<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 June 30, 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>
June 30, December 31,
1994 1993
<S> <C> <C>
- - --------------------------------------------------------------------------------------------------
ASSETS
Participating first mortgage bonds, net $130,322,891 $130,309,664
Assets held for sale, net 29,350,000 29,350,000
Temporary investments 2,112,000 1,855,780
Cash 115,458 302,826
Cash held in escrow 513,115 508,023
Interest receivable 1,055,578 805,805
Promissory notes receivable, net 226,753 269,673
Deferred bond selection fees, net 2,266,746 2,359,106
Other assets 47,411 17,747
------------ ------------
Total assets $166,009,952 $165,778,624
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Due to affiliates $ 431,655 $ 158,162
Reserve for disputed claim 400,000 400,000
Deferred income 131,775 160,514
Accrued expenses 86,311 141,869
------------ ------------
Total liabilities 1,049,741 860,545
------------ ------------
Contingencies
Partners' capital
Limited partners (9,151,620 BUC$ issued and outstanding) 165,054,032 165,012,743
General partners (93,821) (94,664)
------------ ------------
Total partners' capital 164,960,211 164,918,079
------------ ------------
Total liabilities and partners' capital $166,009,952 $165,778,624
------------ ------------
------------ ------------
- - --------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
2
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
------------------------- -------------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------
REVENUES
Interest income from participating first
mortgage bonds $4,851,189 $4,798,024 $2,441,307 $2,433,357
Income from assets held for sale, net 858,026 818,952 485,552 444,946
Interest income from temporary investments 26,136 20,815 13,880 9,793
Interest income from promissory notes 20,357 30,871 8,433 20,521
---------- ---------- ---------- ----------
5,755,708 5,668,662 2,949,172 2,908,617
---------- ---------- ---------- ----------
EXPENSES
Management fees 405,312 405,312 202,656 202,656
Loan servicing fees 200,991 200,991 101,051 101,051
General and administrative 158,952 214,861 79,450 104,538
Amortization of deferred bond selection
fees 92,360 92,360 46,180 46,180
Provision for disputed claim -- 400,000 -- 400,000
---------- ---------- ---------- ----------
857,615 1,313,524 429,337 854,425
---------- ---------- ---------- ----------
Net income $4,898,093 $4,355,138 $2,519,835 $2,054,192
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ALLOCATION OF NET INCOME
Limited partners $4,800,131 $4,268,035 $2,469,438 $2,013,108
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
General partners $ 97,962 $ 87,103 $ 50,397 $ 41,084
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per BUC $ .52 $ .47 $ .27 $ .22
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- - -----------------------------------------------------------------------------------------------------
</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 4,800,131 97,962 4,898,093
Distributions (4,758,842) (97,119 ) (4,855,961)
------------ -------- ------------
Partners' capital (deficit)--June 30, 1994 $165,054,032 $(93,821) $164,960,211
------------ -------- ------------
------------ -------- ------------
- - ---------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
3
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
<S> <C> <C>
1994 1993
- - --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $4,629,590 $4,692,303
Cash received from assets held for sale, net 858,026 818,952
Fees and expenses paid (576,984) (458,423)
Cash held in escrow -- (500,000)
---------- ----------
Net cash provided by operating activities 4,910,632 4,552,832
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net sale (purchase) of temporary investments (256,220) 604,275
Principal payments received from loans made to properties 14,181 --
Loans made to properties -- (263,714)
---------- ----------
Net cash provided by (used in) investing activities (242,039) 340,561
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (4,855,961) (4,855,961)
---------- ----------
Net increase (decrease) in cash (187,368) 37,432
Cash at beginning of period 302,826 228,469
---------- ----------
Cash at end of period $ 115,458 $ 265,901
---------- ----------
---------- ----------
- - --------------------------------------------------------------------------------------------------
SCHEDULE RECONCILING NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $4,898,093 $4,355,138
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred bond selection fees 92,360 92,360
Accretion of valuation allowance (13,227) (13,227)
Changes in:
Cash held in escrow (5,092) (500,000)
Interest receivable (249,773) (144,180)
Due from affiliates -- 38,624
Promissory notes receivable, net 28,739 30,467
Other assets (29,664) (37,982)
Due to affiliates 273,493 363,125
Deferred income (28,739) (30,467)
Accrued expenses (55,558) 398,974
---------- ----------
Total adjustments 12,539 197,694
---------- ----------
Net cash provided by operating activities $4,910,632 $4,552,832
---------- ----------
---------- ----------
- - --------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
4
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1994, the results of its operations
for the six and three months ended June 30, 1994 and 1993 and its cash flows for
the six months ended June 30, 1994 and 1993. However, the operating results for
the interim periods may not be indicative of the results expected for the full
year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1993.
Certain balances from the prior periods have been reclassified to conform
with the current year financial statement presentation.
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 were self-amortizing over the period ending May
1994 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. Subsequent principal payments relating to these loans were recorded as
income from assets held for sale. The loans were fully amortized during the
second quarter of 1994. Interest income recognized on these loans was
approximately $2,300 and $12,700 for the six months ended June 30, 1994 and
1993, respectively, and approximately $500 and $6,300 for the three months ended
June 30, 1994 and 1993, respectively.
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. In July 1994, the
appeal was rejected and the judgment affirmed. The Lakes Project Investors, Inc.
has petitioned the court to grant a rehearing, or in the alternative, transfer
the case to the Missouri Supreme Court. There is no assurance the court will
grant such request and the ultimate resolution of a rehearing or transfer is
uncertain; however, if The Lakes Project Investors, Inc. is unsuccessful in
these attempts, the Partnership may lose a portion or all of the escrow
deposited on behalf of The Lakes Project Investors, Inc. The Partnership has
established a reserve of $400,000 relating to this judgment for the amount of
loss anticipated should a rehearing be unsuccessful.
On January 27, 1994, Lakes Projects Investors, Inc. sold an option to
purchase the ownership interest in The Lakes, subject to the assumption of the
obligation under the Partnership's $13,650,000 FMB to an unrelated third party
for $200,000. The option is exercisable at a purchase price of $520,000 until
August 30,
5
<PAGE>
<PAGE>
1994, at which time it expires. Both the option and purchase price proceeds, net
of closing costs, will be paid to the Partnership; however, there is no
assurance that the option will be exercised or the sale closed.
In January 1994, the terms of The Lakes FMB were modified. Beginning in April
1994, the payment terms of the FMB are based upon current income generated by
the property and include a base interest rate of 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) and participation in the net cash flow thereafter. In
addition, the call date of the FMB was extended to 2006. Currently, all the net
cash flow generated by the property is paid to the Partnership.
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 the services, the amount of which is limited by provisions of
the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------
Prudential-Bache Properties, Inc. (``PBP'') and
affiliates:
General and administrative $ 49,603 $ 53,400 $ 24,801 $ 26,700
Management fee 202,656 202,656 101,328 101,328
-------- -------- -------- --------
252,259 256,056 126,129 128,028
-------- -------- -------- --------
Related General Partner and affiliates:
Loan servicing fees 200,991 200,991 101,051 101,051
General and administrative 8,007 29,974 1,375 14,987
Management fee 202,656 202,656 101,328 101,328
-------- -------- -------- --------
411,654 433,621 203,754 217,366
-------- -------- -------- --------
$663,913 $689,677 $329,883 $345,394
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The General Partners are paid, in aggregate, an annual management fee equal
to .5% of the total invested assets (which equals the original face amount of
total FMBs).
An affiliate of the Related General Partner receives loan servicing fees in
the amount of .25% per annum of the principal amount outstanding on mortgage
loans serviced by the affiliate.
A division of Prudential Securities Incorporated (``PSI''), an affiliate of
PBP, receives a fee for the purchase, sale, and safekeeping of the Partnership's
temporary investments. This account is maintained in accordance with the
Partnership Agreement.
PSI owns 48,825 BUC$ at June 30, 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 obligors of the Suntree, Players Club and River Run FMBs are
affiliates of the Related General Partner.
6
<PAGE>
C. Assets Held for Sale
Assets held for sale and the related income thereon are as follows:
<TABLE>
<CAPTION>
Net cash received Net cash received
for the six for the three
months ended months ended
June 30, June 30,
Call Maturity Carrying Value Face Amount ------------------------- -------------------
Date Date of FMB of FMB 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------------------------------------
The Lakes,
Kansas City, MO Dec. 2006 Dec. 2006 $ 11,750,000 $13,650,000 $ 248,574 $ 283,902 $159,614 $140,723
Pelican Cove,
St. Louis, MO Feb. 1999 Feb. 2007 17,600,000 18,000,000 609,452 535,050 325,938 304,223
-------------- ----------- ----------- ----------- -------- --------
$ 29,350,000 $31,650,000 $ 858,026 $ 818,952 $485,552 $444,946
-------------- ----------- ----------- ----------- -------- --------
-------------- ----------- ----------- ----------- -------- --------
</TABLE>
D. Contingencies
On or about October 18, 1993, a putative class action, captioned Kinnes et
al. v. Prudential Securities Group Inc. et al. (93 Civ. 654), was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership against the Partnership, PBP, Prudential
Securities Incorporated and a number of other defendants. On or about November
16, 1993, a putative class action captioned Connelly et al. v. Prudential-Bache
Securities Inc. et al. (93 Civ. 713), was filed in the United States District
Court for the District of Arizona, purportedly on behalf of investors in the
Partnership against the Partnership, PBP, Prudential Securities Incorporated and
a number of other defendants. On or about 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, Prudential Securities Incorporated and a number of other
defendants. Subsequently the Related General Partner exited the litigation by
way of settlement. On April 14, 1994, the Judicial Panel on Multidistrict
Litigation (the ``Panel'') deferred transfer of the case to the Southern
District of New York (discussed more fully below) until after the Illinois court
decided a pending motion to dismiss the complaint. On June 3, 1994, that court
granted the motion of PBP and Prudential Securities Incorporated and dismissed
the first amended complaint without prejudice. On June 30, 1994, plaintiffs
filed a second amended complaint. By order dated July 13, 1994, the Panel
unconditionally transferred the Levine case for inclusion in the consolidated
proceedings in the Southern District of New York.
By its April 14, 1994 order, the Panel transferred (in addition to Levine as
discussed above) the Kinnes case, and by order dated May 4, 1994, the Connelly
case, together with a number of other actions, on each occasion not involving
the Partnership, to a single judge of the United States District Court for the
Southern District of New York and consolidated them under the caption In re
Prudential Securities Incorporated Limited Partnership Litigation (MDL Docket
No. 1005). On June 8, 1994, plaintiffs in the transferred cases filed a
complaint that consolidated the previously filed complaints and named as
defendants, among others, Prudential Securities Incorporated, certain of its
present and former employees and the General Partners. The Partnership is not
named a defendant in the consolidated complaint, but the name of the Partnership
is listed as being among the limited partnerships at issue in the case. The
consolidated complaint alleges violations of the federal Racketeer Influenced
and Corrupt Organizations Act (``RICO''), fraud, negligent misrepresentation,
breach of fiduciary duties, breach of third-party beneficiary contracts, breach
of implied covenants and violations of New Jersey statutes in connection with
the marketing and sales of limited partnership interests. Plaintiffs request
relief in the nature of: rescission of the purchase of securities, and recovery
of all consideration and expenses in connection therewith, as well as
compensation for lost use of money invested, less cash distributions;
compensatory damages; consequential damages; treble damages for defendants' RICO
violations (both federal and New Jersey); general damages for all injuries
resulting from negligence, fraud, breaches of contract, and breaches of duty in
an amount to be determined at trial; disgorgement and restitution of all
earnings, profits, benefits and compensation received by defendants as a result
of their unlawful acts; costs and disbursements of the action; reasonable
attorneys' fees; and such other and further relief as the court deems just and
proper.
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
7
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<PAGE>
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, rescission,
compensatory damages and attorneys' fees. Defendants have moved to dismiss the
complaint; plaintiff has not yet responded.
The General Partners and Prudential Securities Incorporated believe they have
meritorious defenses to the complaints and intend to vigorously defend against
these actions. Pursuant to the terms of the Partnership Agreement, the General
Partners may be entitled to indemnification for any loss suffered as a result of
these actions including their attorneys' fees; however, no such claims have been
made.
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 August 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 June 30, 1994.
8
<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 $2,227,000 in cash and temporary investments. The
second quarter distribution of approximately $2,379,000 ($.26 per BUC) was to
limited partners paid in August 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 $543,000 and $466,000 for the six and
three months ended June 30, 1994 as compared to the corresponding periods in
1993 for the reasons discussed below.
Interest income from first mortgage bonds increased by approximately $53,000
and $8,000 for the six and three months ended June 30, 1994 as compared to the
corresponding periods 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 the Crowne Pointe FMB partially offset by
reduced rates paid on the Shannon Lakes, Suntree and Players Club FMBs as a
result of the amendments to the forbearance agreements entered into in 1993 and
1994.
Income received from FMBs that are classified as assets held for sale (see
Note C to the financial statements) increased by approximately $39,000 and
$41,000 for the six and three months ended June 30, 1994 as compared to the
corresponding periods in 1993 primarily due to higher cash flow generated by the
properties.
Interest income from temporary investments increased by approximately $5,000
and $4,000 for the six and three months ended June 30, 1994 as compared to the
corresponding periods in 1993 primarily due to higher cash balances.
Interest income from promissory notes decreased by approximately $11,000 and
$12,000 for the six and three months ended June 30, 1994 as compared to the
corresponding periods in 1993 primarily due to the timing of payments on the
promissory notes.
General and administrative expenses decreased by approximately $56,000 and
$25,000 for the six and three months ended June 30, 1994 as compared to the
corresponding periods in 1993 due primarily to lower legal costs related to the
Levine litigation discribed in Note D to the financial statements and a general
reduction in the costs associated with the administration of the Partnership.
During 1993, a $400,000 contingent liability was recorded to estimate the
amount of probable loss if the request for rehearing of the appeal of the
mechanics lien judgment relating to The Lakes is denied or if The Lakes is
unsuccessful in such a rehearing (see Note B to the financial statements).
The following table lists the FMBs that the Partnership owns together with
occupancy rates of the underlying properties as of July 22, 1994:
<TABLE>
<CAPTION>
Face
Amount of Stated
Property Location FMB Occupancy Interest Rate
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------
Bay Club Mt. Pleasant, SC $ 6,400,000 100.0% 7.00%(A)
Loveridge Contra Costa, Ca 8,550,000 91.2 8.00%
The Lakes Kansas City, Mo 13,650,000 97.2 4.87%(F)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Face
Amount of Stated
Property Location FMB Occupancy Interest Rate
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Crowne Pointe Olympia, Wa $ 5,075,000 90.0% 8.00%(E)
Orchard Hills Tacoma, Wa 5,650,000 94.9 8.00%
Highland Ridge St. Paul, Mn 15,000,000 98.2 8.00%
Newport Village Tacoma, Wa 13,000,000 95.6 8.00%(C)
Sunset Downs Lancaster, Ca 15,000,000 93.9 8.00%(C)
Pelican Cove St. Louis, Mo 18,000,000 97.7 8.00%(B)
Willow Creek Ames, Ia 6,100,000 100.0 8.00%
Cedar Pointe Nashville, Tn 9,500,000 97.5 8.00%
Shannon Lake Atlanta, Ga 12,000,000 95.6 8.00%(C)
Bristol Village Bloomington, Mn 17,000,000 99.3 8.00%(C)
Suntree Ft. Myers, Fl 7,500,000 94.5 8.00%(C)
River Run Miami, Fl 7,200,000 100.0 8.00%
Players Club Ft. Myers, Fl 2,500,000 89.6 8.00%(D)
------------
$162,125,000
------------
------------
- - ----------------------------------------------------------------------------------------------------
(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 rate paid is the current cash flow of the property. See Note C to the financial statements.
(C) See pages 11 and 12 for discussion of the rates paid.
(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 12 for discussion of the rate paid.
(E) Contingent interest received during 1994. See discussion on page 12.
(F) See Note B to the financial statements for discussion of interest rate modification.
</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 by an affiliate of the Related General Partner to an unrelated third
party. As part of this transaction, the minimum annual 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 payable out of available
future cash flow. Actual monthly payments, made based on net monthly cash flow,
are adjusted at year-end to the greater of net cash flow up to 8.25% or the
minimum annual pay rate. During the six months ended June 30, 1994, the
Partnership received interest of 6.32% (7.8% for the six months ended June 30,
1993). 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 4.37% per annum which represents cash flow of the property after
operating expenses and escrowing for real estate taxes (4.3% was paid for the
six months ended June 30, 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,
10
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<PAGE>
was self-amortizing over the two years ending May 1994 with interest at 8.5% per
annum, payable monthly. Principal payments were 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 an option to
purchase the ownership interest in The Lakes subject to the assumption of the
obligation under the Partnership's $13,650,000 FMB to an unrelated party. The
option is exercisable at a purchase price of $520,000 until August 30, 1994, at
which time it expires. Both the option and purchase price proceeds, net of
closing costs, will be paid to the Partnership; however, there is no assurance
that the option will be exercised or the sale closed.
In January 1994, the terms of The Lakes FMB were modified. Beginning in April
1994, the payment terms of the FMB are based upon current income generated by
the property and include a base interest rate of 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) and participation in the net cash flow thereafter. The call
date of the FMB was extended to 2006. Currently, all net cash flow generated by
the property is paid to the Partnership.
Newport Village, Tacoma, Washington
Due to soft market conditions, the General Partners entered into a
forbearance agreement with the owner of the Newport Village property in 1992.
Pursuant to the terms of the agreement, in October 1992, the property began
paying debt service at 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 rate paid 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 paying interest at
the scheduled annual rate of 6.5%, the property generated income sufficient to
pay deferred base interest of approximately $40,000 and $20,000 during the six
and three months ended June 30, 1994, respectively.
Sunset Downs, Lancaster, California
Due to soft market conditions, the General Partners entered into a
forbearance agreement with the owner of the Sunset Downs property in 1992. The
property began paying debt service at 7.0% per annum in June 1992 which
increased to 7.25% in June 1993 and 7.5% in June 1994. The minimum pay rate is
scheduled to further increase in annual increments to the original stated rate
of 8.0% as of June 1996. The difference between the rate paid 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 6.77% per annum have
been made based on the net cash flow of the property for the six months ended
June 30, 1994 (5.2% was paid for the six months ended June 30, 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 were 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, was self-amortizing over the
two years ending May 1994 with interest at 8.5% per annum payable monthly.
Principal payments on this loan were 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 reduced to 7.0% per annum in 1991 and were
scheduled to increase in annual increments to the stated rate of 8.0% over the
next two years. Due to continuing soft market conditions, the General Partners
modified the forbearance agreement in April 1993 to allow the property's owner
to pay interest at 6.0% through December 1995. The difference between the rate
paid 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
agreement, an allowance for possible loss was established for this loan during
1993. Interest payments on both the FMB and the tax loan are current.
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Bristol Village, Bloomington, Minnesota
Due to soft market conditions, the General Partners entered into a
forbearance agreement with the owner of the Bristol Village property in 1992.
Pursuant to the terms of the modification, in October 1992, the property began
paying debt service at 6.0% per annum which increased to 7.0% in April 1993 and
7.25% in April 1994. The rate is scheduled to further increase in annual
increments to the original stated rate of 8.0% in January 1997. The difference
between the rate paid and the original stated rate is payable from available
future cash flow or ultimately from sales or refinancing proceeds. In addition
to the minimum pay rate of 7.25%, the property generated income sufficient to
pay deferred base interest of approximately $20,000 during the three months
ended June 30, 1994.
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
owners of 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 7.25% per annum, an increase from the 1992 rate of 7.0%
per annum. Due to continuing soft market conditions and certain deferred
maintenance items, effective January 1, 1994, these forbearance agreements were
modified to allow minimum debt service payments at 6.0% per annum through the
end of 1994, at which time the minimum required pay rates are scheduled to
increase to the original stated rate of 8.0%. The difference between the rate
paid and the original stated rate is payable from available future cash flow or
ultimately from sales of refinancing proceeds.
River Run, Miami, Florida
The developer of the River Run property has expressed an interest to prepay
its FMB obligation. There is no assurance that the prepayment will take place.
The property is paying at its stated interest rate of 8%.
Crowne Pointe, Olympia, Washington
Contingent interest of approximately $13,000 was received from the Crowne
Pointe property during the first quarter of 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 $391,000 and $421,000 was not recognized for the six months
ended June 30, 1994 and 1993, respectively.
From time to time, certain property owners have elected to supplement the
cash flow generated by the properties to meet the required bond interest
payments. There can be no assurance that in the future any property owner will
elect to supplement property cash flow to satisfy bond interest requirements if
necessary.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings--Incorporated by reference to Note D to the financial
statements filed herewith in Item 1 of Part I of the Registrant's
Quarterly Report.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--On October 21, 1993, an affiliate of Prudential-Bache
Properties, Inc., Prudential Securities Incorporated (``PSI''), settled,
without admitting or denying the allegations contained therein, civil
and administrative proceedings with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and
various state regulators. These proceedings concerned, among other
things, the sale by PSI of limited partnership interests, including
interests of the Registrant during the period 1980 through 1990. The
settlement has no impact on the Registrant itself.
The Office of the United States Attorney for the Southern District of
New York is conducting an investigation relating to the sale by PSI of
limited partnership interests during the period 1980 through 1990. In
connection with this investigation, PSI has received grand jury
subpoenas and other requests for information. PSI has been complying
with and intends to continue to comply with these requests and the
investigation is ongoing. Furthermore, in the ordinary course of PSI's
business, it receives inquiries and document requests from various
states and regulatory authorities concerning the sales activities of
certain of its employees, some of which may have in the past or 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.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT TAX EXEMPT L.P. II
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Robert J. Alexander Date: August 12, 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: August 12, 1994
----------------------------------------
Alan P. Hirmes
Vice President
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