<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
OR
/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-15726
SUMMIT TAX EXEMPT L.P. II
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3370413
- - --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification
No.)
625 Madison Ave., New York, N.Y. 10022
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
N/A
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
<PAGE>
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
- - ---------------------------------------------------------------------------------------------------
ASSETS
Participating first mortgage bonds, net $ 130,316,278 $130,309,664
Assets held for sale, net 29,350,000 29,350,000
Temporary investments 2,166,120 1,855,780
Cash 223,500 302,826
Cash held in escrow 509,376 508,023
Interest receivable 796,249 805,805
Promissory note receivable, net 245,597 269,673
Deferred bond selection fees, net 2,312,926 2,359,106
Other assets -- 17,747
------------- ------------
Total assets $ 165,920,046 $165,778,624
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Due to affiliates $ 426,775 $ 158,162
Reserve for disputed claim 400,000 400,000
Deferred income 143,457 160,514
Accrued expenses 81,458 141,869
------------- ------------
Total liabilities 1,051,690 860,545
------------- ------------
Commitments and contingencies
Partners' capital
Limited partners (9,151,620 BUC$ issued and outstanding) 164,964,015 165,012,743
General partners (95,659) (94,664)
------------- ------------
Total partners' capital 164,868,356 164,918,079
------------- ------------
Total liabilities and partners' capital $ 165,920,046 $165,778,624
------------- ------------
------------- ------------
- - ---------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
2
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1994 1993
<S> <C> <C>
- - --------------------------------------------------------------------------------------------------
REVENUES
Interest income from participating first mortgage bonds $2,409,882 $2,367,915
Income from assets held for sale, net 372,474 374,006
Interest income from temporary investments 12,256 11,022
Interest income from promissory notes 11,924 7,102
---------- ----------
2,806,536 2,760,045
---------- ----------
EXPENSES
Management fees 202,656 202,656
Loan servicing fees and expenses 99,940 99,940
General and administrative 79,502 110,323
Amortization of deferred bond selection fees 46,180 46,180
---------- ----------
428,278 459,099
---------- ----------
Net income $2,378,258 $2,300,946
---------- ----------
---------- ----------
ALLOCATION OF NET INCOME
Limited partners $2,330,693 $2,254,927
---------- ----------
---------- ----------
General partners $ 47,565 $ 46,019
---------- ----------
---------- ----------
Net income per BUC $ .25 $ .25
---------- ----------
---------- ----------
- - --------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1993 $165,012,743 $(94,664) $164,918,079
Net income 2,330,693 47,565 2,378,258
Distributions (2,379,421) (48,560 ) (2,427,981)
------------ -------- ------------
Partners' capital (deficit)--March 31, 1994 $164,964,015 $(95,659) $164,868,356
------------ -------- ------------
------------ -------- ------------
- - ---------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
3
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
<S> <C> <C>
1994 1993
- - --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $2,435,650 $2,298,006
Cash received from assets held for sale, net 372,474 374,006
Fees and expenses paid (156,148) (110,601)
---------- ----------
Net cash provided by operating activities 2,651,976 2,561,411
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net sale (purchase) of temporary investments (310,340) 4,157
Principal payments from loans made to properties 7,019 --
---------- ----------
Net cash provided by (used in) investing activities (303,321) 4,157
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (2,427,981) (2,427,981)
---------- ----------
Net increase (decrease) in cash (79,326) 137,587
Cash at beginning of period 302,826 228,469
---------- ----------
Cash at end of period $ 223,500 $ 366,056
---------- ----------
---------- ----------
- - --------------------------------------------------------------------------------------------------
SCHEDULE RECONCILING NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $2,378,258 $2,300,946
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred bond selection fees 46,180 46,180
Accretion of valuation allowance (6,614) (6,614)
Changes in:
Cash held in escrow (1,353) --
Interest receivable 9,556 (81,418)
Due from affiliates -- (38,934)
Promissory notes receivable, net 17,057 14,988
Other assets 17,747 15,275
Due to affiliates 268,613 318,783
Deferred income (17,057) (14,988)
Accrued expenses (60,411) 7,193
---------- ----------
Total adjustments 273,718 260,465
---------- ----------
Net cash provided by operating activities $2,651,976 $2,561,411
---------- ----------
---------- ----------
- - --------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
4
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1994
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of March 31, 1994 and the results of its
operations and its cash flows for the three months ended March 31, 1994 and
1993. However, the operating results for the interim periods may not be
considered indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1993.
B. Related Parties
For two properties collateralizing the participating first mortgage bonds
(``FMBs'') which are classified as assets held for sale in the financial
statements (The Lakes, securing a $13,650,000 bond, and Pelican Cove, securing
an $18,000,000 bond), the original owners of the underlying properties and
obligors of the FMBs were replaced by affiliates of Related Tax Exempt
Associates II, Inc., a general partner of the Partnership (the ``Related General
Partner''), which have not made equity investments. These entities have assumed
the day-to-day responsibilities and obligations of the underlying properties.
Buyers are being sought who would make equity investments in the underlying
properties and assume the nonrecourse obligations for the FMBs. Although these
properties are not producing sufficient cash flow to fully service the debt (see
Note C), the Partnership has no present intention to declare a default on such
FMBs.
In June and December 1992, the Partnership made additional loans aggregating
approximately $410,000 to The Lakes and Pelican Cove for payment of 1991 past
due property taxes. The loans are self-amortizing over two years with interest
at 8.5% per annum. Because The Lakes and Pelican Cove properties are assets held
for sale paying on a cash flow basis, the loans were recorded in operating
results as a reduction of income from assets held for sale. The properties are
current on these loan payments. Interest income recognized on these loans was
approximately $1,800 and $6,400 for the three months ended March 31, 1994 and
1993, respectfully.
On May 13, 1993, the Partnership, on behalf of Lakes Project Investors Inc.,
an affiliate of the Related General Partner who replaced the original developer,
deposited a cash escrow of $500,000 in connection with the filing of an appeal
of a mechanic's lien judgment rendered against The Lakes. The ultimate
resolution of this appeal is uncertain; however, if unsuccessful, the
Partnership may lose a portion or all of the escrow. The Partnership has
established a reserve of $400,000 relating to this judgment for the amount of
loss anticipated if the appeal is unsuccessful.
On January 27, 1994, Lakes Projects Investors Inc. sold for $200,000 an
option to purchase the ownership interest in The Lakes, including the property
and the assumption of the Partnership's $13,650,000 FMB. The option is
exercisable at a price of $520,000 until August 30, 1994, at which time it
expires. There is no assurance that the option will be exercised.
The terms of The Lakes FMB were modified on January 24, 1994. Beginning in
April 1994, the base interest rate will be reduced to 4.87% ($665,000 per annum)
with 100% of the excess cash flow paid to the Partnership up to a rate of 5.24%
($715,000 per annum). In addition, the call date was extended to 2006.
The General Partners and their affiliates perform services for the
Partnership which include but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing services and other administrative services.
The General Part-
5
<PAGE>
<PAGE>
ners and their affiliates receive reimbursements for costs incurred in
connection with the services, the amount of which is limited by provisions of
the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1994 1993
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------
Prudential-Bache Properties, Inc. (``PBP'') and affiliates
General and administrative $ 24,802 $ 26,700
Management fee 101,328 101,328
-------- --------
126,130 128,028
-------- --------
Related General Partner and affiliates
Loan servicing fees and expenses 99,940 99,940
General and administrative 6,632 14,987
Management fee 101,328 101,328
-------- --------
207,900 216,255
-------- --------
$334,030 $344,283
-------- --------
-------- --------
</TABLE>
The General Partners are paid, in aggregate, an annual management fee equal
to .5% of the total invested assets (which equals the original face amount of
total FMBs).
An affiliate of the Related General Partner receives loan servicing fees in
the amount of .25% per annum of the principal amount outstanding on mortgage
loans serviced by the affiliate.
A division of Prudential Securities Incorporated (``PSI''), an affiliate of
PBP, receives a fee for the purchase, sale, and safekeeping of the Partnership's
temporary investments. This account is maintained in accordance with the
Partnership Agreement.
PSI owns 46,325 BUC$ at March 31, 1994.
The Players Club property (securing a $2,500,000 FMB in this Partnership)
also secures an FMB for $7,200,000 owned by Summit Tax Exempt L.P. III, of which
the general partners are either the same or affiliates of the General Partners
of this Partnership.
The original obligor of the Suntree and Players Club FMBs is an affiliate of
the Related General Partner.
C. Assets Held for Sale
Assets Held for Sale and the related income thereon are as follows:
<TABLE>
<CAPTION>
Net cash received
for the three
months ended
March 31,
Call Maturity Carrying Value Face Amount --------------------
Date Date of FMB of FMB 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------
The Lakes,
Kansas City, MO Dec. 2006 Dec. 2006 $ 11,750,000 $13,650,000 $ 88,960 $143,179
Pelican Cove,
St. Louis, MO Feb. 1999 Feb. 2007 17,600,000 18,000,000 283,514 230,827
-------------- ----------- -------- --------
$ 29,350,000 $31,650,000 $372,474 $374,006
-------------- ----------- -------- --------
-------------- ----------- -------- --------
</TABLE>
6
<PAGE>
<PAGE>
D. Commitments and Contingencies
On or about October 18, 1993, a putative class action entitled Kinnes, et al.
v. Prudential Securities Incorporated et al., No. CIV-93-654 was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership, against the Partnership, PBP, Prudential
Securities Incorporated and a number of other defendants. Plaintiffs allege
claims for violation of The Racketeering Influenced and Corrupt Organizations
Act of 1970 (``RICO'') statutes, breach of fiduciary duty, fraud and deceit,
negligence, and an accounting. Plaintiffs seek unspecified compensatory,
punitive and treble damages, and rescission, including costs and attorney fees,
but the only relief sought against the Partnership is an accounting. No claims
for monetary relief have been asserted against the Partnership in this action.
Certain defendants filed a motion to dismiss on December 22, 1993. The court has
stayed all proceedings in the case pending a decision on a motion before the
Judicial Panel on Multi-District Litigation to transfer the case. On April 14,
1994, the Judicial Panel on Multi-District Litigation entered an order
transferring Kinnes and several other cases to a single judge in the United
States District Court for the Southern District of New York for consolidated or
coordinated pre-trial proceedings. Plaintiffs have stated that they intend to
file a consolidated amended complaint in the Multi-District Litigation
proceeding.
On or about November 16, 1993, a putative class action entitled Dan Connelly,
et al. v. Prudential-Bache Securities Inc. et al., No. CIV-93-713 was filed in
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership against the Partnership, PBP, Prudential
Securities Incorporated and a number of other defendants. An amended complaint
was filed on December 6, 1993. Plaintiffs allege fraud, breach of fiduciary
duty, negligent misrepresentation, malpractice and violation of the federal
securities laws and RICO statutes. Plaintiffs seek unspecified compensatory,
punitive and treble damages, disgorgement and restitution of all earnings,
profits, compensation and benefits received by defendants and rescission
including costs and attorney fees and an accounting. Plaintiffs have filed a
motion to consolidate the Connelly case with the Kinnes action. The court has
stayed all proceedings in the case pending a decision on a motion before the
Judicial Panel on Multi-District Litigation to transfer the case.
Notwithstanding the stay, on March 21, 1994, the court granted a request by the
plaintiffs for dismissal without prejudice of the action as to the claims of
seven of the thirteen named plaintiffs. The dismissal appears to eliminate all
claims against or relating to the Partnership. On May 4, 1994, the clerk of the
Judicial Panel on Multi-District Litigation entered a conditional transfer order
transferring Connelly and five other cases as ``Tag Along'' actions to the
Multi-District Litigation proceedings in New York, unless a party objects by May
19, 1994 to this transfer. The ultimate outcome of this litigation as well as
the impact on the Partnership cannot presently be determined. Accordingly, no
provision for any loss that may result upon resolution of this matter has been
made in the accompanying financial statements.
On January 3, 1992, a putative class action entitled Levine v.
Prudential-Bache Properties, Inc. et al., No. 92 C 0052 was filed in the United
States District Court for the Northern District of Illinois against the General
Partners and others, including Prudential Securities Incorporated. Plaintiffs
comprise a total of seven individual investors who have brought suit on behalf
of themselves and a class of others who purchased interests in: the Partnership;
Summit Tax Exempt Bond Fund, L.P.; and Summit Tax Exempt, L.P. III
(collectively, the ``Bond Funds''). Plaintiffs are also suing derivatively on
behalf of the Bond Funds. Defendants include, among others, the General Partners
and the Assignor Limited Partner in the Bond Funds.
This complaint alleges that the plaintiffs purchased the Bond Funds in
reliance on offering materials and oral representations that were false and
misleading. The complaint includes counts for alleged violations of RICO,
federal and state securities laws, common-law fraud, breach of fiduciary duty
and negligence. Plaintiffs seek rescission, compensatory and punitive damages,
treble damages under RICO, and attorneys' fees and costs.
On August 10, 1992, defendants filed motions to dismiss on the grounds, among
others, that all of plaintiffs' claims were barred by the applicable statutes of
limitations and that plaintiffs otherwise failed to state any claims against
defendants. In lieu of responding to the motions to dismiss, on March 17, 1993,
plaintiffs were granted leave to file an amended complaint. Plaintiffs' amended
complaint was filed on March 31, 1993; on April 30, 1993, defendants moved to
dismiss and that motion is fully briefed. On November 10, 1993, Plaintiffs moved
to voluntarily dismiss certain defendants from the litigation, including PBP,
and for leave to amend the action against the remaining defendants. Plaintiffs
subsequently determined to voluntarily dismiss all defendants, but then decided
not to dismiss PBP and Prudential Securities Incorporated, in
7
<PAGE>
<PAGE>
light of the pending motion before the Judicial Panel on Multi-District
Litigation, which seeks transfer of the action.
On or about March 16, 1994, the court entered an order in Levine v.
Prudential-Bache Properties, Inc., voluntarily dismissing without prejudice all
claims against the Related General Partner, all of its affiliates that were
named as defendants, and certain other defendants. Pursuant to a stipulation
dated March 3, 1994, the defendants that were dismissed from the action by the
court's order have agreed to toll the statutes of limitations until December 25,
1995, subject to certain limitations and conditions set forth in the
stipulation. The action continues to pend against PBP and Prudential Securities
Incorporated. On April 14, 1994, the Judicial Panel on Multi-District Litigation
deferred the transfer of the Levine action to the United States District Court
for the Southern District of New York in order to allow the United States
District Court for the Northern District of Illinois to decide the Prudential
defendants' pending motion to dismiss.
In July 1991, a putative class action entitled Schaffer v. Summit Tax Exempt
L.P. II, et al., No. 12176 Del. Cn. Ct., was filed in Delaware Chancery Court.
Plaintiff is an individual investor who has brought suit allegedly on behalf of
himself and others similarly situated who purchased Partnership interests.
Defendants include, among others, the Partnership, its General Partners, and its
Assignor Limited Partner. The complaint alleges breach of contract to list the
Partnership on an exchange. Plaintiff seeks an injunction, recission,
compensatory damages and attorneys' fees. Defendants have moved to dismiss the
complaint; plaintiff has not yet responded.
The General Partners intend to vigorously defend the Partnership and
themselves in these actions but the reasonably possible loss to the Partnership
is not presently subject to estimation. The General Partners may be entitled to
indemnification pursuant to the terms of the Partnership Agreement.
PBP is also named as a defendant, together with other parties, in pending
legal proceedings involving other limited partnerships. Although a number of
cases have been resolved, others are still pending. PBP intends to defend itself
vigorously against such actions.
E. Subsequent Event
In May 1994, a distribution of approximately $2,379,000 and $49,000 was paid
to the limited partners and General Partners, respectively, for the quarter
ended March 31, 1994.
8
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership has invested in sixteen tax-exempt participating first
mortgage bonds (``FMBs'') issued by various state or local governments or their
agencies or authorities. The FMBs are secured by participating first mortgage
loans on the properties.
At the beginning of the year, the Partnership had cash and temporary
investments of approximately $2,159,000. After payment of distributions and
after receiving the net cash flow from operations, the Partnership ended the
quarter with approximately $2,390,000 in cash and temporary investments. The
first quarter distribution of $.26 per BUC was paid in May 1994 from cash flow
from operations.
Interest payments from FMBs are anticipated to provide sufficient liquidity
to meet the operating expenditures of the Partnership in future years and to
fund distributions.
Results of Operations
Net income increased by approximately $77,000 for the three months ended
March 31, 1994 as compared to the corresponding period in 1993 for reasons
discussed below.
Interest income from FMBs increased by approximately $42,000 for the three
months ended March 31, 1994 as compared to the corresponding period in 1993.
This increase is due primarily to increased rates paid on the Newport Village,
Sunset Downs and Bristol Village FMBs and contingent interest received from
Crowne Pointe partially offset by reduced rates paid on the Shannon Lakes,
Suntree and Player's Club FMBs as a result of the amendments to the forbearance
agreements entered into in 1993 and 1994.
General and administrative expenses decreased by approximately $31,000 for
the three months ended March 31, 1994 as compared to the corresponding period in
1993 due primarily to lower legal costs related to the litigation discribed in
Note D to the financial statements.
The following table lists the FMBs that the Partnership owns together with
occupancy rates of the underlying properties as of April 24, 1994:
<TABLE>
<CAPTION>
Face
Amount of Rate Paid--
Property Location FMB Occupancy Stated Rate*
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------
Bay Club Mt. Pleasant, SC $ 6,400,000 97.3% 7.13%-7.00%(A)
Loveridge Contra Costa, Ca 8,550,000 95.9 8.00%-8.00%
The Lakes Kansas City, Mo 13,650,000 94.9 3.96%-8.00%(B)
Crowne Pointe Olympia, Wa 5,075,000 92.5 8.00%-8.00%(E)
Orchard Hills Tacoma, Wa 5,650,000 95.4 8.00%-8.00%
Highland Ridge St. Paul, Mn 15,000,000 91.1 8.00%-8.00%
Newport Village Tacoma, Wa 13,000,000 94.8 7.12%-8.00%(C)
Sunset Downs Lancaster, Ca 15,000,000 97.3 7.25%-8.00%(C)
Pelican Cove St. Louis, Mo 18,000,000 98.7 6.39%-8.00%(B)
Willow Creek Ames, Ia 6,100,000 100.0 8.00%-8.00%
Cedar Pointe Nashville, Tn 9,500,000 98.1 8.00%-8.00%
Shannon Lakes Atlanta, Ga 12,000,000 94.2 6.00%-8.00%(C)
Bristol Village Bloomington, Mn 17,000,000 98.6 7.25%-8.00%(C)
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Face
Amount of Rate Paid--
Property Location FMB Occupancy Stated Rate*
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Suntree Ft. Myers, Fl $ 7,500,000 95.8% 6.00%-8.00%(C)
River Run Miami, Fl 7,200,000 98.1 8.00%-8.00%
Players Club Ft. Myers, Fl 2,500,000 94.7 6.00%-8.00%(D)
------------
$162,125,000
------------
------------
*The rate paid represents the cash paid during 1994 while the stated rate represents the
interest rate of the FMB.
- - -------------------------------------------------------------------------------------------
(A) As discussed below, the stated rate on the restructured bond increases in annual
increments from 7.0% to 8.25% over the remaining term of the FMB.
(B) The pay rate is the current cash flow of the property. See Note C to the financial
statements.
(C) See pages 11 and 12 for discussion of pay rates.
(D) Summit Tax Exempt L.P. III, of which the general partners are either the same or
affiliates of the General Partners of the Partnership, acquired the other $7,200,000 of
the Players Club Bond issue. See page 11 for discussion of the pay rate.
(E) Contingent interest received during 1994. See discussion on page 12.
</TABLE>
Bay Club, Mt. Pleasant, South Carolina
In 1990, the terms of the Bay Club FMB ($6,400,000 face value) were modified
when the equity interest in the property and the related obligation of the FMB
were sold from an affiliate of the Related General Partner to an independent
owner. As part of this transaction, the minimum pay rate increases in annual
increments from 6.0% in 1990 to 8.25% in 1997. The difference between the
minimum interest rate and the original stated rate is deferred and is payable
out of available future cash flow. During the three months ended March 31, 1994,
the Partnership received interest at a rate of 7.13%. The scheduled minimum pay
rate was 6.75% through February 28, 1994 and increased to 7.0% on March 1, 1994.
The difference between the actual rate paid and the stated rate (8.25%) is
payable from available future cash flow or ultimately sales or refinancing
proceeds.
The Lakes, Kansas City, Missouri
In 1988, the original owner of the underlying property and obligor of the FMB
was replaced by an affiliate of the Related General Partner who has not made an
equity investment. As discussed below, all past due property taxes have been
paid and the property is currently making debt service payments at a rate of
approximately 3.96% per annum which represents cash flow of the property after
operating expenses and escrowing for taxes (4.3% was paid for the three months
ended March 31, 1993). Although this property is not producing sufficient cash
flow to fully service the debt, the Partnership has no present intention to
declare default on this FMB. In 1989, additional funds in the amount of $310,700
were loaned to the property by the Partnership to complete construction. This
loan is still outstanding and is in the form of a demand note with interest
accruing at 9.0% per annum. The loan plus interest is fully reserved as
uncollectible. The Partnership made an additional loan to the property for
approximately $128,000 in 1992 for payment of 1991 delinquent property taxes.
This loan, expensed for financial reporting purposes in 1992, is self-amortizing
over two years with interest at 8.5% per annum payable monthly. Payments on this
loan are current and are included in income from assets held for sale.
On January 27, 1994, Lakes Projects Investors Inc., an affiliate of the
Related General Partner who replaced the original developer, sold for $200,000
an option to purchase the ownership interest in The Lakes, including the
property and the assumption of the Partnership's $13,650,000 FMB. The option is
exercisable at a price of $520,000 until August 30, 1994, at which time it
expires. There is no assurance that the option will be exercised.
The terms of The Lakes FMB were modified on January 24, 1994. Beginning in
April 1994, the base interest rate will be reduced to 4.87% ($665,000 per annum)
with 100% of the excess cash flow paid to the Partnership up to a rate of 5.24%
($715,000 per annum). The call date was extended to 2006.
10
<PAGE>
<PAGE>
Newport Village, Tacoma, Washington
Due to soft market conditions, the General Partners entered into a
forbearance agreement with Newport Village in 1992. Pursuant to the terms of the
agreement, in October 1992, the property began paying debt service at the pay
rate of 6.0% which increased to 6.5% in September 1993 and is scheduled to
increase in annual increments to the original stated rate of 8.0% as of
September 1996. The difference between the pay rate and the original stated rate
is deferred and is payable from available future cash flow or ultimately from
sales or refinancing proceeds. In addition to the pay rate of 6.5%, the property
paid deferred base interest of approximately $20,000 during the three months
ended March 31, 1994.
Sunset Downs, Lancaster, California
Due to soft market conditions, the General Partners entered into a
forbearance agreement with the Sunset Downs property in 1992. The property began
paying debt service at a pay rate of 7.0% per annum in June 1992 which increased
in May 1993 to 7.25% and is scheduled to increase in annual increments to the
original stated rate of 8.0% as of May 1996. The difference between the pay rate
and the original stated rate is payable from available future cash flow or
ultimately from sales or refinancing proceeds.
Pelican Cove, St. Louis, Missouri
In 1989, the original owner of the underlying property and obligor of the FMB
was replaced by an affiliate of the Related General Partner who has not made an
equity investment. Debt service payments of approximately 6.39% per annum have
been made from the cash flow of the property for the three months ended March
31, 1994 (5.2% was paid for the three months ended March 31, 1993). Although
this property is not producing sufficient cash flow to fully service the debt,
the Partnership has no present intention to declare default on this FMB. All
previously unpaid property taxes have been paid with proceeds from a loan in the
amount of approximately $282,000 made by the Partnership in 1992. This loan,
expensed for financial reporting purposes in 1992, is self-amortizing over two
years with interest at 8.5% per annum payable monthly. Payments on this loan are
current and are included in income from assets held for sale.
Shannon Lake, Atlanta, Georgia
Pursuant to a forbearance agreement entered into with the property's owner in
1991, debt service payments were restructured calling for a pay rate of 7.0% per
annum in 1991 increasing in annual increments to the stated rate of 8.0% over
the next two years. Due to continuing soft market conditions, the General
Partners amended the agreement in April 1993 to allow the property's owner to
pay interest at a pay rate of 6.0% through December 1995. The difference between
the pay rate and the original stated rate is deferred and is payable from
available future cash flow or ultimately from sales or refinancing proceeds.
The Partnership made a $138,000 loan in April 1993 to the owner of the
property underlying the FMB for the payment of past due property taxes. The loan
requires interest only payments at 8.5% per annum, payable monthly, commencing
on May 1, 1993, with the principal due on April 30, 1996. Due to the forbearance
agreements, an allowance for possible loss was established for this loan during
1993. Interest payments on both the FMB and the tax loan are current.
Bristol Village, Bloomington, Minnesota
Due to soft market conditions, the General Partners entered into a
forbearance agreement with the Bristol Village property in 1992. Pursuant to the
terms of the modification, in October 1992, the property began paying debt
service at a pay rate of 6.0% per annum which increased in April 1993 to 7.0%.
The pay rate is scheduled to increase in annual increments to the original
stated rate of 8.0% in January 1997. The difference between the pay rate and the
original stated rate is payable from available future cash flow or ultimately
from sales or refinancing proceeds.
The Partnership made a $125,000 loan in April 1993 to the owner of the
property underlying the FMB for payment of past due property taxes. This loan is
self-amortizing over four years with interest at 8.0% per annum payable monthly.
Payments on this loan are current.
Suntree and Players Club, Ft. Myers, Florida
In 1992, the General Partners entered into forbearance agreements with the
Suntree and Players Club properties which called for reduced debt service
payments due to a soft market. In January 1993, the properties began paying debt
service at the pay rate of 7.25% per annum, an increase from the 1992 rate of
11
<PAGE>
<PAGE>
7.0% per annum. Effective January 1, 1994, these forbearance agreements were
amended in order to fund certain deferred maintenance items and to allow minimum
debt service payments at a pay rate of 6.0% through the end of 1994, at which
time the minimum pay rates are scheduled to increase to the original stated rate
of 8.0%. The difference between the pay rate and the original stated rate is
payable from available future cash flow or ultimately from sales of refinancing
proceeds.
Crowne Pointe, Olympia, Washington
Contingent interest of approximately $13,000 was received from the Crowne
Pointe property during the three months ended March 31, 1994.
General
The remaining properties are current on their debt service payments.
The determination as to whether it is in the best interest of the Partnership
to enter into forebearance agreements on the FMBs or, alternatively, to pursue
its remedies under the loan documents, including foreclosures, is based upon
several factors including, but not limited to, property performance, owner
cooperation and projected legal costs.
The difference between the stated interest rates and the rates paid by the
FMBs is not accrued as interest income for financial reporting purposes. The
accrual of interest at the stated interest rate will resume once a property's
ability to pay the stated rate has been adequately demonstrated. Interest income
of approximately $212,000 and $237,000 was not recognized for the quarters ended
March 31, 1994 and 1993, respectively.
From time to time, certain property owners have elected to supplement the
cash flow generated by the properties to meet the required bond interest
payments. There can be no assurance that in the future any property owner will
elect to supplement property cash flow to satisfy bond interest requirements if
necessary.
12
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--Incorporated by reference to Note D to the financial
statements filed herewith in Item 1 of Part I of the Registrant's
Quarterly Report.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--On October 21, 1993, an affiliate of Prudential-Bache
Properties, Inc., Prudential Securities Incorporated (``PSI''), settled,
without admitting or denying the allegations contained therein, civil
and administrative proceedings with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and
various state regulators. These proceedings concerned, among other
things, the sale by PSI of limited partnership interests, including
interests of the Registrant during the period 1980 through 1990. The
settlement has no impact on the Registrant itself.
The Office of the United States Attorney for the Southern District of
New York is conducting an investigation relating to the sale by PSI of
limited partnership interests during the period 1980 through 1990. In
connection with this investigation, PSI has received grand jury
subpoenas and other requests for information. PSI has been complying
with and intends to continue to comply with these requests and the
investigation is ongoing. Furthermore, in the ordinary course of PSI's
business, it receives inquiries and document requests from various
states and regulatory authorities concerning the sales activities of
certain of its employees, some of which in the past, and may in the
future, relate to the Registrant.
Item 6. Exhibits and Reports on Form 8-K--
(a) Exhibits:
4(a)--Partnership Agreement, incorporated by reference to Exhibit A
to the Prospectus of Registrant, dated July 7, 1986, filed
pursuant to Rule 424(b) under the Securities Act of 1933, File
No. 33-5213.
4(b)--Certificate of Limited Partnership, incorporated by
reference to Exhibit 4 to Amendment No.1 to Registration
Statement on Form S-11. File No. 33-5213.
(10ab)--First Supplemental Indenture between The Industrial Development
Authority of the City of Kansas City, Missouri and Boatmen's
First National Bank of Kansas City dated January 24, 1994 (filed
herewith).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
13
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT TAX EXEMPT L.P. II
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Robert J. Alexander Date: May 13, 1994
----------------------------------------
Robert J. Alexander
Vice President and Chief Accounting
Officer
By: Related Tax Exempt Associates II, Inc.
A Delaware corporation, General Partner
By: /s/ Alan P. Hirmes Date: May 13, 1994
----------------------------------------
Alan P. Hirmes
Vice President
14
<PAGE>
