated from Hofstra University with a
Bachelor of Arts degree.
LAWRENCE J. LIPTON, 39, is Treasurer of the Related General Partner.
Mr. Lipton has been a Certified Public Accountant in New York since 1989. Mr.
Lipton is also Controller of The Related Companies, L.P. ("Related"), an
affiliate of Capital. Prior to joining Related in 1991, Mr. Lipton was employed
by Deloitte & Touche LLP from 1987-1991. Mr.. Lipton graduated from Rutgers
College with a Bachelor of Arts degree and from Baruch College with a Masters of
Business Administration degree.
STEPHEN M. ROSS, 55, is a Director of the Related General Partner.
Mr. Ross is President of The Related Companies, L.P. He graduated from The
University of Michigan with a Bachelor of Business Administration degree and
from Wayne State University School of Law. Mr. Ross then received a Master of
Law degree in taxation from New York University School of Law. He joined the
accounting firm of Coopers & Lybrand in Detroit as a tax specialist and later
moved to New York, where he worked for two large Wall Street investment banking
firms in their real estate and corporate finance departments. Mr. Ross formed
The Related Companies, Inc. in 1972, to develop, manage, finance and acquire
subsidized and conventional apartment developments. To date, The Related
Companies, Inc. has developed multi-family properties totaling in excess of
25,000 units, all of which it manages.
LYNN A. McMAHON, 40, is Secretary of the Related General Partner.
Since 1983, she has served as Assistant to the President of Capital. From 1978
to 1983 she was employed at Sony Corporation of America in the Government
Relations Department.
There are no family relationships among any of the foregoing
directors or officers. All of the foregoing officers and/or directors have
indefinite terms.
-39-
<PAGE>
Item 11. Executive Compensation.
The Registrant does not pay or accrue any fees, salaries or any other
form of compensation to directors and officers of the General Partners for their
services. Certain officers and directors of the General Partners receive
compensation from affiliates of the General Partners, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partners believe
that any compensation attributable to services performed for the Registrant is
immaterial. See Item 13 Certain Relationships and Related Transactions for
information regarding compensation to the General Partners.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 1, 1996, the directors and officers of the Related
General Partner directly or indirectly own 99.97% of the voting securities of
the Related General Partner; however, no director or officer of either General
Partner owns directly or beneficially any interest in the voting securities of
PBP.
As of March 1, 1996, directors and officers of the Related General
Partner own directly or beneficially BUC$ issued by the Registrant as follows:
<TABLE>
<CAPTION>
Title of Name of Amount and Nature of
Class Directors and Officers Beneficial Ownership Percent of Class
----- ---------------------- -------------------- ----------------
<S> <C> <C> <C>
BUC$ Alan P. Hirmes 1,200 BUC$ *
BUC$ J. Michael Fried 25,000 BUC$ *
BUC$ Stuart J. Boesky 4,000 BUC$ *
-----------
30,200 BUC$
===========
</TABLE>
* Less than 1% of the BUC$ issued by the Registrant
As of March 1, 1996, no director or officer of PBP owns directly or
beneficially any BUC$ issued by the Registrant.
As of March 1, 1996, one BUC$holder beneficially owns more than five
percent (5%) of the BUC$ issued by the Registrant.
<TABLE>
<CAPTION>
Title of Name and address of Amount and Nature of
Class Beneficial Owner Beneficial Ownership Percent of Class
----- ---------------- -------------------- ----------------
<S> <C> <C> <C>
BUC$ Virginia First Savings Bank 510,204 BUC$ 6.45%
P.O. Box 2009
Petersburg, VA 23804
</TABLE>
Item 13. Certain Relationships and Related Transactions.
The Registrant has, and will continue to have, certain relationships
with the General Partners and their affiliates. However, there have been no
direct financial transactions between the Registrant and the directors or
officers of the General Partners.
Reference is made to Note 6 to the financial statements in Item 8,
which identify the related parties and discuss the services provided by these
parties and the amounts paid or payable for their services.
-40-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K.
Sequential
Page
----------
(a) 1. Financial Statements
Independent Auditors' Report 17
Statements of Financial Condition as of
December 31, 1995 and 1994 18
Statements of Income for the years ended
December 31, 1995, 1994 and 1993 19
Statements of Changes in Partners' Capital
(Deficit) for the years ended December 31,
1995, 1994 and 1993 20
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 21
Notes to Financial Statements 23
(a) 2. Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts
and Reserves for the three years ended
December 31, 1995 47
All other schedules have been omitted because
they are not applicable or the required
information is included in the financial
statements and the notes thereto.
(a) 3. Exhibits
3(a) and 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
3(b) and 4(b) Amended and Restated Certificate of Limited
Partnership (incorporated by reference to
Exhibit 4 and Registration Statement on Form
S-11, File No. 33-2421)
3(c) and 4(c) Amendment No. 1 to the Partnership Agreement,
dated October 1, 1995 (incorporated by
reference to Exhibit 3(c) and 4(c) in the
Registrant's Annual Report on Form 10-K dated
December 31, 1995)
10(a) First Mortgage Bond, dated May 13, 1986, with
respect to The Mansion project, in the
principal amount of $19,450,000 (incorporated
by reference to Exhibit 10(a) in Registrants'
Current Report on Form 8-K dated May 13,
1986)
10(b) First Mortgage Bond, dated May 20, 1986, with
respect to the Martin's Creek project, in the
principal amount of $7,300,000 (incorporated
by reference to Exhibit 10(c) in Registrant's
Current Report on Form 8-K dated May 20,
1986)
-41-
<PAGE>
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K. (continued)
Sequential
Page
----------
10(c) First Mortgage Bond, dated May 20, 1986, with
respect to the East Ridge project, in the
principal amount of $8,700,000 (incorporated
by reference to Exhibit 10(b) in Registrant's
Current Report on Form 8-K dated May 20,
1986)
10(d) First Mortgage Bond, dated July 29, 1986,
with respect to the High Pointe Club project
(formerly named Greenhill), in the principal
amount of $8,900,000 (incorporated by
reference to Exhibit 10(a) in Registrant's
Current Report on Form 8-K dated July 29,
1986)
10(e) First Mortgage Bond, dated August 14, 1986,
with respect to the Cypress Run project at
Tampa Palms, in the principal amount of
$15,750,000 (incorporated by reference to
Exhibit 10(a) in Registrant's Current Report
on Form 8-K dated August 14, 1986)
10(f) First Mortgage Bond, dated September 2, 1986,
with respect to the Thomas Lake Place
Apartments project, in the principal amount
of $12,975,000 (incorporated by reference to
Exhibit 10(a) in Registrant's Current Report
on Form 8-K dated September 2, 1986)
10(g) First Mortgage Bond, dated September 30,
1986, with respect to the North Glen
Apartments project (formerly named Tempo
Northridge), in the principal amount of
$12,400,000 (incorporated by reference to
Exhibit 10(a) in Registrant's Current report
on Form 8-K dated September 30, 1986)
10(h) First Mortgage Bond, dated October 9, 1986,
with respect to Greenway Manor project, in
the principal amount of $12,850,000
(incorporated by reference to Exhibit 10(a)
in Registrant's Current Report on Form 8-K
dated October 9, 1986)
10(i) First Mortgage Bond, dated December 8, 1986,
with respect to the Clarendon Hills
Apartments project, in the principal amount
of $17,600,000 (incorporated by reference to
Exhibit 10(a) in Registrant's Current Report
on Form 8-K dated December 8, 1986)
10(j) First Mortgage Bond, dated December 29, 1986,
with respect to the Cedar Creek Village
Apartments project, in the principal amount
of $8,100,000 (incorporated by reference to
Exhibit 10(a) in Registrant's Current Report
on Form 8-K dated December 29, 1986)
10(k) First Mortgage Bond, dated February 12, 1987,
with respect to the Sunset Terrace project,
in the principal amount of $10,350,000
(incorporated by reference to Exhibit 10(a)
in Registrant's Current Report on Form 8-K
dated February 12, 1987)
10(l) Loan Agreement dated September 19, 1990
between River Bank America and the Registrant
(incorporated by reference to Exhibit 10(a)
in Registrant's Current Report on Form 8-K
dated September 19, 1990)
-42-
<PAGE>
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K. (continued)
Sequential
Page
----------
10(m) Note dated September 19, 1990 from the
Registrant to River Bank America
(incorporated by reference to Exhibit 10(b)
in Registrant's Current Report on Form 8-K
dated September 19, 1990)
10(n) Pledge Agreement dated September 19, 1990
between River Bank America and the Registrant
(incorporated by reference to Exhibit 10(c)
in Registrant's Current Report on Form 8-K
dated September 19, 1990)
10(o) Indemnity and Reimbursement Agreement dated
September 19, 1990 between Stephen M. Ross
and the Registrant (incorporated by reference
to Exhibit 10(d) in Registrant's Current
Report on Form 8-K dated September 19, 1990)
10(p) Settlement Agreement for the North Glen First
Mortgage Bond dated December 3, 1990
(incorporated by reference to Exhibit 10(p)
in Registrant's Annual Report on Form 10-K
dated December 31, 1991)
10(q) Settlement Agreement for the Thomas Lake
Mortgage Bond dated July 11, 1991
(incorporated by reference to Exhibit 10(q)
in the Registrant's Annual Report on Form
10-K dated December 31, 1991)
10(r) Settlement Agreement for the Sunset Terrace
First Mortgage Bond dated July 10, 1992
(incorporated by reference to Exhibit 10(r)
in the Registrant's Annual Report on Form
10-K dated December 31, 1992)
10(s) Assignment and Assumption Agreement for the
Clarendon Hills First Mortgage Bond dated May
1, 1992 (incorporated by reference to Exhibit
10 (s) in the Registrant's Annual report on
Form 10-K dated December 31, 1992)
10(t) First Supplemental Indenture between City of
Hayward and Seattle-First National Bank
relating to the Clarendon Hills First
Mortgage Bond dated May 1, 1992 (incorporated
by reference to Exhibit 10(t) in the
Registrant's Annual Report on Form 10-K dated
December 31, 1992)
10(u) Loan Agreement dated as of January 14, 1993
between the Registrant and U.S. West
Financial Services, Inc. (incorporated by
reference to Exhibit 10(u) in the
Registrant's Quarterly Report on Form 10-Q
dated June 30, 1993)
10(v) Pledge and Security Agreement dated as of
January 14, 1993 between the Registrant and
U.S. West Financial Service, Inc.
(incorporated by reference to Exhibit 10(v)
in the Registrants's Quarterly Report on Form
10-Q dated June 30, 1993)
10(w) Secured Promissory Note dated January 14,
1993 between the Registrant and U.S. West
Financial Services, Inc. (incorporated by
reference to Exhibit 10(w) in the
Registrant's Quarterly Report on Form 10-Q
dated June 30, 1993)
-43-
<PAGE>
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K. (continued)
Sequential
Page
----------
10(x) Promissory Note dated January 15, 1993
between the Registrant and RHA Inc.
(incorporated be reference to Exhibit 10(x)
in the Registrant's Quarterly Report on Form
10-Q dated June 30, 1993)
10(y) Nonrecourse Promissory Note Secured by Deed
of Trust dated January 28, 1993 between
Stephen P. Diamond and Clarendon Hills
Investors, Inc. assigned to the Registrant
(incorporated by reference to Exhibit 10(y)
in the Registrant's Quarterly Report on Form
10-Q dated June 30, 1993)
10(z) Assignment Agreement dated January 15, 1993
between Summit Tax Exempt Funding Corporation
and the Registrant (incorporated by reference
to Exhibit 10(z) in the Registrant's
Quarterly Report on Form 10-Q dated June 30,
1993)
10(aa) Amended Settlement Agreement for the North
Glen First Mortgage dated June 1, 1993
(incorporated by reference to Exhibit 10 (aa)
in the Registrant's Annual Report on Form
10-K dated December 31, 1993)
10(ab) Sale-Purchase Agreement between Mansion
Apartment Project Investors, Inc., Seller and
Independence Apartments Associates, L.P.,
Purchaser dated November 30,1993
(incorporated by reference to Exhibit 10 (ab)
in the Registrant's Quarterly Report on
Form-Q dated March 31, 1994)
10(ac) Addendum to Sale-Purchase Agreement between
Mansion Apartment Project Investors, Inc.,
Seller and Independence Apartments
Associates, L.P., Purchase dated March 31,
1994 (incorporated by reference to Exhibit
10(ac) in the Registrant's Quarterly Report
on Form 10-Q dated March 31, 1994)
10(ad) First Supplemental Indenture, dated as of
October 18, 1994, between The Industrial
Development Authority of the City of
Independence, Missouri and Boatman's First
National Bank of Kansas City relating to The
Mansion project (incorporated by reference to
Exhibit 10(ad) in the Registrant's Annual
Report on Form 10-K dated December 31, 1994)
10(ae) First Mortgage Bond, dated May 13, 1986 and
revised as of October 18, 1994 with respect
to The Mansion project, in the principal
amount of $19,450,000 (incorporated by
reference to Exhibit 10(ae) in the
Registrant's Annual Report on Form 10-K dated
December 31, 1994)
10(af) Amended Settlement Agreement for the North
Glen First Mortgage dated May 1, 1996 (filed
herewith) 48
27 Financial Data Schedule (filed herewith) 51
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
-44-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: Related Tax Exempt Bond Associates, Inc.
A Delaware corporation, General Partner
By: Alan P. Hirmes Date: August 13, 1996
--------------
Alan P. Hirmes
Vice President
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: Eugene D. Burak Date: August 13, 1996
---------------
Eugene D. Burak
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated.
By: Related Tax Exempt Bond Associates, Inc.
A Delaware corporation, General Partner
By: J. Michael Fried Date: August 13, 1996
----------------
J. Michael Fried
President and Director
By: Alan P. Hirmes Date: August 13, 1996
--------------
Alan P. Hirmes
Vice President
By: Lawrence J. Lipton Date: August 13, 1996
------------------
Lawrence J. Lipton
Treasurer
By: Stephen M. Ross Date: August 13, 1996
---------------
Stephen M. Ross
Director
-47-
<PAGE>
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: Thomas F. Lynch, III Date: August 13, 1996
--------------------
Thomas F. Lynch, III
President, Chief Executive Officer,
Chairman of the Board of Directors and Director
By: Barbara J. Brooks Date: August 13, 1996
-----------------
Barbara J. Brooks
Vice President-Finance and Chief Financial Officer
By: Eugene D. Burak Date: August 13, 1996
---------------
Eugene D. Burak
Vice President
By: ________________ Date: August 13, 1996
Frank W. Giordano
Director
By: Nathalie P. Maio Date: August 13, 1996
----------------
Nathalie P. Maio
Director
-48-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
Schedule II - Valuation and Qualifying Accounts and Reserves
Valuation allowance for uncollectible receivables
<TABLE>
<CAPTION>
Additions
Additions Deductions (Deductions)
Balance at Amounts Amounts Amounts
Year ended beginning reserved recovered reclassified Balance at
December 31, of year during year during year during year end of year
- - ------------ ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995 $ 57,276 $ 0 $ 0 $ 0 $ 57,276
1994 57,276 0 0 0 57,276
1993 57,276 0 0 0 57,276
</TABLE>
Valuation allowance for promissory notes
<TABLE>
<CAPTION>
Additions
Additions Deductions (Deductions)
Balance at Amounts Amounts Amounts
Year ended beginning reserved recovered reclassified Balance at
December 31, of year during year during year during year end of year
- - ------------ ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995 $1,276,000 $ 0 $ 0 $ 0 $ 1,276,000
1994 1,276,000 0 0 0 1,276,000
1993 0 1,276,000 0 0 1,276,000
</TABLE>
-49-
[Letterhead]
May 1, 1996
Arc Way Associates
Attn: Mr. Elliott Lewis
Group Three North - Suite 400
3190 North East Expressway Access Road
Atlanta, Georgia 30341
Dear Mr. Lewis:
Arc Way Associates, a Georgia limited partnership organized and existing in the
State of Georgia (the "Developer"), is the Developer and Owner of a 284-unit
multifamily residential rental housing development known as North, Glen
Apartments, located in Gwinnett County, Georgia (the "Project"). The cost of
acquiring, constructing, improving and equipping the Project was financed by the
Housing Authority of Gwinnett County (the "Issuer"), by the issuance of its
Multifamily Housing Revenue Bonds (Tempo Northridge Apartments Project) Series
1986, in the principal amount of $12,400,000 (the "Bonds"), pursuant to its
Multi-Family Housing Revenue Bond (Tempo Northridge Apartments Project)
Resolution adopted on July 7, 1986, as amended and restated on August 12, 1986
(the "Resolution").
The terms of the Bonds, the security therefor, the rights and remedies of the
holders thereof, and various other matters in connection therewith were
prescribed pursuant to the Resolution.
Proceeds of the Bonds were loaned to the Developer pursuant to a Loan Agreement
between the Issuer and the Developer dated as of July 1, 1986 (the "Loan
Agreement"), evidenced by the Developer's promissory note (the "Note") in the
amount of $12,400,000. The obligations of the Developer under the Loan Agreement
and the Note are secured by a Building Loan Deed to Secure Debt and Security
Agreement, dated as of July 1, 1986 (the "Building Loan Mortgage"), and various
other loan documents defined in the Loan Agreement (collectively, the "Loan
Documents").
All of the Bonds issued pursuant to the Resolution were purchased and are owned
as of this date by Summit Tax Exempt Bond Fund, L.P. ("Summit"), a limited
partnership organized and existing under the laws of the State of Delaware.
[Address]
<PAGE>
Mr. Elliott Lewis
June 1, 1993
Page Two
As of December, 1990, the Developer had failed to pay certain amounts of Base
Interest on the Note ("Base Interest") when due, which constituted an Event of
Default pursuant to various provisions of the Resolution, Bonds and Loan
Documents. Pursuant to Section 7.02(a) of the Resolution, Summit, as the single
owner of the Bonds, is the designated "Acting Party" with the sole authority to
take actions in respect of any Event of Default. The Developer requested that
Summit, in its capacity as Acting Party, agree to forbear from enforcing its
remedies under the various remedies provisions of the Resolution, Bonds and Loan
Documents (collectively, the "Remedies Provisions") in connection with such
defaults resulting from the non-payment of Base Interest when due, conditioned
on the payment of such interest pursuant to a schedule proposed by the
Developer. The Developer also requested that Summit agree to forbear from
enforcing its remedies under the Remedies Provisions upon the future occurrence
of defaults for the non-payment of Base Interest when due, conditioned on the
payment of certain portions of such interest when due. Accordingly, the
Developer and Summit entered into a letter agreement dated as of December 3,
1990, (the "1990 Letter Agreement"), whereby Summit agreed to forbear from
enforcing its remedies under the Remedies Provisions based upon the partial
payment of Base Interest, and on various other terms and conditions, all as set
forth therein. Pursuant to the 1990 Letter Agreement, certain portions of the
Base Interest which would have been due and payable between December 16, 1990
and December 15, 1992, were deferred in accordance with the terms and conditions
thereof.
As of December, 1992, the Developer requested that Summit agree to forbear from
enforcing its remedies under the Remedies Provisions upon the occurrence of
further defaults for the non-payment of Base Interest when due, from and after
December 15, 1992, again conditioned on the payment of certain portions of such
interest when due. As consideration for such forbearance, the Developer agreed
to the payment of a concession fee to Summit, to the establishment of a monthly
escrow payment to provide for the future payment of real estate taxes,
assessments and insurance premiums when due, and to certain other matters.
matters. Accordingly, Summit and the Developer entered into a second letter
agreement dated as of June 1, 1993 (the "1993 Letter Agreement"), whereby
certain portions of the Base Interest which would have been due and payable
between December 16, 1992 and December 15, 1995, were deferred in accordance
with the terms and conditions thereof. The 1993 Letter Agreement also provided
for the payment of a concession fee to Summit, to the establishment of a monthly
tax and insurance escrow payment, and for certain other matters all as set forth
therein.
As of this date, the Developer has requested that Summit extend its agreement to
forbear from enforcing its remedies under the Remedies Provisions upon the
occurrence of further defaults for the non-payment of Base Interest when due,
from and
<PAGE>
Mr. Elliott Lewis
May 1, 1996
Page Three
after December 15, 1995, again conditioned on the payment of certain portions of
such interest when due. Accordingly, the Developer and Summit hereby agree to
extend all the provisions, terms and conditions of the 1993 Letter Agreement
with respect to the payment of Base Interest due and payable from December 16,
1995 through December 15, 1997, by deleting "3/16/93 - 12/15/95" under the
"Time Period" heading in paragraph 2(d), and by inserting in lieu thereof
"3/16/93 - 12/15/97." Except for this extension of the "Time Period" as set
forth in paragraph 2(d), the Developer and Summit hereby agree that all the
other provisions, terms and conditions of the 1993 Letter Agreement are hereby
ratified and reaffirmed, and shall remain in full force and effect.
If the above accurately sets forth the extension of time on which we have
agreed, please return to us five (5) copies of this letter executed by you in
the space provided below, at which time this letter shall constitute a binding
first amendment to the 1993 Letter Agreement.
Very truly yours,
SUMMIT TAX EXEMPT BOND FUND, L.P.
By: Related Tax Exempt Bond Associates,
Inc., a general partner
By: /s/ SIGNATURE
------------------------------
(Title)
Accepted and Agreed to this
3lst day of May, 1996:
Arc Way Associates, a Georgia Limited Partnership
By: EALCO, Inc., general partner
By: /s/ Elliott Lewis
-----------------------------
Elliott Lewis,
President
MS67/db
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Summit Tax Exempt Bond Fund L.P.
</LEGEND>
<CIK> 0000786156
<NAME> Summit Tax Exempt Bond Fund L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 626,391
<SECURITIES> 126,019,059
<RECEIVABLES> 9,632,879
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 136,278,329
<CURRENT-LIABILITIES> 1,317,303
<BONDS> 13,680,866
0
0
<COMMON> 0
<OTHER-SE> 121,280,160
<TOTAL-LIABILITY-AND-EQUITY> 136,278,329
<SALES> 0
<TOTAL-REVENUES> 9,898,082
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,537,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,391,496
<INCOME-PRETAX> 5,969,215
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,969,215
<EPS-PRIMARY> .74
<EPS-DILUTED> 0
</TABLE>
