SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
(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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-15726
SUMMIT TAX EXEMPT L.P. II
-------------------------------------------------------
(Exact names of registrant as specified in its charter)
Delaware 13-3370413
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
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 [ ]
<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>
ASSETS
March 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
Participating first mortgage bonds - at fair value $ 150,281,066 $ 150,274,452
Temporary investments 3,800,000 2,800,000
Cash and cash equivalents 288,636 972,889
Interest receivable, net 897,268 899,299
Promissory notes receivable, net 40,660 70,513
Deferred bond selection fees, net 1,943,483 1,989,663
Other assets 0 12,498
------------- -------------
Total assets $ 157,251,113 $ 157,019,314
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Deferred income $ 424,077 $ 455,636
Accrued expenses 90,414 132,653
Due to affiliates 311,956 64,061
------------- -------------
Total liabilities 826,447 652,350
------------- -------------
Contingencies
Partners' capital (deficit):
BUC$holders (9,151,620 BUC$
issued and outstanding) 164,468,556 164,412,008
General partners (105,769) (106,923)
Net unrealized loss on participating
first mortgage bonds (7,938,121) (7,938,121)
------------- -------------
Total partners' capital 156,424,666 156,366,964
------------- -------------
Total liabilities and partners' capital $ 157,251,113 $ 157,019,314
============= =============
</TABLE>
See accompanying notes to financial statements
-2-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
------------------------
1996 1995
---------- ----------
Revenues:
Interest income:
Participating first mortgage bonds $2,880,553 $3,086,547
Temporary investments 30,165 25,007
Promissory notes 4,324 8,195
---------- ----------
Total revenues 2,915,042 3,119,749
Expenses:
Management fees 202,656 202,656
Loan servicing fees 100,774 99,940
General and administrative 79,749 85,066
Amortization of deferred bond selection fees 46,180 46,180
---------- ----------
Total expenses 429,359 433,842
---------- ----------
Net income $2,485,683 $2,685,907
========== ==========
Allocation of Net Income:
BUC$holders $2,435,969 $2,632,189
========== ==========
General Partners $ 49,714 $ 53,718
========== ==========
Net income per BUC $ 0.27 $ 0.29
========== ==========
See accompanying notes to financial statements
-3-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Participating First
Total BUC$holders General Partners Mortgage Bonds
------------ ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Partners' capital (deficit) -
January 1, 1996 $156,366,964 $ 164,412,008 $(106,923) $(7,938,121)
Net Income 2,485,683 2,435,969 49,714 0
Distributions (2,427,981) (2,379,421) (48,560) 0
------------ ------------- --------- -----------
Partners' capital (deficit) -
March 31, 1996 $156,424,666 $ 164,468,556 $(105,769) $(7,938,121)
============ ============= ========= ===========
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-------------------------
1996 1995
---------- -----------
Cash flows from operating activities:
Interest received $2,900,520 $ 3,121,900
Fees and expenses paid (165,025) (65,869)
Cash held in escrow 0 98,390
---------- -----------
Net cash provided by operating activities 2,735,495 3,154,421
---------- -----------
Cash flows from investing activities:
Net purchase of temporary investments (1,000,000) (1,381,219)
Principal payments received from loans
made to properties 8,233 7,601
---------- -----------
Net cash used in investing activities (991,767) (1,373,618)
---------- -----------
Cash flows from financing activities:
Distributions paid (2,427,981) (2,427,981)
---------- -----------
Net decrease in cash and cash equivalents (684,253) (647,178)
Cash and cash equivalents at beginning of period 972,889 872,662
---------- -----------
Cash and cash equivalents at end of period $ 288,636 $ 225,484
========== ===========
Schedule reconciling net income to net cash
provided by operating activities:
Net income $2,485,683 $ 2,685,907
---------- -----------
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)
Accretion of deferred income (9,939) (9,940)
Changes in:
Cash held in escrow 0 520,677
Interest receivable, net 2,031 18,705
Promissory notes receivable, net 21,620 25,743
Other assets 12,498 15,803
Accrued expenses (42,239) (16,102)
Deferred income (21,620) (25,743)
Due to affiliates 247,895 322,092
Reserve for disputed claim 0 (422,287)
---------- -----------
Total adjustments 249,812 468,514
---------- -----------
Net cash provided by operating activities $2,735,495 $ 3,154,421
========== ===========
See accompanying notes to financial statements
-5-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 1 - 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 Summit Tax Exempt L.P. II (the "Partnership") as of
March 31, 1996, the results of its operations for the three months ended March
31, 1996 and 1995 and its cash flows for the three months ended March 31, 1996
and 1995. 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/A-1 filed with
the Securities and Exchange Commission for the year ended December 31, 1995.
NOTE 2 - Participating First Mortgage Bonds ("FMBs")
Pursuant to a review of the Partnership's financial statements by
the SEC staff in 1996 and in accordance with others in the industry, the
Partnership agreed that it will account for its investments in the FMBs as debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115") effective January 1, 1994, and has restated its financial
statements for the quarter ended March 31, 1996 and the year ended December 31,
1995 to reflect this change in accounting treatment.
The change in accounting treatment does not affect cash flow or
payments received by the Partnership from the properties, level of distributions
to BUC$Holders, the tax-exempt nature of the Partnership's net income or the
obligation under the FMBs.
The Partnership has a right to require redemption of the FMBs
approximately twelve years after their issuance. The Partnership anticipates
holding the FMBs for approximately 12 to 15 years from the date of issuance;
however, it can elect to hold to 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
accounting resulted in cumulative net unrealized losses of approximately
$7,938,000 at March 31, 1996 and December 31, 1995. Again, unrealized holding
gains or losses do not affect the cash flow generated from property operations,
distributions to BUC$holders, the characterization of the tax-exempt income
stream or the financial obligations under the FMBs.
The Partnership periodically evaluates each FMB to determine
whether a decline in fair value below the FMB's cost basis is other than
temporary. Such a decline is considered to be other than temporary if, based on
current information and events, it is probable that the Partnership will be
unable to collect all amounts due according to the existing contractual terms of
the bonds. If the decline is judged to be other than temporary, the cost basis
of the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as realized loss.
Because the FMBs are not readily marketable, the Partnership
estimates fair value for each bond as the present value of its expected cash
flows using an interest rate for comparable tax-exempt investments. This
-6-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 2 - Participating First Mortgage Bonds ("FMBs") (continued)
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.
-7-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 2 - Participating First Mortgage Bonds (continued) Descriptions of
the FMBs owned by the Partnership at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Annualized
Interest Rate
Paid for the
three months Minimum Carrying
ended Pay Rate Stated Amount
March 31, at March Interest Maturity at March
Property Location 1996* 31, 1996* Rate* Call Date Date Face Amount 31, 1996 (F)
- - -------- -------- ------------- --------- -------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC 7.41% (E) 7.50% 8.25% Sept. 2000 Sept. 2006 $ 6,400,000 $ 6,145,264
Loveridge Contra Costa, CA 4.18 (B) 8.00 Nov. 1998 Nov. 2006 8,550,000 7,629,796
The Lakes Kansas City, MO 4.87 4.87 4.87 Dec. 2006 Dec. 2006 13,650,000 10,368,077
Crowne Pointe Olympia, WA 8.00 8.00 8.00 Dec. 1998 Dec. 2006 5,075,000 5,290,714
Orchard Hills Tacoma, WA 8.00 8.00 8.00 Dec. 1998 Dec. 2006 5,650,000 5,803,112
Highland Ridge St. Paul, MN 7.00 (D) 8.00 8.00 Feb. 1999 Feb. 2007 15,000,000 12,685,842
Newport Village Tacoma, WA 7.65 (C) 7.50 8.00 Jan. 1999 Jan. 2007 13,000,000 13,731,947
Sunset Downs Lancaster, CA 5.00 (B) 8.00 May 1999 May 2007 15,000,000 11,396,727
Willow Creek Ames, IA 8.00 8.00 8.00 Oct. 1999 Oct. 2006 6,100,000 5,563,709
Cedar Pointe Nashville, TN 8.00 8.00 8.00 Apr. 1999 Apr. 2007 9,500,000 9,778,309
Shannon Lake Atlanta, GA 6.00 (D) 6.00 8.00 Jun. 1999 Jun. 2007 12,000,000 10,519,904
Bristol Village Bloomington, MN 8.96 (C) 7.75 8.00 Jun. 1999 Jun. 2005 17,000,000 16,631,716
Suntree Ft. Myers, FL 7.50 7.50 8.00 Jul. 1999 Jul. 2007 7,500,000 7,876,831
River Run Miami, FL 8.00 8.00 8.00 Aug. 1999 Aug. 2007 7,200,000 7,463,220
Pelican Cove St. Louis, MO 7.50 (B) 8.00 Feb. 1999 Feb. 2007 18,000,000 16,801,601
Players Club (A) Ft. Myers, FL 7.00 7.00 8.00 Aug. 1999 Aug. 2007 2,500,000 2,594,297
------------ ------------
$162,125,000 $150,281,066
============ ============
</TABLE>
*The rate paid represents the interest recorded by the Partnership while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate payable pursuant to the applicable forbearance
agreements, if any.
(A) 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 FMB.
(B) Pay rate is based on net cash flow generated by operations of the
underlying property.
(C) Includes receipt of deferred base interest related to prior periods.
(D) See discussion below.
(E) The actual annual pay rate is adjusted annually as of the property's fiscal
year end based on cash flow pursuant to audited financial statements to no
less than the minimum pay rate.
(F) The FMBs are carried at their estimated fair values at March 31, 1996.
-8-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 2 - Participating First Mortgage Bonds (continued)
Due to a soft market and increases in its real estate taxes, in
April, 1996, the obligor of the Highland Ridge FMB entered into a forbearance
agreement with the Partnership effective retroactive to October 10, 1995. In
accordance with the terms and conditions of this agreement, the obligor will
make minimum monthly debt service payments beginning at a 7% annual rate and
increasing in annual increments over a period of four years. The difference
between the actual pay rate and the stated rate of the FMB is deferred and
payable from future available cash flow or sale or refinancing proceeds. In
addition delinquent taxes will be paid in installments by the developer over an
18 month period. The obligations under the forbearance agreement is further
secured by the general partner of the Highland Ridge partnership to guarantee
this obligation with a personal guarantee. Since November 1995, the FMB has paid
partial payments of interest two months in arrears at a 7% annualized rate and
the property was delinquent in the payment of its 1995 installments of its real
estate taxes.
A forbearance agreement with the owner of the Shannon Lake
property made in 1991 was further modified in April 1993 to allow the borrower
to pay monthly interest at 6.0% per annum through December 1995. These
agreements have been subsequently extended through 1996. The borrower has asked
for a two year extension of the forbearance which is currently being negotiated.
In addition, the Partnership made a $138,000 loan in April 1993 to the owner of
the property underlying the Shannon Lake 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. The borrower has asked for an increase to the loan of $300,000 for certain
capital repairs and an extension and modification of the terms. This request is
currently being negotiated. Due to the forbearance agreement, an allowance for
possible loss was established for the entire loan amount during 1993. The
current balance outstanding as of March 31, 1996 is approximately $138,000.
Interest payments on both the FMB and the tax loan are current at March 31,
1996.
With respect to the FMBs which are subject to forbearance
agreements with the respective obligors, the difference between the stated
interest rates and the rates paid (whether deferred and payable out of available
future cash flow or, ultimately, from sale or refinancing proceeds) on FMBs is
not accrued for financial statement 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. Unrecorded contractual interest income
was approximately $174,000 and $101,000 for the three months ended March 31,
1996 and 1995, respectively.
The cost basis of the FMBs at March 31, 1996 and December 31, 1995
was $158,219,187 and $158,212,573, respectively. The net unrealized loss on FMBs
consists of gross unrealized gains and losses of $2,113,430 and $10,051,551,
respectively, at March 31, 1996 and December 31, 1995.
-9-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 3 - Related Parties
Prudential-Bache Properties, Inc. ("PBP") and the Related General
Partner (collectively, 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 Agreement of Limited Partnership (the "Partnership
Agreement"). The costs and expenses were:
Three Months Ended
March 31,
-----------------------
1996 1995
-------- --------
PBP and affiliates:
Management fee $101,328 $101,328
General and administrative 11,172 26,586
-------- --------
112,500 127,914
-------- --------
Related General Partner and affiliates:
Management fee 101,328 101,328
Loan servicing fees 100,774 99,940
General and administrative 24,000 4,187
-------- --------
226,102 205,455
-------- --------
$338,602 $333,369
======== ========
An affiliate of the Related General Partner receives loan
servicing fees (see above) in an amount of .25% per annum of the principal
amount outstanding on FMBs serviced by the affiliate.
The General Partners are paid, in the aggregate, an annual
management fee equal to .5% of the original amount invested in FMBs.
A division of Prudential Securities Incorporated ("PSI"), an
affiliate of PBP, was responsible for the purchase, sale and safekeeping of the
Partnership's temporary investments in 1995. This account was maintained in
accordance with the Partnership Agreement.
PSI owns 61,265 BUC$ at March 31, 1996.
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.
-10-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 4 - Contingencies
On or about October 18, 1993, a putative class action, captioned
Kinnes et al v. Prudential Securities Group, Inc. et al. (93 Civ. 654), was
filed in the United States District Court for the District of Arizona,
purportedly on behalf of investors in the Partnership against the Partnership,
PBP, PSI and a number of other defendants. On November 16, 1993, a putative
class action captioned Connelly et al v. Prudential-Bache Securities Inc. et al.
(93 Civ. 713) , was filed in the United States District Court for the District
of Arizona , purportedly on behalf of investors in the Partnership against the
Partnership, PBP, 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 exited the Levine litigation by way of settlement.
By its April 14, 1994 order, the Judicial Panel on Multidistrict
Litigation transferred the Kinnes case, by order dated May 4, 1994, the Connelly
case and by order dated July 13, 1994, the Levine case, to a single judge of the
United States District Court for the Southern District of New York and
consolidated them for pretrial proceedings under the caption In re Prudential
Securities Incorporated Limited Partnerships Litigation (MDL Docket No. 1005).
On June 8, 1994 plaintiffs in the transferred cases filed a complaint that
consolidated the previously filed complaints and named as defendants, among
others, PSI, certain of its present and former employees and the General
Partners. The Partnership was not named a defendant in the consolidated
complaint, but the name of the Partnership was listed as being among the limited
partnerships at issue in the case.
On August 9, 1995 PBP, PSI and other Prudential defendants entered
into a Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The consolidated action
remains pending against the Related General Partner and certain of its
affiliates.
The Related General Partner has been engaged in settlement
negotiations with counsel for the plaintiffs. In the event a settlement can not
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend against this action.
NOTE 5 - Subsequent Event
In May 1996, distributions of approximately $2,379,000 and $49,000
were paid to the BUC$holders and General Partners, respectively, for the quarter
ended March 31, 1996.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
- - -------------------------------
Summit Tax Exempt L.P. II (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 multi-family residential
apartment projects.
At the beginning of the year, the Partnership had cash and
temporary investments of $3,773,000. After payment of distributions and receipt
of the net cash flow from operations, the Partnership ended the quarter with
$4,089,000 in cash and temporary investments. The first quarter distribution of
$2,379,000 ($.26 per BUC) was paid to BUC$holders in May 1996 from cash flow
from operations. As further discussed in Note 2 to the financial statements, the
obligor of one FMB entered into a forbearance agreement with the Partnership
retroactive to October 10, 1995. This transaction may negatively impact
liquidity in future quarters however interest payments from FMB's are
anticipated to provide sufficient liquidity to meet the operating expenditures
of the Partnership in future years and to fund distributions.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way. The Partnership's investments in mortgage
loans are secured by a partnership interest in properties which are diversified
by location so that if one area of the country is experiencing downturns in the
economy, the remaining properties may be experiencing upswings.
Results of Operations
- - ---------------------
Pursuant to a review of the Partnership's financial statements by
the SEC staff in 1996 and in accordance with others in the industry, the
Partnership agreed that it will account for its investments in the FMBs as debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115") effective January 1, 1994, and has restated its financial
statements for the quarter ended March 31, 1996 and the year ended December 31,
1995 to reflect this change in accounting treatment.
The change in accounting treatment does not affect cash flow or
payments received by the Partnership from the properties, level of distributions
to BUC$Holders, the tax-exempt nature of the Partnership's net income or the
obligation under the FMBs.
The Partnership has a right to require redemption of the FMBs
approximately twelve years after their issuance. The Partnership anticipates
holding the FMBs for approximately 12 to 15 years from the date of issuance;
however, it can elect to hold to 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
accounting resulted in cumulative net unrealized losses of approximately
$7,938,000 at March 31, 1996 and December 31, 1995. Again, unrealized holding
gains or losses do not affect the cash flow generated from property operations,
distributions to BUC$holders, the characterization of the tax-exempt income
stream or the financial obligations under the FMBs.
The Partnership periodically evaluates each FMB to determine
whether a decline in fair value below the FMB's cost basis is other than
temporary. Such a decline is considered to be other than temporary if, based on
current information and events, it is probable that the Partnership will be
unable to collect all amounts due according to the existing contractual terms of
the bonds. If the decline is judged to be other than temporary, the cost basis
of the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as realized loss.
-12-
<PAGE>
Because the FMBs are not readily marketable, the Partnership
estimates fair value for each bond as the present value of its expected cash
flows using an interest rate for comparable tax-exempt investments. This process
is based upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon determination
of an appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Partnership's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.
Net income decreased approximately $200,000 for the three months
ended March 31, 1996, as compared to 1995 for the reasons discussed below.
Interest income from FMBs decreased approximately $206,000 for the
three months ended March 31, 1996 as compared to the corresponding period in
1995. This decrease was primarily due to reduced interest payments received from
the Loveridge and Sunset Downs FMBs as a result of payments being based on the
monthly cash flow generated by the operations of the underlying properties
effective with the May 1, 1995 payment date.
Interest income from temporary investments increased approximately
$5,000 for the three months ended March 31, 1996 as compared to 1995 due to
higher cash and cash equivalents balances in 1996.
Interest income from promissory notes decreased approximately
$4,000 for the three months ended March 31, 1996 as compared to the
corresponding period in 1995 primarily due to the repayment of the Bay Club
property tax loan in January 1996.
-13-
<PAGE>
Property Information
- - --------------------
The following table lists the FMBs the Partnership owns together
with occupancy rates of the underlying properties as of April 28, 1996:
<TABLE>
<CAPTION>
Annualized
Interest Minimum
Rate Paid Annual
for the three Pay Rate
Stated months ended at
Face Amount Interest March 31, March 31,
Property Location of FMB Occupancy Rate* 1996* 1996*
- - -------- ----------------- ------------ --------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC $ 6,400,000 99.4% 8.25% 7.41%(E) 7.50%
Loveridge Contra Costa, CA 8,550,000 95.9 8.00 4.18 (B)
The Lakes Kansas City, MO 13,650,000 95.7 4.87 4.87 4.87
Crowne Pointe Olympia, WA 5,075,000 96.3 8.00 8.00 8.00
Orchard Hills Tacoma, WA 5,650,000 93.1 8.00 8.00 8.00
Highland Ridge St. Paul, MN 15,000,000 93.4 8.00 7.00 (D) 8.00
Newport Village Tacoma, WA 13,000,000 91.4 8.00 7.65 (C) 7.50
Sunset Downs Lancaster, CA 15,000,000 80.0 8.00 5.00 (B)
Willow Creek Ames, IA 6,100,000 100.0 8.00 8.00 8.00
Cedar Pointe Nashville, TN 9,500,000 95.1 8.00 8.00 8.00
Shannon Lake Atlanta, GA 12,000,000 96.9 8.00 6.00 (D) 6.00
Bristol Village Bloomington, MN 17,000,000 99.3 8.00 8.96 (C) 7.75
Suntree Ft. Myers, FL 7,500,000 92.4 8.00 7.50 7.50
River Run Miami, FL 7,200,000 94.4 8.00 8.00 8.00
Pelican Cove St. Louis, MO 18,000,000 98.5 8.00 7.50 (B)
Players Club (A) Ft. Myers, FL 2,500,000 89.4 8.00 7.00 7.00
------------
$162,125,000
============
</TABLE>
*The rate paid represents the interest recorded by the Partnership while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate payable pursuant to the applicable forbearance
agreement, if any.
(A) 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 FMB.
(B) Pay rate is based on net cash flow generated by operations of the underlying
property.
(C) Includes receipt of deferred base interest related to prior periods.
(D) See Note 2 to the financial statements.
(E) The actual annual pay rate is adjusted annually as of the property's fiscal
year end based on cash flow pursuant to audited financial statements to no
less than the minimum pay rate.
General
- - -------
The determination as to whether it is the best interest of the
Partnership to enter into forbearance agreements on the FMBs or, alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors including, but not limited to, property performance, owner
cooperation and projected legal costs.
Certain property owners have, at times, supplemented 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 elect to
supplement property cash flow to satisfy bond interest requirements, if
necessary. The owner of the Highland Ridge property supplemented cash flow
generated by the respective properties to meet its interest payments during the
three months ended March 31, 1995. The owner of the Sunset Downs and Loveridge
properties supplemented the cash flow generated by the respective properties to
meet their interest payments during the first two months of 1995. No property
owner made supplementary payments during the three months ended March 31, 1996.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Incorporated by reference to Note 4 to the
financial statements filed herewith in Item 1 of Part 1 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 - None
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 the Amendment No. 1 to
Registration Statement on Form S-11, File No. 33-5213.
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
-15-
<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: Related Tax Exempt Associates II, Inc.
A Delaware corporation, General Partner
Date: August 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
Date: August 13, 1996 By: /s/ Lawrence J. Lipton
----------------------
Lawrence J. Lipton
Treasurer
(Principal Financial and Accounting Officer)
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
Date: August 13, 1996 By: /s/ Eugene D. Burak
-------------------
Eugene D. Burak
Vice President
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Summit Tax Exempt L.P. II and is
qualified in its entirety by reference to such
financial statements
</LEGEND>
<CIK> 0000792924
<NAME> Summit Tax Exempt L.P. II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 288,636
<SECURITIES> 154,081,066
<RECEIVABLES> 2,881,411
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 157,251,113
<CURRENT-LIABILITIES> 826,447
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 156,424,666
<TOTAL-LIABILITY-AND-EQUITY> 157,251,113
<SALES> 0
<TOTAL-REVENUES> 2,915,042
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 429,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,485,683
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,485,683
<EPS-PRIMARY> .27
<EPS-DILUTED> 0
</TABLE>
