UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1996
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
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 to Section 12(b) of the Act: Beneficial Unit
Certificates
Name of each exchange on which registered: American Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 25, 1997 was $98,827,925.
DOCUMENTS INCORPORATED BY REFERENCE
Agreement of Limited Partnership, dated February 19, 1986, included as
part of the Registration Statement filed with the Securities and Exchange
Commission of December 24, 1985 pursuant to Rule 424(b) of the Securities Act of
1933, is incorporated by reference into Part IV of this Annual Report on Form
10-K.
Index to exhibits may be found on page 44
Page 1 of 50
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PART I
Item 1. Business.
General
Summit Tax Exempt Bond Fund, L.P. (the "Registrant"), a Delaware
limited partnership, was formed on December 18, 1985 and will terminate on
December 31, 2020 unless terminated sooner under the provisions of the
Registrant's Agreement of Limited Partnership (the "Partnership Agreement"). The
Registrant was formed to invest in tax-exempt participating first mortgage
revenue bonds ("First Mortgage Bonds" or "FMBs") issued by various state or
local governments or their agencies or authorities. These investments were made
with proceeds from the initial sale of 7,906,234 Beneficial Unit Certificates
("BUC$"). 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
relative level of amenities offered by 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 them 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
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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.
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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:
Carrying Average
Face Amount Final Interest
Closing Amount at December Completion Rate Paid
Property Date of Bond 31, 1996(F) Date for 1996*
The Mansion,
Independence, MO 5/13/86 $ 19,450,000 $ 18,454,884 12/87 6.78%(D)
Martin's Creek,
Summerville, SC 5/20/86 7,300,000 6,642,891 5/86 6.91(C)
East Ridge,
Mt. Pleasant, SC 5/20/86 8,700,000 8,215,330 5/86 7.83(C)
Highpointe Club,
Harrisburg, PA 7/29/86 8,900,000 7,000,186 4/91 6.74
Cypress Run,
Tampa, FL 8/14/86 15,402,428 13,982,796 6/88 5.72
Thomas Lake,
Eagan, MN 9/02/86 12,975,000 13,488,852 2/88 8.83(E)
North Glen,
Atlanta, GA 9/30/86 12,400,000 11,228,210 12/87 6.00
Greenway Manor,
St. Louis, MO 10/09/86 12,850,000 13,020,536 12/87 9.17(E)
Clarendon Hills,
Hayward, CA 12/08/86 17,600,000 14,683,645 7/89 5.52
Cedar Creek,
McKinney, TX 12/29/86 8,100,000 8,551,563 2/88 7.88
Sunset Terrace,
Lancaster, CA 2/12/87 10,350,000 8,095,850 2/87 4.93
------------ ------------
$134,027,428 $123,364,743
=========== ============
Minimum
Stated Pay Rate at Occupancy Rental Rates No. of
Interest December 31, February 11, at December Rental
Property Rate* 1996* 1997 31, 1996 Units
The Mansion,
Independence, MO 5.23 5.23% 94.7% $440-730 550
Martin's Creek,
Summerville, SC 8.25 7.50(C) 96.5 435-650 200
East Ridge,
Mt. Pleasant, SC 8.25 7.50(C) 96.4 520-740 200
Highpointe Club,
Harrisburg, PA 8.50 (B) 97.9 520-685 240
Cypress Run,
Tampa, FL 8.50 (B) 90.3 420-720 408
Thomas Lake,
Eagan, MN 8.50 8.50 99.5 654-1056 216
North Glen,
Atlanta, GA 8.50 6.00(A) 89.0 550-810 284
Greenway Manor,
St. Louis, MO 8.50 8.50 96.8 470-595 312
Clarendon Hills,
Hayward, CA 5.52 5.52 98.9 800-1,325 285
Cedar Creek,
McKinney, TX 8.50 (B) 86.1 520-840 250
Sunset Terrace,
Lancaster, CA 8.00 (B) 91.3 460-680 184
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* The average interest rate paid represents the interest recorded by the
Registrant while the stated interest 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 rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(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 March 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 1996.
(E) Includes receipt of deferred base interest relating to prior periods.
(F) The FMBs are carried at their estimated fair values at December 31, 1996.
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Bond Modifications/Forbearance Agreements
Sunset Terrace
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. However, 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 new forbearance agreement.
In accordance with the terms of that 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 replaced the Property manager and leasing agent with
a new property manager who is an affiliate of the Related General Partner.
Effective as of January 30, 1997, the obligor transferred the deed to the
underlying Property to an affiliate of the Related General Partner, who made no
equity investment in the Property but assumed day to day responsibilities of
operations and obligations under the FMB.
Highpointe
In November 1989, a $600,000 settlement was reached between the
previous developer of Highpointe Club Apartments and USF&G, the construction
performance bonding company for Highpointe 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 $721,000 consisting of the
settlement proceeds plus accrued interest. These funds were applied as partial
payment toward accrued and unpaid interest due under the Highpointe Club FMB.
With respect to the Highpointe FMB, effective as of July 12, 1996,
the Registrant has entered into a purchase agreement with Chemical Bank (now
Chase Bank) which is secured by a pledge and assignment of the Registrant's
Highpointe FMB (face amount of $8,900,000). The purpose of this transaction was
to obtain an extension to January 1998, of a Letter of Credit ("L/C") issued by
Chemical Bank on behalf of Highpointe (RHA Inv., Inc.) to credit enhance
$3,250,000 in pari-passu first mortgage "low floater" bonds ("Chemical Bonds"),
which proceeds were used to complete construction of the project in 1989.
Pursuant to the terms of the purchase agreement, the Registrant has agreed that,
should the Chemical Bonds not otherwise be refinanced or the L/C replaced as of
January 1998 or the Highpointe obligor defaults on its obligations under the
Chemical Bonds, the Registrant will unconditionally purchase the bonds from
Chemical Bank.
Mansion Apartment
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
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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.
The net cash proceeds from the sale of the ownership interest in
The Mansion by MAPI of approximately $105,000 (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 $87,000 and $94,000 at
December 31, 1996 and 1995. All other accrued and unpaid interest on The Mansion
FMB which had been reserved for financial statement purposes was forgiven.
In 1992, the Registrant loaned approximately $134,000, to the
owner of The Mansion property to pay property taxes. The loan was
self-amortizing over two years with interest at 8.5% per annum beginning June
1992. This loan was fully repaid in the second quarter of 1994.
Cedar Creek
In 1988, pursuant to a settlement agreement with the original
obligor under the Cedar Creek FMB, the deed to the underlying property was
transferred to an affiliate of the Related General Partner due to the obligor's
inability to make interest payments as called for under the FMB. The affiliate
of the Related General Partner made no equity investment in the underlying
property, but has assumed day-to-day responsibilities of operating the
underlying property and obligations under the FMB.
The Registrant has permitted the obligor to pay interest under the
FMB only to the extent of cash flow generated by the underlying property,
although no forbearance agreement has been entered into with the obligor with
respect to such arrangement.
In 1992, the Registrant loaned approximately $86,000 to the owner
of Cedar Creek property to pay property taxes. The loan was self-amortizing over
two years with interest at 8.5% per annum beginning June 1992. This loan was
fully repaid in the second quarter of 1994.
Cypress Run
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 against 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
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filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code and
continued to operate the property as a debtor-in-possession. 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.
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 a 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.
Upon Settlement of Bankruptcy proceedings pursuant to a Court Order issued in
February 1997, obligations under the loan and guaranty has been released. The
Registrant made advances in April 1995 of $721,000, in December 1996 of
$274,000, and again, in February 1997 of $111,000, aggregating approximately
$1,106,000 to the obligor of the Cypress Run FMB (an Affiliate of the Related
General Partner) toward payment of delinquent real estate taxes and certain
capital improvements. The advances are made pursuant to a demand note from the
obligor for a loan amount up to $1,500,000 providing for interest only at 8.5%
per annum, payable monthly. Principal is due on demand.
Greenway Manor
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 partnership which
owned this property 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.
Clarendon Hills
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
$867,000 and $992,000 at December 31, 1996 and 1995, respectively.
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)
and a reduction of the base interest rate to 5.52% per annum on the $17,600,000
FMB. 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.
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East Ridge/Martin's Creek
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 has increased to 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 or ultimately from sale or
refinancing proceeds. As part of this modification, the Registrant received
$950,000 in 13% second mortgage notes with monthly interest and principal
payments through December 1995. These notes were also partially secured by
letters of credit. In January 1996, the second mortgage notes for East Ridge and
Martin's Creek were paid in full and the letters of credit were released.
North Glen
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 original North Glen second mortgage in the principal amount of
$126,000 which is secured by a second mortgage on the property matured as of May
1996 and was modified and extended. The modified loan is self amortizing over 48
months at an interest rate of 8.5% per annum. North Glen is current on its
interest payments through December 31, 1996.
Thomas Lake
Pursuant to the terms of the forbearance agreement entered into as
of December 1991, the pay rate for the Thomas Lake property returned to the
original stated rate of 8.5% per annum in December 1996.
In May 1992, Summit Tax Exempt Funding Corp., an affiliate of the
Registrant, 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 Registrant as part of the
transaction in which the Registrant 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. Thomas Lake is
current on its interest payments through December 31, 1996.
General
For several properties collateralizing FMBs (Highpointe Club
securing an $8,900,000 FMB; Cypress Run securing an $15,402,428 FMB; Greenway
Manor, securing a $12,850,000 FMB; Cedar Creek, securing an $8,100,000 FMB and
Sunset Terrace, securing a $10,350,000 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.
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
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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. Payments under each of
the existing forbearance agreements are current as of December 31, 1996.
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, 1996:
1996 1995 1994
Cypress Run * * 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 (5.45%
and 5.85% at December 31, 1996 and 1995, 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 Highpointe 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, Highpointe 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 Highpointe Club note also requires monthly
interest only payments of 8.0% per annum with the principal due on December 31,
2003. Since the Highpointe 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 Highpointe Club
promissory note has been received or recorded through December 31, 1996. The
assigned Highpointe Club note is subordinate to the Highpointe Club FMB and has
been fully reserved. The Thomas Lake promissory note in the principal amount of
$220,000, which is secured by a second mortgage on the property, matured in
April 1995 and was modified and extended. The modified loan is self-amortizing
over thirty months at an 8.5% interest rate. Clarendon Hills and Thomas Lake
promissory notes are current on their interest payments through December 31,
1996.
Employees
The Registrant has no employees. Management and administrative
services for the Registrant are performed by the General Partners and their
affiliates pursuant to the Partnership Agreement. See Note 6 to the financial
statements in Item 8.
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Other Events
On December 31, 1996, the United States District Court for the
Southern District of New York (the "Court") issued a preliminary approval order
(the "Order") with respect to settlement (the "Related Settlement") of the class
action litigation (the "Class Action") relating to the Registrant (In re
Prudential Securities Inc. Limited Partnership Litigation, MDL No. 1005) against
the Related General Partner and certain of its affiliates. See Note 7 to the
financial statements in Item 8. Pursuant to the stipulation of settlement
entered into with counsel for the class on December 24, 1996, the proposed
Related Settlement contemplates, among other matters, the reorganization (the
"Reorganization") of the Registrant and two other partnerships co-sponsored by
affiliates of the Related General Partner and PBP.
The proposed Related settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Registrant as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the
Registrant, and Summit Tax Exempt L.P. II and Summit Tax Exempt L.P. III will
receive shares in a newly formed business trust. It is anticipated that the
shares will be allocated proportionately among the partnerships and their
respective investors based upon appraisals and other factors as supported by a
third-party fairness opinion. Detailed information about the proposed Related
Settlement and Reorganization will be sent to BUC$holders in the near future.
The terms of the Reorganization include, the acquisition by, affiliates of the
Related Capital Company ("RCC") of acquiring PBP's general partner interest (the
"PBP Interest"), transfer to the BUC$holders of one-half of the PBP Interest,
reduction of fees currently payable to the General Partners by 25%, filing an
application to list the new company's shares on an exchange and the creation of
an infinite, as opposed to finite, life-operating business.
In connection with the proposed Related Settlement and Reorganization, on
December 19, 1996 PBP and RCC entered into an agreement for the purchase by RCC
or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Registrant by the Court.
Pending final approval of the Related Settlement, the Court's
Order prohibits class members (including the BUC$holders) from, among other
matters, (i) granting a proxy to object to the Reorganization; or (ii)
commencing a tender offer for the BUC$. In addition, the General Partners are
enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of
the proposed Related Settlement and Reorganization will be satisfied that the
closing may occur in the projected time frame.
Item 2. Properties
The Registrant does not own or lease any property.
Item 3. Legal Proceedings
This information is incorporated by reference from Item 1.
Business - Other Events and Note 7 to the financial statements in Item 8.
Item 4. Submission of Matters to a Vote of BUC$holders
None.
-10-
<PAGE>
PART II
Item 5. Market for the Registrant's BUC$ and Related BUC$holder Matters
As of March 3, 1997, there were 6,444 holders of record owning
7,906,234 BUC$. The Registrant's BUC$ are listed on the American Stock Exchange
under the symbol SUA; however, the limited partner interests themselves are not
listed. See Item 1. Business - Other Events.
The high and low prices for each quarterly period of the last two
years for which the BUC$ were traded are as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995
Low High Low High
--- ---- --- ----
<S> <C> <C> <C> <C>
March 31 9 1/4 10 3/8 8 1/2 9 7/8
June 30 9 7/8 10 5/8 9 3/8 10 1/4
September 30 9 7/8 11 9 3/4 10 1/4
December 31 10 3/8 11 7/8 9 1/2 10 3/8
</TABLE>
Quarterly cash distributions per BUC paid during 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
Quarter ended 1996 1995
------------- ---- ----
<S> <C> <C>
March 31 $.21 $.21
June 30 $.21 $.21
September 30 $.21 $.21
December 31 $.21 $.21
</TABLE>
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 1996 and 1995 were funded from
current and previously undistributed cash flow from operations. Approximately
$244,000 of the $6,641,000 and $791,000 of the $6,641, 000 paid to BUC$holders
in 1996 and 1995, 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.
-11-
<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 December31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income from
participating first
mortgage bonds $ 9,155,001 $ 9,246,436 $ 9,376,790 $ 9,642,390 $ 8,363,679
============ ============ ============ ============ ============
Interest expense $ 1,322,370 $ 1,391,496 $ 1,156,858 $ 967,361 $ 9,166
============ ============ ============ ============ ============
Loss on impairment
of assets $ 0 $ 500,000 $ 1,350,000 $ 1,905,000 $ 0
============ ============ ============ ============ ============
Net income $ 6,527,563 $ 5,969,215 $ 5,685,890 $ 4,135,774 $ 6,462,572
============ ============ ============ ============ ============
Net income per BUC $ 0.81 $ 0.74 $ 0.71 $ 0.51 $ 0.80
============ ============ ============ ============ ============
Total assets $134,476,035 $136,278,329 $136,021,035 $141,881,705 $134,028,372
============ ============ ============ ============ ============
Loan payable $ 13,680,866 $ 13,680,866 $ 13,680,866 $ 13,680,866 $ 45,620
============ ============ ============ ============ ============
Total Partners' Capital $119,596,635 $121,280,160 $120,703,888 $126,078,050 $128,719,050
============ ============ ============ ============ ============
Distributions to
BUC$holders $ 6,641,237 $ 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>
-12-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
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 $1,976,000. After payment of
distributions of approximately $6,777,000 and receipt of the net cash flow from
operations of approximately $6,608,000. The Registrant ended the year with
approximately $1,894,000 in cash and temporary investments. The fourth quarter
distribution of approximately $1,660,000 ($.21 per BUC) was paid to BUC$holders
in February 1997 from current and previously undistributed cash flow from
operations. The Registrant anticipates funding future cash distributions from
current and previously undistributed cash flow from operations. The
restructurings of the FMBs in 1996 and any future restructurings may result in
the General Partners reducing the distributions to BUC$holders in future
periods.
The Registrant has entered into forbearance agreements on several
FMBs and may be required to extend these agreements or enter into new agreements
in the future. Such agreements may adversely impact liquidity; however interest
payments from FMBs are anticipated to provide sufficient liquidity to fund in
future years the Registrant's operating expenditures, debt service and
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.
With respect to the Highpointe FMB, effective as of July 12, 1996,
the Registrant has entered into a purchase agreement with Chemical Bank (now
Chase Bank) which is secured by a pledge and assignment of the Registrant's
Highpointe FMBs (face amount of $8,900,000). The purpose of this transaction was
to obtain an extension, to January 1998, of a Letter of Credit ("L/C") issued by
Chemical Bank on behalf of Highpointe (RHA Inv., Inc.) to credit enhance
$3,250,000 in pari-passu first mortgage "low floater" bonds ("Chemical Bonds"),
which proceeds were used to complete construction of the project in 1989.
Pursuant to the terms of the purchase agreement, the Registrant has agreed that,
should the Chemical Bonds not otherwise be refinanced or the L/C replaced as of
January 1998 or the Highpointe obligor defaults on its obligations under the
Chemical Bonds, the Registrant will unconditionally purchase the bonds from
Chemical Bank.
For a discussion of the proposed Settlement of the Class Action
relating to the Registrant see Other Events in Item 1. Business above.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way. The Registrant's investments in FMBs are
secured by Registrant's 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. However, the geographic
diversifications of the portfolio may not protect against a general downturn in
the economy.
Results of Operations
The Registrant accounts 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").
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 them until maturity. As such, SFAS 115
requires the Registrant to
-13-
<PAGE>
classify these investments as "available for sale." Accordingly, investments in
FMBs are carried at their estimated fair values, with unrealized gains and
losses reported in a separate component of partners' capital. 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 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 FMBs. If the decline is judged to be other than temporary, the cost basis of
the FMB 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 FMB as the present value of its expected cash
flows using a discount rate for comparable tax-exempt investments. This process
is based upon projections of future economic events affecting the real estate
collateralizing the FMBs, 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.
1996 vs 1995
Net income increased approximately $558,000 for the year ended
December 31, 1996 as compared to the corresponding period in 1995 primarily due
to the $500,000 loss on impairment of assets recorded in 1995 and for the
reasons discussed below:
Interest income from FMBs decreased approximately $91,000 for the
year ended December 31, 1996 as compared to the corresponding period in 1995
primarily due to a tax loan to Cypress Run in December 1996 which was fully
reserved for and accounted for as a reduction of interest from the FMB, reduced
debt service payments received from the Sunset Terrace FMB and the repayment of
the East Ridge and Martin's Creek second mortgage loans in January 1996. These
decreases were partially offset by increased debt service payments received from
the Cedar Creek FMB and an increase in contingent interest from the Mansions
FMB.
General and administrative expenses decreased approximately
$64,000 for the year ended December 31, 1996 as compared to the corresponding
period in 1995 primarily due to the nonrecurring costs incurred in obtaining
appraisals of the properties in 1995.
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 $1,350,000 loss on impairment of assets recorded in 1994 and for the
reasons discussed 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.
-14-
<PAGE>
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 payable.
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.
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.
-15-
<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, 1997:
<TABLE>
<CAPTION>
Carrying
Amount Average Stated Minimum Pay
Face Amount at December Interest Rate Interest Rate at December
Property Location of Bond 31,1996(F) Occupancy Paid for 1996* Rate* 31,1996*
- - -------- -------- ------- ---------- --------- -------------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
The Mansion Independence, MO $ 19,450,000 $ 18,454,884 94.7% 6.78%(D) 5.23% 5.23%
Martin's Creek Summerville, SC 7,300,000 6,642,891 96.5 6.91(C) 8.25 7.50(C)
East Ridge Mt. Pleasant, SC 8,700,000 8,215,330 96.4 7.83(C) 8.25 7.50(C)
Highpointe Club Harrisburg, PA 8,900,000 7,000,186 97.9 6.74 8.50 (B)
Cypress Run Tampa, FL 15,402,428 13,982,796 90.3 5.72 8.50 (B)
Thomas Lake Eagan, MN 12,975,000 13,488,852 99.5 8.83(E) 8.50 8.50
North Glen Atlanta, GA 12,400,000 11,228,210 89.0 6.00 8.50 6.00(A)
Greenway Manor St. Louis, MO 12,850,000 13,020,536 96.8 9.17(E) 8.50 8.50
Clarendon Hills Hayward, CA 17,600,000 14,683,645 98.9 5.52 5.52 5.52
Cedar Creek McKinney, TX 8,100,000 8,551,563 86.1 7.88 8.50 (B)
Sunset Terrace Lancaster, CA 10,350,000 8,095,850 91.3 4.93 8.00 (B)
------------ ------------
$134,027,428 $123,364,743
============ ============
</TABLE>
- - ----------
* The average interest rate paid represents the interest recorded by the
Registrant while the stated interest 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 rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(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 March 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 1996.
(E) Includes receipt of deferred base interest relating to prior periods.
(F) The FMBs are carried at their estimated fair values at December 31, 1996.
-16-
<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
$1,411,000, $1,571,000, and $1,707,000 was not recorded for the years ended
December 31, 1996, 1995 and 1994, 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 1996
or 1995.
-17-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
(a) 1. Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors' Report 19
Statements of Financial Condition as of December 31, 1996 and 1995 20
Statements of Income for the years ended December 31, 1996, 1995 and
1994 21
Statements of Changes in Partners' Capital (Deficit) for the years
ended December 31, 1996, 1995 and 1994 22
Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994 23
Notes to Financial Statements 25
</TABLE>
-18-
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
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, 1996
and 1995, 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, 1996. These financial statements are the responsibility of the
General Partners. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 20, 1997
-19-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
December 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Participating first mortgage bonds-at fair value $ 123,364,743 $ 124,669,059
Temporary investments 1,650,000 1,350,000
Cash and cash equivalents 244,439 626,391
Promissory notes receivable, net 6,679,795 6,823,335
Deferred bond selection fees, net 1,558,161 1,708,218
Interest receivable, net 825,237 829,565
Deferred financing fees, net 133,156 260,985
Other assets 20,504 10,776
------------- -------------
Total assets $ 134,476,035 $ 136,278,329
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Loan payable $ 13,680,866 $ 13,680,866
Deferred income 954,256 1,143,191
Accounts payable and accrued expenses 101,255 124,850
Due to affiliates 143,023 49,262
------------- -------------
Total liabilities 14,879,400 14,998,169
============= =============
Contingencies
Partner's capital (deficit):
BUC$holders (7,906,234 BUC$
issued and outstanding) 124,311,220 124,555,445
General partners (380,822) (375,838)
Net unrealized loss on participating
first mortgage bonds (4,333,763) (2,899,447)
------------- -------------
Total partners' capital 119,596,635 121,280,160
------------- -------------
Total liabilities and partners' capital $ 134,476,035 $ 136,278,329
============= =============
</TABLE>
See accompanying notes to financial statements
-20-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------
1996 1995 994
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Interest income:
Participating first mortgage bonds $9,155,001 $9,246,436 $ 9,376,790
Promissory notes 571,208 577,562 612,090
Temporary investments 73,231 74,084 45,394
---------- ---------- -----------
Total revenues 9,799,440 9,898,082 10,034,274
---------- ---------- -----------
Expenses:
Interest expense 1,322,370 1,391,496 1,156,858
Management fees 671,876 671,875 671,875
General and administrative 341,382 405,528 339,975
Loan servicing fees 335,068 335,068 335,938
Legal expense 323,295 347,014 215,854
Amortization of deferred bond selection fees 150,057 150,055 150,056
Amortization of deferred financing fees 127,829 127,831 127,828
Loss on impairment of assets 0 500,000 1,350,000
---------- ---------- -----------
Total expenses 3,271,877 3,928,867 4,348,384
---------- ---------- -----------
Net income $6,527,563 $5,969,215 $ 5,685,890
========== ========== ===========
Allocation of Net Income
BUC$holders $6,397,012 $5,849,831 $ 5,572,171
========== ========== ===========
General partners $ 130,551 $ 119,384 $ 113,719
========== ========== ===========
Net income per BUC $ 0.81 $ 0.74 $ 0.71
========== ========== ===========
</TABLE>
See accompanying notes to financial statements
-21-
<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, 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)
Net income 6,527,563 6,397,012 130,551 0
Distributions (6,776,772) (6,641,237) (135,535) 0
Net change in fair value of
participating first mortgage bonds (1,434,316) 0 0 (1,434,316)
------------- ------------- --------- -----------
Partners' capital (deficit) -
December 31, 1996 $ 119,596,635 $ 124,311,220 $(380,822) $(4,333,763)
============= ============= ========= ===========
</TABLE>
See accompanying notes to financial statements
-22-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 9,815,686 $ 10,472,273 $ 9,720,452
Loan made to property affiliate (273,798) (721,266) 0
Fees and expenses paid (1,611,183) (1,749,628) (1,766,476)
Interest paid (1,322,370) (1,391,496) (1,241,679)
----------- ------------ -----------
Net cash provided by operating activities 6,608,335 6,609,883 6,712,297
----------- ------------ -----------
Cash flows from investing activities:
Net (purchase) sale of temporary investments (300,000) 565,874 (415,114)
Income deferred upon assumption of bond
obligations by new debtor 0 0 105,477
----------- ------------ -----------
Net cash (used in) provided by investment activities (300,000) 565,874 (309,637)
----------- ------------ -----------
Cash flows from financing activities:
Principal repayments on promissory note 86,485 53,719 0
Principal payment received on bond 0 0 347,576
Distributions paid (6,776,772) (6,776,774) (6,776,774)
----------- ------------ -----------
Net cash used in financing activities (6,690,287) (6,723,055) (6,429,198)
----------- ------------ -----------
Net (decrease) increase in cash and
cash equivalents (381,952) 452,702 (26,538)
Cash and cash equivalents at beginning of year 626,391 173,689 200,227
----------- ------------ -----------
Cash and cash equivalents at end of year $ 244,439 $ 626,391 $ 173,689
=========== ============ ===========
</TABLE>
(continued)
-23 -
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Schedule reconciling net income to net cash
provided by operating activities
Net income $ 6,527,563 $ 5,969,215 $ 5,685,890
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred income (261,880) (261,877) (260,253)
Amortization of deferred bond selection fees 150,057 150,055 150,056
Amortization of deferred financing fees 127,829 127,831 127,828
Loss on impairment of assets 0 500,000 1,350,000
Changes in:
Promissory notes receivable, net 57,055 247,821 172,411
Interest receivable 4,328 114,802 (53,569)
Other assets (9,728) 2,852 1,678
Deferred income (57,055) (247,821) (172,411)
Accounts payable and accrued expenses (23,595) 4,165 (179,984)
Accrued interest expense 0 0 (84,821)
Due to affiliates 93,761 2,840 (24,528)
----------- ----------- -----------
Total adjustments 80,772 640,668 1,026,407
----------- ----------- -----------
Net cash provided by operating activities $ 6,608,335 $ 6,609,883 $ 6,712,297
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,322,370 $ 1,391,496 $ 1,156,858
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
-24-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
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, 1996, 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
Effective January 1, 1994, the Partnership accounts 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").
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. As such, SFAS 115 requires
the Partnership to classify these investments as "available for sale."
Accordingly, 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 such accounting was a decrease in
partners' capital at January 1, 1994 of approximately $7,693,000 due to
unrealized holding losses. Unrealized holding gains or losses do not affect the
cash flow generated from property operations, distributions to BUC$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,
-25-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 - Summary of Significant Accounting Policies (continued)
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 a discount 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.
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. As of December 31, 1996 and 1995
reserves on these investments totaled approximately $4,605,000 and $4,347,000,
respectively. For the years ended December 31, 1996 and 1995, $274,000 and
$721,000 was added to reserves, respectively.
For both FMBs and promissory notes, interest income is
recognized at the stated rate when collectibility of future amounts is
reasonably assured. Interest income from FMBs with modified terms where the
collectibility of future amounts is uncertain is recognized based upon expected
cash receipts.
c) Temporary investments
Temporary investments at December 31, 1996 represent
tax-exempt municipal preferred stock and tax-exempt floating rate municipal
bonds which are carried at cost plus accrued interest which approximates market
value. Temporary investments at December 31, 1995 represent tax-exempt municipal
preferred stock which is also carried at cost which approximates market value.
d) Cash and cash equivalents
Cash and cash equivalents include cash in banks, and
investments in short-term instruments with an original maturity of three months
or less, for which cost approximates market value.
e) Income taxes
The Partnership is not required to provide for, or pay, any
Federal income taxes. Income tax attributes that arise from its operations are
passed directly to the BUC$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.
-26-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 - Summary of Significant Accounting Policies (continued)
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, 1996 and 1995 was approximately $1,533,000 and
$1,383,000, 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, 1996
and 1995 was approximately $506,000 and $378,000, 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
Overview
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 or refinance of the mortgage loan. 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 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 them 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
-27-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
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.
Sunset Terrace
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. However, 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 new forbearance agreement.
In accordance with the terms of that 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 replaced the property manager and leasing agent with
a new property manager who is an affiliate of the Related General Partner.
Effective as of January 30, 1997, the obligor transferred the deed to the
underlying Property to an affiliate of the Related General Partner, who made no
equity investment in the Property but assumed day to day responsibilities of
operations and obligations under the FMB.
Highpointe
In November 1989, a $600,000 settlement was reached between the
previous developer of Highpointe Club Apartments and USF&G, the construction
performance bonding company for the Highpointe 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
$721,000 consisting of the settlement proceeds plus accrued interest. These
funds were applied as partial payment toward accrued and unpaid interest due
under the Highpointe Club FMB.
With respect to the Highpointe FMB, effective as of July 12, 1996,
the Partnership has entered into a purchase agreement with Chemical Bank (now
Chase Bank) which is secured by a pledge and assignment of the Partnership's
Highpointe FMB (face amount of $8,900,000). The purpose of this transaction was
to obtain an extension to January 1998, of a Letter of Credit ("L/C") issued by
Chemical Bank on behalf of Highpointe (RHA Inv., Inc.) to credit enhance
$3,250,000 in pari-passu first mortgage "low floater" bonds ("Chemical Bonds"),
which proceeds were used to complete construction of the project in 1989.
Pursuant to the terms of the purchase agreement, the Partnership has agreed
that, should the Chemical Bonds not otherwise be refinanced or the L/C replaced
as of January 1998 or the Highpointe obligor defaults on its obligations under
the Chemical Bonds, the Partnership will unconditionally purchase the bonds from
Chemical Bank.
-28-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
Mansion Apartments
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 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 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 $87,000 and
$94,000 at December 31, 1996 and 1995. All other accrued and unpaid interest on
The Mansion FMB which previously had been reserved for financial statement
purposes was forgiven.
In 1992, the Partnership loaned approximately $134,000, to the
owner of The Mansion property to pay property taxes. The loan was
self-amortizing over two years with interest at 8.5% per annum beginning June
1992. This loan was fully repaid in the second quarter of 1994.
Cedar Creek
In 1988, pursuant to a settlement agreement with the original
obligor under the Cedar Creek FMB, the deed to the underlying property was
transferred to an affiliate of the Related General Partner due to the obligor's
inability to make interest payments as called for under the FMB. The affiliate
of the Related General Partner made no equity investment in the underlying
property, but has assumed day-to-day responsibilities of operating the
underlying property and obligations under the FMB.
-29-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
The Partnership has permitted the obligor to pay interest under
the FMB only to the extent of cash flow generated by the underlying property,
although no forbearance agreement has been entered into with the obligor with
respect to such arrangement.
In 1992, the Partnership loaned approximately $86,000 to the owner
of Cedar Creek property to pay property taxes. The loan was self-amortizing over
two years with interest at 8.5% per annum beginning June 1992. This loan was
fully repaid in the second quarter of 1994.
Cypress Run
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 against 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 property as a debtor-in-possession. 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.
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 a 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.
Upon Settlement of Bankruptcy proceedings prusuant to a Court Order issued in
February 1997, obligations under the loan and guaranty has been released. The
Partnership made advances in April 1995 of $721,000, in December 1996 of
$274,000, and again, in February 1997 of $111,000, aggregating approximately
$1,106,000 to the obligor of the Cypress Run FMB (an Affiliate of the Related
General Partner) toward payment of delinquent real estate taxes and certain
capital improvements. The advances are made pursuant to a demand note from the
obligor for a loan amount up to $1,500,000 providing for interest only at 8.5%
per annum, payable monthly. Principal is due on demand.
Greenway Manor
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 partnership which
owned this property filed for bankruptcy under Chapter 11 of the United States
Bankruptcy Code. Pursuant to a
-30-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
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.
Clarendon Hills
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 $867,000
and $992,000 at December 31, 1996 and 1995, respectively.
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)
and a reduction of the base interest rate to 5.52% per annum on the $17,600,000
FMB. 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.
East Ridge/Martins Creek
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 has increased to 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 or ultimately from sale or
refinancing proceeds. As part of this modification, the Partnership received
$950,000 in 13% second mortgage notes with monthly interest and principal
payments through December 1995. These notes were also partially secured by
letters of credit. In January 1996, the second mortgage notes for East Ridge and
Martin's Creek were paid in full and the letters of credit were released.
North Glen
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
-31-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
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 original North Glen second mortgage in the principal amount of
$126,000 which is secured by a second mortgage on the property matured as of May
1996 and was modified and extended. The modified loan is self amortizing over 48
months at an interest rate of 8.5% per annum. North Glen is current on its
interest payments through December 31, 1996.
Thomas Lake
Pursuant to the terms of the forbearance agreement entered into as
of December 1991, the pay rate for the Thomas Lake property returned 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. Thomas Lake is
current on its interest payments through December 31, 1996.
General
For several properties collateralizing FMBs (Highpointe Club
securing an $8,900,000 FMB; Cypress Run securing an $15,402,428 FMB; Greenway
Manor, securing a $12,850,000 FMB; Cedar Creek, securing an $8,100,000 FMB and
Sunset Terrace securring a $10,350,000 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 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. Payments under each of
the existing forbearance agreements aree current as of December 31, 1996.
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
$1,411,000, $1,571,000, and $1,707,000 was not recorded for the years ended
December 31, 1996, 1995 and 1994, respectively.
-32-
<PAGE>
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, 1996:
1996 1995 1994
---- ---- ----
Cypress Run * * 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, 1996 and 1995 was
$127,698,506 and $127,568,506, respectively. The net unrealized loss on FMBs
consists of gross unrealized gains and losses of $2,842,285 and $7,176,048,
respectively, at December 31, 1996 and $3,150,835 and $6,050,282, respectively,
at December 31, 1995.
-33-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
Descriptions of the various FMBs owned by the Partnership at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Minimum Carrying
Average Pay Rate Stated Amount
Interest Rate at December Interest at December
Property Location Paid for 1996* 31,1996* Rate* Call Date Maturity Date Face Amount 31, 1996 (E)
- - -------- -------- -------------- -------- ----- --------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Mansion Independence, MO 6.78%(B) 5.23% 5.23% April 2006 April 2008 $ 19,450,000 $ 18,454,884
Martin's Creek Summerville, SC 6.91(D) 7.50(D) 8.25 Mar. 2000 May 2010 7,300,000 6,642,891
East Ridge Mt. Pleasant, SC 7.83(D) 7.50(D) 8.25 Mar. 2000 May 2010 8,700,000 8,215,330
Highpointe Club Harrisburg, PA 6.74 (A) 8.50 June 1998 June 2006 8,900,000 7,000,186
Cypress Run Tampa, FL 5.72 (A) 8.50 Aug. 1998 Aug. 2006 15,402,428 13,982,796
Thomas Lake Eagan, MN 8.83(C) 8.50 8.50 Aug. 1998 Aug. 2006 12,975,000 13,488,852
North Glen Atlanta, GA 6.00 6.00 8.50 Aug. 1998 Aug. 2008 12,400,000 11,228,210
Greenway Manor St. Louis, MO 9.17(C) 8.50 8.50 Oct. 1998 Sept. 2006 12,850,000 13,020,536
Clarendon Hills Hayward, CA 5.52 5.52 5.52 Dec. 2003 Dec. 2003 17,600,000 14,683,645
Cedar Creek McKinney, TX 7.88 (A) 8.50 Dec. 1998 Dec. 2006 8,100,000 8,551,563
Sunset Terrace Lancaster, CA 4.93 (A) 8.00 Feb. 1999 May 2007 10,350,000 8,095,850
------------ ------------
$134,027,428 $123,364,743
============ ============
</TABLE>
- - ----------
* The average interest rate paid represents the interest recorded by the
Partnership while the stated interest 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, 1996.
(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, 1996.
-34-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
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 (5.45%
and 5.85% at December 31, 1996 and 1995, 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 Highpointe 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, Highpointe 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 Highpointe Club note also
requires monthly interest only payments of 8.0% per annum with the principal due
on December 31, 2003. Since the Highpointe 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 Highpointe Club
promissory note has been received or recorded through December 31, 1996. The
assigned Highpointe Club note is subordinate to the Highpointe 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, 1996.
-35-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
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>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net income per financial statements $ 6,527,563 $ 5,969,215 $ 5,685,890
Loss on impairment of assets 0 500,000 1,350,000
Uncollected interest on FMBs 1,410,705 1,570,781 1,707,305
Nondeductible interest expense 355,850 374,452 311,255
Uncollected interest on promissory notes 254,400 254,400 254,400
Amortization of bond selection fees 150,057 150,055 150,056
Loss from debt restructure 0 0 (3,632,747)
Other, net (56,987) (214,698) (326,925)
----------- ----------- -----------
Net income for tax purposes $ 8,641,588 $ 8,604,205 $ 5,499,234
=========== =========== ===========
</TABLE>
Net income for tax purposes is generally exempt from Federal
income tax. The differences between the tax and book basis 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.
-36-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
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>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Prudential-Bache Properties, Inc.
and affiliates
General and administrative $ 33,507 $ 93,392 $ 93,000
Management fee 335,938 335,937 335,937
---------- ---------- ----------
369,445 429,329 428,937
---------- ---------- ----------
Related Tax Exempt Bond Associates, Inc.
and affiliates
General and administrative 71,149 39,723 28,246
Management fee 335,938 335,938 335,938
Loan servicing fees 335,068 335,068 335,938
---------- ---------- ----------
742,155 710,729 700,122
---------- ---------- ----------
$1,111,600 $1,140,058 $1,129,059
========== ========== ==========
</TABLE>
Effective October 1, 1995 the Related General Partner has assumed
from PBP, the responsibilities and duties of the Tax Matters Partner as defined
in the Partnership Agreement.
The General Partners are paid, in aggregate, an annual management
fee equal to .5% of the total invested assets (which equals the total original
face amount of the FMBs).
An affiliate of the Related General Partner receives loan
servicing fees in the amount of .25% per annum of the principal amount
outstanding on mortgage loans serviced by the affiliate.
During 1995 and January 1996, a division of Prudential Securities
Incorporated ("PSI"), an affiliate of PBP, was responsible for the purchase,
sale and safekeeping of the Partnership's temporary investments. This account
was maintained in accordance with the Partnership Agreement.
PSI owns 7,600 BUC$ at December 31, 1996.
Several executive officers and directors of the Related General
Partner own less than 1% of the outstanding BUC$.
As of December 31, 1996 the original owner of the underlying
property and obligor of the Cedar Creek, Cypress Run, Highpointe and Greenway
Manor FMBs have been replaced with an affiliate of the Related General Partner
who has not made an equity investment. This entity has assumed the day-to-day
responsibilities and obligations of the underlying property. Buyers are being
sought who would make an equity investment in the underlying property and assume
the nonrecourse obligations for the FMB.
-37-
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 7 - Contingencies
On or about October 18, 1993, a putative class action, captioned
Kinnes et al. v. Prudential Securities Group, Inc. et al. (CV-93-654), was filed
in the United States District Court for the District of Arizona, purportedly on
behalf of investors in the Partnership, against the Partnership, PBP, 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, PSI 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 was dismissed from the Levine litigation.
By order of the Judicial Panel on Multidistrict Litigation dated
April 14, 1994, 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 (the "Court")
and consolidated for pretrial proceedings under the caption In re Prudential
Securities Incorporated Limited Partnerships Litigation (MDL Docket 1005) (the
"Class Action"). 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 Levine and Connelly
cases were dismissed with prejudice as to the Prudential defendants by court
order dated October 25, 1996. The consolidated action remains pending against
the Related General Partner and certain of its affiliates.
On December 31, 1996, the Court issued a preliminary approval
order (the "Order") with respect to settlement (the "Related Settlement") of the
Class Action against the Related General Partner and certain of its affiliates.
Pursuant to the stipulation of settlement entered into with counsel for the
class on December 24, 1996, the proposed Related Settlement contemplates, among
other matters, the reorganization (the "Reorganization") of the Partnership and
two other partnerships co-sponsored by affiliates of the Related General Partner
and PBP.
The proposed Related Settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Partnership as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the
Partnership, and Summit Tax Exempt L.P. II and Summit Tax Exempt L.P. III, will
receive shares in a newly formed business trust. It is anticipated that shares
will be allocated proportionately among the partnerships and their respective
investors based upon appraisals and other factors as supported by a third-party
fairness opinion. Detailed information about the proposed Related Settlement and
Reorganization will be sent to BUC$holders in the
-38-
<PAGE>
near future. The terms of the Reorganization include, among other matters, the
acquisition by affiliates of the Related Capital Company ("RCC") of PBP's
general partner interest (the "PBP Interest"), transfer to the BUC$holders of
one-half of the PBP Interest, reduction of fees currently payable to the General
Partners by 25%, filing an application to list the new company's shares on an
exchange and the creation of an infinite, as opposed to finite, life-operating
business.
In connection with the proposed Related Settlement and
Reorganization, on December 19, 1996, PBP and RCC entered into an agreement for
the purchase by RCC or its affiliates of the PBP Interest. The agreement is
subject to numerous conditions, including the effectiveness of the Related
Settlement of the Class Action and the approval of the sale and withdrawal of
PBP as a general partner of the Partnership by the Court.
Pending final approval of the Related Settlement, the Court's
Order prohibits class members (including the BUC$holders) from, among other
matters, (i) granting a proxy to object to the Reorganization; or (ii)
commencing a tender offer for the BUC$. In addition, the General Partners are
enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of
the proposed Related Settlement and Reorganization will be satisfied nor that a
closing may occur in the projected time frame. 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 this action.
NOTE 8 - Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
1996 Quarter ended
--------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income from participating
first mortgage bonds $2,405,750 $2,293,601 $2,348,277 $2,107,373
========== ========== ========== ==========
Net income $1,796,883 $1,653,437 $1,659,467 $1,417,776
========== ========== ========== ==========
Net income per BUC $ 0.22 $ 0.21 $ 0.20 $ 0.18
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996 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
========== ========== ========== ==========
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
========== ========== ========== ==========
</TABLE>
NOTE 9 - Subsequent Events
In February 1997, 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, 1996.
-39-
<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.
The Registrant, the Registrant's General Partners and their
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 the General
Partners' 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.
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP with regard to
managing the Registrant are as follows:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
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 Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
THOMAS F. LYNCH, III, age 38, is the President, Chief Executive
Officer, Chairman of the Board of Directors, 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 48, 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.
-40-
<PAGE>
EUGENE D. BURAK, age 51, 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 53, is a Senior 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 54, 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 LLC, 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 46, 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.
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
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
Richard A. Palermo Treasurer
Stephen M. Ross Director
Lynn A. McMahon Secretary
J. MICHAEL FRIED, 52, 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.
-41
<PAGE>
STUART J. BOESKY, 40, 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 (which subsequently merged with Strook & Strook & Lavan) 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, 42, 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.
RICHARD A. PALERMO, 36, is Treasurer of the Related General
Partner. Mr. Palermo has been a Certified Public Accountant in New York since
1985. Prior to joining Related in September 1993, Mr. Palermo was employed by
Sterling Grace Capital Management from October 1990 to September 1993,
Integrated Resources, Inc. from October 1988 to October 1990 and E.F. Hutton &
Company, Inc. from June 1986 to October 1988. From October 1982 to June 1986,
Mr. Palermo was employed by Marks Shron & Company and Mann Judd Landau,
certified public accountants. Mr. Palermo graduated from Adelphi University with
a Bachelor of Business Administration degree.
STEPHEN M. ROSS, 56, 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, 41, 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.
-42-
<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 3, 1997, 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 3, 1997, 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 3, 1997, no director or officer of PBP owns directly
or beneficially any BUC$ issued by the Registrant.
Based upon reports filed with the Securities and Exchange
Commission, as of March 3, 1997, 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 495,804 BUC$ 6.27%
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 Notes 1 and 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.
-43-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
(a) 1. Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors' Report 19
Statements of Financial Condition as of December 31, 1996 and 1995 20
Statements of Income for the years ended December 31, 1996, 1995 and 1994 21
Statements of Changes in Partners' Capital (Deficit) for the years
ended December 31, 1996, 1995 and 1994 22
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 23
Notes to Financial Statements 25
(a) 2. Financial Statement Schedules
All 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)
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)
</TABLE>
-44-
<PAGE>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(continued)
<TABLE>
<CAPTION>
Sequential
Page
----
<S> <C>
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)
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)
</TABLE>
-45-
<PAGE>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(continued)
<TABLE>
<CAPTION>
Sequential
Page
----
<S> <C>
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)
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)
</TABLE>
-46-
<PAGE>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(continued)
<TABLE>
<CAPTION>
Sequential
Page
----
<S> <C>
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 (incorporated by reference to Exhibit 10(af) in
the Registrant's Annual Report on Form 10-K/A-1 dated December 31,
1995)
27 Financial Data Schedule (filed herewith) 50
(b) Reports on Form 8-K
Current Report on Form 8-K dated December 31, 1996, was filed on
January 10, 1997 relating to a preliminary approval order with
respect to the settlement of class action litigation.
</TABLE>
-47-
<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 General Partner
Date: March 27, 1997
By: /s/ J. Michael Fried
-------------------------------
J. Michael Fried
President and Director
and
By: PRUDENTIAL-BACHE PROPERTIES, INC.,
a General Partner
Date: March 27, 1997
By: /s/ Thomas F. Lynch, III
-------------------------------
Thomas F. Lynch, III
President, Chief Executive Officer,
Chairman of the Board of Directors
and Director
-48-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, the report has been signed below by the following persons on behalf by the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- - -------------------------- ------------------------------------- -----------------------
<S> <C> <C>
/s/ J. Michael Fried President (principal
- - -------------------------- executive officer)
J. Michael Fried and Director of
Related Tax Exempt Bond
Associates, Inc. (a General Partner of the
Registrant) March 27, 1997
/s/ Alan P. Hirmes Vice President (principal financial officer) of
- - -------------------------- Related Tax Exempt
Alan. P. Hirmes Bond Associates, Inc. March 27, 1997
/s/ Richard A. Palermo Treasurer (principal accounting officer) of
- - -------------------------- Related Tax Exempt Bond Associates, Inc. March 27, 1997
Richard A. Palermo
/s/ Stephen M. Ross Director of
- - -------------------------- Related Tax Exempt Bond Associates, Inc. March 27, 1997
Stephen M. Ross
/s/ Thomas F. Lynch, III Chairman of the
- - -------------------------- Board, President,
Thomas F. Lynch, III (principal executive officer)
and Director of Prudential-Bache Properties,
Inc. (a General Partner of the Registrant) March 27, 1997
/s/ Barbara J. Brooks Vice President -
- - -------------------------- Finance and Chief Financial
Barbara J. Brooks Officer (principal financial officer)
of Prudential-Bache Properties, Inc. March 27, 1997
/s/ Nathalie P. Maio Director of Prudential-Bache Properties, Inc. March 27, 1997
- - --------------------------
Nathalie P. Maio
/s/ Eugene D. Burak Vice President of
- - -------------------------- Prudential-Bache Properties, Inc. March 27, 1997
Eugene D. Burak
/s/ Frank W. Giordano Director of Prudential-Bache Properties, Inc. March 27, 1997
- - --------------------------
Frank W. Giordano
</TABLE>
-49-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Summit Tax Exempt Bond Fund L.P. and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<CIK> 0000786156
<NAME> Summit Tax Exempt Bond Fund L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 244,439
<SECURITIES> 125,014,743
<RECEIVABLES> 12,000,032
<ALLOWANCES> 4,495,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 134,476,035
<CURRENT-LIABILITIES> 1,198,534
<BONDS> 13,680,866
0
0
<COMMON> 0
<OTHER-SE> 119,596,635
<TOTAL-LIABILITY-AND-EQUITY> 134,476,035
<SALES> 0
<TOTAL-REVENUES> 9,799,440
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,949,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,322,370
<INCOME-PRETAX> 6,527,563
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,527,563
<EPS-PRIMARY> .81
<EPS-DILUTED> 0
</TABLE>
