UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-16695
SUMMIT PREFERRED EQUITY L.P. AND RELATED BUC$ ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3385956 and 13-3377612
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A-1 or any
amendment to this Form 10-K/A-1. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's prospectus dated August 6, 1987 as supplemented by
supplements No. 1, No. 2 and No. 3 thereto dated December 8, 1987, April 28,
1988 and August 31, 1988, respectively, but only to the extent expressly
incorporated by reference in Parts I, II, III and IV.
Index to exhibits may be found on page 43
Page 1 of 53
<PAGE>
PART I
Item 1. Business.
General
Summit Preferred Equity L.P. (the "Registrant") is a limited
partnership which was formed under the laws of the State of Delaware on January
19, 1987. The General Partners of the Registrant are Related Equity Funding Inc.
(the "Related General Partner"), Partnership Monitoring Corporation (the
"Special General Partner" and an affiliate of the Related General Partner), and
Prudential-Bache Properties, Inc. ("PBP"), collectively, the "General Partners."
On August 6, 1987, the Registrant commenced a public offering (the
"Offering") of Beneficial Unit Certificates (BUC$) representing assignments of
limited partnership interests in the Registrant ("Limited Partnership
Interests"), managed by Prudential Securities Incorporated ("PSI"), an affiliate
of PBP, pursuant to a prospectus dated August 6, 1987 as supplemented (the
"Prospectus"). As of February 15, 1989 (the date on which the Registrant held
its last closing of the sale of BUC$), the Registrant had received $11,767,262
of net proceeds from the Offering. No further issuance of BUC$ is anticipated.
Capitalized terms which are used and not defined herein have the same meaning as
in the Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") contained in the Prospectus.
The Registrant acquired on an all-cash basis equity interests (the
"Preferred Equity Investments") in two operating partnerships (the "Operating
Partnerships") each of which holds a multi-family residential garden apartment
property (the "Properties"). No further acquisitions are anticipated. See Item 2
Properties.
The Registrant's income from its Preferred Equity Investment in
the Dominion Totem Park Limited Partnership ("Dominion") accounted for
approximately 51%, 52% and 60% of the Registrant's total revenues in 1996, 1995,
and 1994, respectively. The Registrant's income from its Preferred Equity
Investment in the TCR-Pinehurst Limited Partnership ("Pinehurst") accounted for
substantially all of the rest of total revenues for those years.
Competition
The real estate business is highly competitive and both of the
Preferred Equity Investments in the Properties in which the Registrant has
invested have active competition from similar properties in their respective
vicinities. In addition, various other limited partnerships may, in the future,
be formed by the General Partners and/or their affiliates to engage in
businesses which may be competitive with the Registrant.
Employees
The Registrant does not have any employees. All services are
performed for the Registrant by its General Partners and their affiliates. For a
description of fees and other payments the General Partners and their affiliates
may receive, see "Management Compensation", beginning at page 17 and ending at
page 20 of the Prospectus, which is incorporated herein by reference (See Item
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K). See also
Items 11 and 13 of this report.
Other Events
On December 31, 1996, the United States District Court for the
Southern District of New York (the "Court") issued a preliminary approval order
(the "Order") with respect to settlement (the "Related Settlement") of the
class action litigation (the "Class Action") relating to the Registrant (In re
Prudential Securities Inc. Limited Partnership Litigation, MDL No. 1005) against
the Related General Partner and certain of its affiliates. See Note 7 to the
financial statements in Item 8. Pursuant to the stipulation of settlement
entered into with counsel for the class
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<PAGE>
on December 24, 1996, the proposed Related Settlement contemplates, among other
matters, the reorganization (the "Reorganization") of the Registrant and three
other partnerships co-sponsored by affiliates of the Related General Partner and
PBP.
The proposed Related settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Registrant as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the
Registrant and Summit Insured Equity L.P., Summit Insured Equity L.P. II and
Eagle Insured L.P. will receive shares in a newly formed real estate investment
trust. It is anticipated that the shares will be allocated proportionately among
the partnerships and their respective investors based upon appraisals and other
factors as supported by a third-party fairness opinion. Detailed information
about the proposed Related Settlement and Reorganization will be sent to
BUC$holders in the near future. The terms of the Reorganization include, among
other matters, the acquisition by affiliates of the Related Capital Company
("RCC") of PBP's general partner interest (the "PBP Interest"), transfer to the
BUC$holders of one-half of the PBP Interest, reduction of fees currently payable
to the General Partners by 25%, filing an application to list the new company's
shares on an exchange and the creation of an infinite, as opposed to finite,
life-operating business.
In connection with the proposed Related Settlement and
Reorganization, on December 19, 1996, PBP and RCC entered into an agreement for
the purchase by RCC or its affiliates of the PBP Interest. The agreement is
subject to numerous conditions, including the effectiveness of the Related
Settlement of the Class Action and the approval of the sale and withdrawal of
PBP as a general partner of the Registrant by the Court.
Pending final approval of the Related Settlement, the Court's
Order prohibits class members (including the BUC$holders) from, among other
matters, (i) transferring their BUC$ unless the transferee agrees to be bound by
the Related Settlement; (ii) granting a proxy to object to the Reorganization;
or (iii) commencing a tender offer for the BUC$. In addition, the General
Partners are enjoined from (i) recording any transfers made in violation of the
Order and (ii) providing the list of investors in any of the partnerships which
are the subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of
the proposed Related Settlement and Reorganization will be satisfied nor that
a closing may occur in the projected time frame.
Item 2. Properties.
A Preferred Equity Investment was made by the Registrant in
Pinehurst during 1987. This Operating Partnership operates the Pinehurst
apartment complex (the "Pinehurst Property"), located in Kansas City, Missouri,
which contains 96 apartments. In 1989 the Registrant made an additional
investment in Pinehurst relating to Phase II, which contains 50 apartments. The
Pinehurst Property was approximately 94% occupied as of March 9, 1997. The
Special General Partner is the general partner of Pinehurst.
The Registrant made a Preferred Equity Investment, during 1988, in
Dominion, which operates the Chateau Creste apartment complex (the "Chateau
Creste Property") in Kirkland, Washington. The Chateau Creste Property, which
was completed during August 1988, contains 90 apartments and was 100% occupied
as of March 9, 1997.
Item 3. Legal Proceedings.
See Item 1. Business - Other Events and Note 7 to the financial
statements in Item 8. Financial Statements and Supplementary Data which
information is incorporated herein by reference.
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<PAGE>
Item 4. Submission of Matters to a Vote of BUC$holders.
No matters were submitted to a vote of BUC$holders during the
fourth quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's BUC$ and Related BUC$holder Matters.
The Registrant has issued 657,389 Limited Partnership Interests,
each representing a $20 capital contribution to the Registrant, or an aggregate
capital contribution of $13,147,780. All of the issued and outstanding Limited
Partnership Interests have been issued to Related BUC$ Associates, Inc. (the
"Assignor Limited Partner"), which has in turn issued 657,389 BUC$ to the
purchasers thereof for an aggregate purchase price of $13,147,780. Each BUC
represents all of the economic and virtually all of the ownership rights
attributable to a Limited Partnership Interest held by the Assignor Limited
Partner. BUC$ may be converted into Limited Partnership Interests at no cost to
the holder, but Limited Partnership Interests acquired upon the conversion of
BUC$ are not thereafter convertible to BUC$. Further information concerning the
BUC$ is set forth under "Description of BUC$" beginning at page 88 and ending on
page 89 of the Prospectus, which information is incorporated herein by reference
thereto.
Neither the BUC$ nor the Limited Partnership Interests are traded
on any established public trading market.
The General Partners have established a policy of limiting
transfers of BUC$ in secondary market transactions unless, notwithstanding such
transfers, the Registrant will satisfy one or more applicable safe harbors
prescribed by the Internal Revenue Service to avoid having the Registrant
classified as a publicly traded partnership, which could have adverse tax
effects on investors. In order to comply with the safe harbor provisions, the
transfer of BUC$ may be restricted. Furthermore, the Court's Order in connection
with the proposed Related Settlement of the Class Action imposes certain
restrictions on the transfer of the BUC$. See Item1. Business - Other Events.
There are no material restrictions in the Registrant's Partnership
Agreement on the Registrant's ability to make distributions.
As of March 3, 1997, there were 943 registered holders of an
aggregate of 657,389 BUC$.
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<PAGE>
Cash distributions made to the Limited Partners and BUC$holders
for the following quarters in 1996 and 1995 per BUC are as follows:
Cash Distribution Total Amount Total Quarterly
for Quarter Ended of Distribution Distribution Per BUC
----------------- --------------- --------------------
March 31, 1996 $ 150,478 $ .2289
June 30, 1996 150,479 .2289
September 30, 1996 150,479 .2289
December 31, 1996 150,478 .2289
--------- --------
Total for 1996 $ 601,914 $ .9156
========= =========
March 31, 1995 $ 150,478 $ .2289
June 30, 1995 150,479 .2289
September 30, 1995 150,479 .2289
December 31, 1995 150,478 .2289
--------- --------
Total for 1995 $ 601,914 $ .9156
========= =========
Cash distributions were made from Cash Available for Distribution.
Cash Available for Distribution is the excess of the Registrant's cash revenue
from operations of the Properties over cash disbursements, without deduction for
depreciation and amortization but after a reasonable allowance for cash reserves
for repairs, replacements, contingencies, etc., as determined by the General
Partners. Cash Available for Distribution remaining after payment of the Special
Distribution to the General Partners (see Note 6 to the Financial Statements in
Item 8) is distributed 98% to the BUC$holders and Limited Partners and 2% to the
General Partners. Approximately $191,000, $142,000 and $296,000 of the $602,000
paid to BUC$holders and Limited Partners in each of 1996, 1995 and 1994,
respectively, represented a return of capital on a generally accepted accounting
principles (GAAP) basis (the return of capital on a GAAP basis is calculated as
BUC$holder distributions less net income allocated to BUC$holders). The Special
Distributions earned by the General Partners continue to be accrued but unpaid
since the first quarter of 1992 and aggregated approximately $124,000 as of
December 31, 1996. In connection with the distributions set forth in the table
above, the General Partners received approximately $12,000 in both 1996 and
1995, representing the 2% distribution.
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<PAGE>
Item 6. Selected Financial Data.
The information set forth below presents selected financial data
of the Registrant. Additional financial information is set forth in the audited
financial statements and footnotes thereto contained in Item 8 hereof.
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------
OPERATIONS 1996 1995 1994 1993 1992
- - ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 572,714 $ 591,879 $ 476,370 $ 426,417 $ 347,827
Operating expenses 128,414 98,284 139,191 114,267 113,567
Amortization 0 0 0 22,944 45,608
---------- ---------- ---------- ---------- ----------
Net income $ 444,300 $ 493,595 $ 337,179 $ 289,206 $ 188,652
========== ========== ========== ========== ==========
Net income per BUC $ .63 $ .70 $ .47 $ .39 $ .24
========== ========== ========== ========== ==========
<CAPTION>
December 31,
--------------------------------------------------------------
FINANCIAL POSITION 1996 1995 1994 1993 1992
- - ------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Assets $7,517,757 $7,730,602 $7,857,821 $8,059,427 $8,377,105
========== ========== ========== ========== ==========
Total Liabilities $ 344,417 $ 362,612 $ 344,476 $ 244,311 $ 215,377
========== ========== ========== ========== ==========
Total Partners' Capital $7,173,340 $7,367,990 $7,513,345 $7,815,116 $8,161,728
========== ========== ========= ========== ==========
</TABLE>
CASH DISTRIBUTIONS
Reference is made to Item 5 for information regarding per BUC
distributions to BUC$holders.
-6-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Capital Resources and Liquidity
The Registrant's primary source of funds is the Preferred
Distributions from the investments in the Operating Partnerships.
During the year ended December 31, 1996, Registrant cash and cash
equivalents decreased $6,686 as a result of cash flow from operations of
$607,516 offset by distributions paid to partners of $614,202.
For the years ended December 31, 1996, 1995 and 1994, Preferred
Distributions received from the Registrant's investments, net of general and
administrative expenses, were sufficient to cover distributions to partners.
However, certain expense reimbursements for the year ended December 31, 1996 and
the payment of the Special Distribution to the General Partners since the first
quarter of 1992 have been accrued but unpaid.
Preferred Distributions from the Registrant's investment in the
Pinehurst Operating Partnership totaled $372,913, $370,163 and $329,652 for the
years ended December 31, 1996, 1995 and 1994, respectively. The Registrant was
guaranteed a Preferred Equity Return of 8.8% (9.6% prior to April 15, 1989) per
annum on the initial cash contribution of $3,799,620 in Phase I and 9.85%
(10.875% for the first eighteen months) per annum on the additional investment
of $1,949,805 in Phase II. These Preferred Equity Returns are cumulative and
noninterest-bearing. The cumulative, unrecorded and undistributed Preferred
Equity Returns to the Registrant totaled $1,304,103 and $1,150,630 at December
31, 1996 and 1995, respectively. These Preferred Equity Returns are payable from
excess cash flow or proceeds from a sale or refinancing of Pinehurst's rental
property.
Preferred Distributions from the Registrant's investment in
Dominion totaled $399,438 for each of the years ended December 31, 1996, 1995
and 1994 based on a guaranteed Preferred Equity Return of 9.625% (10.875% prior
to March 1, 1990) per annum on its initial cash contribution of $4,149,585. As
of December 31, 1996 the Partnership has received all of the Preferred Equity
Returns due from Dominion.
On February 14, 1997, the Registrant paid a distribution of
$150,478 and $3,072 to the BUC$holders and General Partners, respectively, from
cash generated by operations for the quarter ended December 31, 1996. The
Special Distribution of $24,748 due to the General Partners was accrued but not
paid.
Future liquidity is expected to result from the cash generated
from the properties and ultimately through the sale of the properties by the
Operating Partnerships.
For a discussion of the proposed Settlement of the Class Action
relating to the Registrant see Other Events in Item 1. Business above.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed, that will or are likely
to impact liquidity in a material way.
Results of Operations
The Registrant reviews each property held by the Operating
Partnerships for possible impairment at least annually, and more frequently if
circumstances warrant. If this review indicates that the carrying amount of the
property may not be recoverable, the Registrant estimates the future cash flows
expected to result from the operations of the property and its eventual sale. If
the sum of these expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the property, it is written down to
its estimated fair value.
The expected future cash flows used in this process rely upon
estimates and assumptions, including expense growth, occupancy, rental rates,
and market capitalization rates. The General Partners believe that the estimates
and assumptions used are appropriate. However, changes in market conditions and
circumstances may occur which would cause these estimates and assumptions to
change, resulting in revised cash flow projections. This, in turn, could lead
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<PAGE>
to future write-downs, which could be material. No write-downs for impairment
have been recorded as of December 31, 1996.
1996 vs. 1995
Results of operations for the year ended December 31, 1996
consisted primarily of net operating income from the Preferred Equity
Investments in Pinehurst and Dominion.
Income from equity investments remained fairly consistent with a
decrease of approximately $21,000 for the year ended December 31, 1996 as
compared to 1995.
General and administrative expenses increased approximately $7,000
for the year ended December 31, 1996 as compared to 1995 primarily due to an
underaccrual of tax return preparation fees at December 31, 1995. General and
administrative expenses-related parties increased approximately $23,000 for the
year ended December 31, 1996 primarily due to higher expense reimbursements to
the General Partners and their affiliates for services performed for the
Registrant.
Net income per BUC was $.63 for the year ended December 31, 1996.
The decrease of $.07 from 1995 is mainly attributable to the decrease in income
from equity investments and the increase in total expenses.
1995 vs. 1994
Results of operations for the year ended December 31, 1995
consisted primarily of net operating income from the Preferred Equity
Investments in Pinehurst and Dominion.
Income from equity investments increased approximately $113,000
for the year ended December 31, 1995 as compared to 1994. This was primarily due
to normal rent increases at both properties as well as a decrease in expenses at
Pinehurst, including repairs and maintenance, property taxes and insurance.
General and administrative expenses decreased approximately
$25,000 for the year ended December 31, 1995 as compared to 1994 primarily due
to a decrease in legal expenses in 1995. General and administrative
expenses-related parties decreased approximately $15,000 due to lower expense
reimbursements to the General Partners and their affiliates for services
performed for the Registrant.
Net income per BUC was $.70 for the year ended December 31, 1995.
The increase of $.23 over 1994 is mainly attributable to the increase in income
from equity investments and the decrease in total expenses.
-8-
<PAGE>
<TABLE>
<CAPTION>
Item 8. Financial Statements and Supplementary Data.
(a) 1. Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors' Report 10
Statements of Financial Condition as of December 31, 1996 and 1995 11
Statements of Income - Years ended December 31, 1996, 1995 and 1994 12
Statements of Changes in Partners' Capital (Deficit) -
Years ended December 31, 1996, 1995 and 1994 13
Statements of Cash Flows - Years ended December 31, 1996, 1995 and
1994 14
Notes to Financial Statements 15
</TABLE>
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<PAGE>
[LETTER OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' REPORT
To the Partners of
Summit Preferred Equity L.P.
New York, New York
We have audited the accompanying statements of financial condition
of Summit Preferred Equity L.P. (a Delaware Limited Partnership) as of December
31, 1996 and 1995, and the related statements of income, changes in partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
General Partners. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the General Partners, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Summit Preferred Equity L.P. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touch LLP
New York, New York
March 20, 1997
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<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 266,427 $ 273,113
Investments in Operating Partnerships (Note 3) 7,241,379 7,447,538
Other assets 9,951 9,951
----------- -----------
Total Assets $ 7,517,757 $ 7,730,602
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 27,826 $ 22,289
Due to General Partners and affiliates (Note 5) 316,591 340,323
----------- -----------
Total Liabilities 344,417 362,612
----------- -----------
Contingencies (Note 7)
Partners' Capital (Deficit):
Limited Partners (657,389 BUC$ issued and outstanding) 7,262,101 7,452,854
General Partners (88,761) (84,864)
----------- -----------
Total Partners' Capital 7,173,340 7,367,990
----------- -----------
Total Liabilities and Partners' Capital $ 7,517,757 $ 7,730,602
=========== ===========
</TABLE>
See notes to financial statements
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<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Income from equity investments $566,192 $586,988 $474,178
Interest income 6,522 4,891 2,192
-------- -------- --------
Total revenues 572,714 591,879 476,370
-------- -------- --------
Expenses:
General and administrative 56,664 49,222 74,718
General and administrative - related parties (Note 5) 71,750 49,062 64,473
-------- -------- --------
Total expenses 128,414 98,284 139,191
-------- -------- --------
Net income $444,300 $493,595 $337,179
======== ======== ========
Allocation of Net Income:
Limited Partners $411,161 $459,470 $306,182
======== ======== ========
General Partners $ 8,391 $ 9,377 $ 6,249
======== ======== ========
Special Distributions to General Partners (Note 6) $ 24,748 $ 24,748 $ 24,748
======== ======== ========
Net income per BUC $ .63 $ .70 $ .47
======== ======== ========
</TABLE>
See notes to financial statements
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<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Total Limited Partners General Partners
---------- ---------------- ----------------
<S> <C> <C> <C>
Partners' capital (deficit) - January 1, 1994 $7,815,116 $7,891,030 $ (75,914)
Net income 337,179 306,182 30,997
Distributions (638,950) (601,914) (37,036)
---------- ---------- ----------
Partners' capital (deficit) - December 31, 1994 7,513,345 7,595,298 (81,953)
Net income 493,595 459,470 34,125
Distributions (638,950) (601,914) (37,036)
---------- ---------- ----------
Partners' capital (deficit) - December 31, 1995 7,367,990 7,452,854 (84,864)
Net income 444,300 411,161 33,139
Distributions (638,950) (601,914) (37,036)
---------- ---------- ----------
Partners' capital (deficit) - December 31, 1996 $7,173,340 $7,262,101 $ (88,761)
========== ========== ==========
</TABLE>
See notes to financial statements
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<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 444,300 $ 493,595 $ 337,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase (decrease) in accounts payable and
other liabilities 5,537 (7,060) (2,699)
Distributions from investments in operating
partnerships in excess of net income 206,159 182,613 254,912
(Decrease) increase in due to General Partners
and affiliates (48,480) 448 78,116
---------- ---------- ----------
Net cash provided by operating activities 607,516 669,596 667,508
---------- ---------- ----------
Cash flows used in financing activities:
Distributions paid to partners (614,202) (614,202) (614,202)
Net (decrease) increase in cash and cash equivalents (6,686) 55,394 53,306
Cash and cash equivalents - beginning of year 273,113 217,719 164,413
---------- ---------- ----------
Cash and cash equivalents - end of year $ 266,427 $ 273,113 $ 217,719
========== ========== ==========
Supplemental schedule of noncash financing activities:
Distributions to partners $ (638,950) $ (638,950) $ (638,950)
Increase in distributions payable to General Partners 24,748 24,748 24,748
---------- ---------- ----------
Distributions paid to partners $ (614,202) $ (614,202) $ (614,202)
========== ========== ==========
</TABLE>
See notes to financial statements
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<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - General
Summit Preferred Equity L.P. (the "Partnership") is a limited
partnership which was formed under the laws of the State of Delaware on January
19, 1987, but had no activity until March 24, 1987. The General Partners of the
Partnership are Related Equity Funding Inc. (the "Related General Partner"),
Partnership Monitoring Corporation (the "Special General Partner" and an
affiliate of the Related General Partner), and Prudential-Bache Properties, Inc.
("PBP"), collectively, the "General Partners."
The Partnership acquired on an all-cash basis equity interests
(the "Preferred Equity Investments") in two operating partnerships (the
"Operating Partnerships") each of which holds a multi-family residential garden
apartment property (the "Properties").
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The books and records of the Partnership are maintained on the
accrual basis of accounting in accordance with generally accepted accounting
principles ("GAAP"). The Partnership accounts for its investments in Operating
Partnerships using the equity method. The Partnership is allocated substantially
all of the income of the Operating Partnerships until its Preferred Return is
achieved. There are no material differences between the GAAP and tax basis
financial statements.
The preparation of financial statements in conformity with
GAAP requires the General Partners to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
b) Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks,
and investments in short-term instruments with an original maturity of three
months or less, whose costs approximate market value.
c) Income Taxes
The Partnership is not required to provide for, or pay, any
federal income taxes. Net income or loss generated by the Partnership is passed
through to the individual partners and is required to be reported by them. The
Partnership may be subject to state and local taxes in jurisdictions in which it
operates.
d) Reclassification
Certain balances have been reclassified from the prior years
to conform to the current year's presentation.
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<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 2 - Summary of Significant Accounting Policies (continued)
e) Investments in Operating Partnerships
The Partnership reviews each property held by the Operating
Partnerships for possible impairment at least annually, and more frequently if
circumstances warrant. If this review indicates that the carrying amount of the
property may not be recoverable, the Partnership estimates the future cash flows
expected to result from the operations of the property and its eventual sale. If
the sum of these expected future cash flows (undiscounted and without interest
charges) is less that the carrying amount of the property, it is written down
to its estimated fair value.
The expected future cash flows used in this process rely upon
estimates and assumptions, including expense growth, occupancy, rental rates,
and market capitalization rates. The General Partners believe that the estimates
and assumptions used are appropriate. However, changes in market conditions and
circumstances may occur which would cause these estimates and assumptions to
change, resulting in revised cash flow projections. This, in turn, could lead to
future write-downs, which could be material. No write-downs for impairment have
been recorded as of December 31, 1996.
NOTE 3 - Investments in Operating Partnerships
The partnership accounts for its investments in Operating
Partnerships using the equity method. The Partnership holds a Preferred Equity
Investment in the TCR-Pinehurst Limited Partnership ("Pinehurst"), which
acquired and operates the Pinehurst apartment complex in Kansas City, Missouri.
Under the original terms of this investment, the Partnership is entitled to a
Preferred Equity Return of 8.8% (9.6% prior to April 15, 1989) per annum on its
initial investment of $3,799,620. On May 8, 1989 the Partnership invested an
additional $1,949,805 in Pinehurst relating to Phase II. The Partnership was
entitled to a Preferred Equity Return of 9.85% (10.875% for the first eighteen
months) per annum on its initial investment in Pinehurst relating to Phase II.
These Preferred Equity Returns are cumulative and non interest-bearing. The
cumulative, unrecorded and undistributed Preferred Equity Returns to the
Partnership totaled $1,304,103 and $1,150,630 at December 31, 1996 and 1995,
respectively. These Preferred Equity Returns are payable from excess cash flow
from operations or proceeds from a sale or refinancing of Pinehurst's rental
property. The Special General Partner is the general partner of Pinehurst.
The carrying value of the Partnership's investment in Pinehurst is
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Investment in Pinehurst, January 1 $4,181,249 $4,274,029 $4,414,296
Distributions (372,913) (370,163) (329,652)
Net Income 275,892 277,383 189,385
---------- ---------- ----------
Investment in Pinehurst, December 31 $4,084,228 $4,181,249 $4,274,029
========== ========== ==========
</TABLE>
The Partnership made a Preferred Equity Investment in the Dominion
Totem Park Limited Partnership ("Dominion"), which operates the Chateau Creste
apartment complex in Kirkland, Washington. Under the terms of this investment,
the Partnership is entitled to receive a Preferred Equity Return of 9.625%
(10.875% prior to March 1, 1990) per annum on its initial cash contribution of
$4,149,585. As of December 31, 1996, the Partnership has received all of the
Preferred Equity Returns due from Dominion.
-16-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - Investments in Operating Partnerships (continued)
The carrying value of the Partnership's investment in Dominion is
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Investment in Dominion, January 1 $3,266,289 $3,356,122 $3,470,767
Distributions (399,438) (399,438) (399,438)
Net Income 290,300 309,605 284,793
---------- ---------- ----------
Investment in Dominion, December 31 $3,157,151 $3,266,289 $3,356,122
========== ========== ==========
</TABLE>
Amounts estimated to be recoverable from future operations and
ultimate sales were greater than the carrying value of the Investments in
Operating Partnerships at December 31, 1996.
NOTE 4 - Supplementary Operating Partnership Financial Information
The following summarized financial information is for Pinehurst:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
OPERATIONS 1996 1995 1994
----------- --------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 907,386 $ 888,682 $ 831,692
Operating Expenses (466,239) (446,049) (463,851)
Depreciation and Amortization (165,228) (165,222) (178,437)
---------- ---------- ----------
Net Income $ 275,919 $ 277,411 $ 189,404
========== ========== ==========
<CAPTION>
December 31,
---------------------------
FINANCIAL POSITION 1996 1995
----------------- ---------- ----------
<S> <C> <C>
Total Assets $4,389,980 $4,473,484
========== ==========
Total Liabilities $ 305,276 $ 291,749
========== ==========
</TABLE>
-17-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 4 - Supplementary Operating Partnership Financial Information
(continued)
The following summarized financial information is for Dominion:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
OPERATIONS 1996 1995 1994
----------- --------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 725,356 $ 702,181 $ 680,066
Operating Expenses (304,331) (281,717) (276,844)
Depreciation and Amortization (130,725) (110,859) (118,429)
---------- ---------- ----------
Net Income $ 290,300 $ 309,605 $ 284,793
========== ========== ==========
<CAPTION>
December 31,
---------------------------
FINANCIAL POSITION 1996 1995
----------------- ---------- ----------
<S> <C> <C>
Total Assets $3,245,457 $3,357,643
========== ==========
Total Liabilities $ 88,306 $ 91,354
========== ==========
</TABLE>
NOTE 5 - Related Party Transactions
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 amount
of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. An affiliate of one of the General Partners performs
asset monitoring for the Partnership. These services include site visits and
evaluations of the two properties in which the Partnership has an investment.
The cost and expenses incurred were $71,750, $49,062 and $64,473 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The distributions earned by the General Partners for the years
ended December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Special Distributions $ 24,748 $ 24,748 $ 24,748
Regular Distributions of
Cash from Operations 12,288 12,288 12,288
---------- ---------- ----------
Total $ 37,036 $ 37,036 $ 37,036
========== ========== ==========
</TABLE>
-18-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - Related Party Transactions (continued)
As discussed in Note 6 below, Special Distributions earned by the
General Partners have been accrued but unpaid since the first quarter of 1992.
Such amounts totaled $123,740 and $98,992 at December 31, 1996 and 1995,
respectively, and are included in Due to General Partners and affiliates in the
Statements of Financial Condition.
As of December 31, 1996, Prudential Securities Incorporated, an
affiliate of PBP, owns 13,750 BUC$.
A minority shareholder of the Related General Partner has a
minority ownership interest in a management company which provides property
management services to the Pinehurst Operating Partnership under the terms of a
one year management agreement that automatically renews. The agreement may be
canceled with thirty days notice by either party. Management fees equal to 5% of
gross revenue are paid monthly and amounted to $44,969, $43,386 and $41,133 for
the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 6 - Profit and Loss Allocations/Distributions
For financial reporting purposes, net profits or losses, after
providing for the General Partners' Special Distribution, are allocated 98% to
the Limited Partners and BUC$holders and 2% to the General Partners.
The General Partners earn a Special Distribution of Adjusted Cash
from Operations of 0.5% per annum of Invested Assets (as defined in the
Partnership Agreement) for managing the affairs of the Partnership; half of
which is subordinated to the BUC$holders' receipt of an annual 8% return on
their investment. The Special Distributions earned by the General Partners
continue to be accrued but unpaid since 1992.
Distributions of cash made after providing for the General
Partners' Special Distribution as defined in the Limited Partnership Agreement
are allocated 98% to the Limited Partners and BUC$holders and 2% to the General
Partners.
NOTE 7 - Contingencies
On or about October 18, 1993, a putative class action, captioned
Kinnes et al. v. Prudential Securities Group, Inc. et al. (CV-93-654), was filed
in the United States District Court for the District of Arizona, purportedly on
behalf of investors in the Partnership, against the Partnership, PBP, PSI and a
number of other defendants.
By order of the Judicial Panel on Multidistrict Litigation dated
April 14, 1994, the Kinnes case, together with a number of other actions not
involving the Partnership, were transferred to a single judge of the United
States District Court for the Southern District of New York (the "Court") and
consolidated for pretrial proceedings under the caption In re Prudential
Securities Incorporated Limited Partnerships Litigation (MDL Docket 1005) (the
"Class Action"). On June 8, 1994, plaintiffs in the transferred cases filed a
complaint that consolidated the previously filed complaints and named as
defendants, among others, PSI, certain of its present and former employees and
the General Partners. The Partnership was not named a defendant in the
consolidated complaint, but the name of the Partnership was listed as being
among the limited partnerships at issue in the case.
On August 9, 1995, PBP, PSI and other Prudential defendants
entered into a Stipulation and
-19-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 7 - Contingencies (continued)
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.
On December 31, 1996, the Court issued a preliminary approval
order (the "Order") with respect to settlement (the "Related Settlement") of the
Class Action against the Related General Partner and certain of its affiliates.
Pursuant to the stipulation of settlement entered into with counsel for the
class on December 24, 1996, the proposed Related Settlement contemplates, among
other matters, the reorganization (the "Reorganization") of the Partnership and
three other partnerships co-sponsored by affiliates of the Related General
Partner and PBP.
The proposed Related Settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Partnership as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the
Partnership and Summit Insured Equity L.P., Summit Insured Equity L.P. II and
Eagle Insured L.P. will receive shares in a newly formed real estate investment
trust. It is anticipated that the shares will be allocated proportionately among
the partnerships and their respective investors based upon appraisals and other
factors as supported by a third-party fairness opinion. Detailed information
about the proposed Related Settlement and Reorganization will be sent to
BUC$holders in the near future. The terms of the Reorganization include, among
other matters, the acquisition by affiliates of the Related Capital Company
("RCC") of PBP's general partner interest (the "PBP Interest"), transfer to the
BUC$holders of one-half of the PBP Interest, reduction of fees currently payable
to the General Partners by 25%, filing an application to list the new company's
shares on an exchange and the creation of an infinite, as opposed to finite,
life-operating business.
In connection with the proposed Related Settlement and
Reorganization, on December 19, 1996, PBP and RCC entered into an agreement for
the purchase by RCC or its affiliates of the PBP Interest. The agreement is
subject to numerous conditions, including the effectiveness of the Related
Settlement of the Class Action and the approval of the sale and withdrawal of
PBP as a general partner of the Partnership by the Court.
Pending final approval of the Related Settlement, the Court's
Order prohibits class members (including the BUC$holders) from, among other
matters, (i) transferring their BUC$ unless the transferee agrees to be bound by
the Related Settlement; (ii) granting a proxy to object to the Reorganization;
or (iii) commencing a tender offer for the BUC$. In addition, the General
Partners are enjoined from (i) recording any transfers made in violation of the
Order and (ii) providing the list of investors in any of the partnerships which
are the subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of
the proposed Related Settlement and Reorganization will be satisfied nor that a
closing may occur in the projected time frame. In the event a settlement cannot
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend this action.
-20-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 - Subsequent Event
On February 14, 1997, a distribution of $150,478 and $3,072 was
paid to the BUC$holders and General Partners, respectively, from operations for
the quarter ended December 31, 1996.
-21-
<PAGE>
Deloitte &
Touche LLP
TCR-Pinehurst Limited
Partnership
o Financial Statements for the Years Ended
o December 31, 1996, 1995 and 1994 and
o Independent Auditors' Report
Deloitte Touche
Tohmatsu
International
<PAGE>
[Letterhead of Deloitte Touche LLP]
INDEPENDENT AUDITORS' REPORT
To the Partners of TCR-Pinehurst Limited Partnership:
We have audited the accompanying balance sheets of TCR-Pinehurst Limited
Partnership (the "Partnership") as of December 31, 1996 and 1995, and the
related statements of income, partners' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Partnership's general partner. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
general partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
February 14, 1997
2
<PAGE>
<TABLE>
<CAPTION>
TCR-PINEHURST LIMITED PARTNERSHIP
BALANCE SHEETS,
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
<S> <C> <C>
RENTAL PROPERTY:
Land $ 287,O57 $ 287,O57
Buildings and improvements 5,218,200 5,218,200
Clubhouse furnishing and fixtures 156,755 156,755
----------- -----------
Total 5,662,012 5,662,012
Accumulated depreciation (1,484,899) (1,319,671)
----------- -----------
Net rental property 4,177,113 4,342,341
CASH 156,400 99,607
OTHER ASSETS 56,467 31,536
----------- -----------
TOTAL $ 4,389,980 $ 4,473,484
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable $ 1,370 $ 10,038
Accrued expenses 14,503 4,059
Tenants' security deposits 33,263 21,512
Due to Successor General Partner 256,140 256,140
----------- -----------
Total liabilities 305,276 291,749
PARTNERS' EQUITY 4,O84,704 4,181,735
----------- -----------
TOTAL $ 4,389,980 $ 4,473,484
=========== ===========
See notes to financial statements.
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
TCR-PINEHURST LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
RENTAL AND RELATED REVENUE $ 907,386 $ 888,682 $ 831,692
--------- --------- ---------
EXPENSES:
Rental operating expenses:
Payroll and related taxes 102,569 73,830 84,463
Repairs and maintenance 118,061 117,890 138,518
Management fee 44,969 43,386 41,133
Utilities 5O,407 48,294 44,394
Advertising and promotion 42,703 59,652 47,111
General and administrative 23,737 23,154 17,820
Professional fees 14,000 18,366 11,567
Property taxes 44,313 43,904 53,503
Insurance 25,480 17,573 25,342
Depreciation and amortization 165,228 165,222 178,437
-------- -------- --------
Total expenses 631,467 611,271 642,288
-------- -------- --------
NET INCOME $275,919 $277,411 $189,404
======== ======== ========
See notes to financial statements.
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
TCR-PINEHURST LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - ----------------------------------------------------------------------------------------------------------------------
Summit Partnership
Preferred Monitoring
Total Equity L.P. Corporation
<S> <C> <C> <C>
PARTNERS' EQUITY, DECEMBER 31, 1993 $4,252,420 $4,252,285 $ 135
Contribution 162,385 162,385
Distributions (329,685) (329,652) (33)
Net income 189,404 189,385 19
---------- ---------- -----
PARTNERS' EQUITY, DECEMBER 31, 1994 4,274,524 4,274,403 121
Distributions (37O,200) (37O,163) (37)
Net income 277,411 277,383 28
---------- ---------- -----
PARTNERS' EQUITY, DECEMBER 31, 1995 4,181,735 4,181,623 112
Distributions (372,950) (372,913) (37)
Net income 275,919 275,892 27
---------- ---------- -----
PARTNERS' EQUITY, DECEMBER 31, 1996 $4,084,704 $4,084,602 $ 102
========== ========== =====
See notes to financial statements.
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
TCR-PINEHURST LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 275,919 $ 277,411 $ 189,404
---------- ---------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 165,228 165,222 178,437
Increase in other assets (24,931) (2,166) (lO,111)
Decrease in accounts payable (8,418) (3,150)
Increase in accrued expenses 1O,444 73 1,637
Increase (decrease) in tenants' security deposits 11,751 (935) 937
---------- ---------- ---------
Total adjustments 154,074 162,194 167,750
---------- ---------- ---------
Net cash provided by operating activities 429,993 439,605 357,154
---------- ---------- ---------
INVESTING ACTIVITIES - Additions to rental property (611)
---------- ---------- ---------
Net cash used in operating activities (611)
---------- ---------- ---------
FINANCING ACTIVITIES - Distributions to partners (373,200) (37O,200) (329,685)
---------- ---------- ---------
Net cash used in financing activities (373,200) (37O,200) (329,685)
---------- ---------- ---------
NET INCREASE IN CASH 56,793 68,794 27,469
CASH, BEGINNING OF YEAR 99,607 3O,813 3,344
---------- ---------- ---------
CASH, END OF YEAR $ 156,400 $ 99,607 $ 3O,813
========== ========== ==========
NONCASH FINANCING ACTIVITY -
Contribution of amount due to Investment
Limited Partner to Partners' Equity during 1994 $ 162,385
=========
See notes to financial statements.
</TABLE>
-5-
<PAGE>
TCR-PINEHURST LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - The TCR-Pinehurst Limited Partnership (the "Partnership") was
formed on October 15, 1987, under the Missouri Revised Uniform Limited
Partnership Act of the State of Missouri, for the purpose of investing in real
property and operating an apartment complex in Kansas City, Missouri. The
original partners were Pinehurst Venture (the "General Partner") and Summit
Preferred Equity L.P. (the "Investment Limited Partnership). The Investment
Limited Partnership assigned a 0.01% partnership interest to Partnership
Monitoring Corporation, which was admitted to the Partnership as a "Special
Limited Partner." The Amended and Restated Agreement of Limited Partnaship (the
"Agreement") was amended on October 4, 1991 for the withdrawal of the General
Partner and the naming of Partnership Monitoring Corporation as the "Successor
General Partner." Partnaship Monitoring Corporation assumed all of the General
Partner's rights and obligations upon being named Successor General Partner. At
December 31, 1996 and 1995 and for each of the four years in the period ended
December 31, 1996, the Partnership was owned as follows:
Partnership Monitoring Corporation .01%
Summit Prefered Equity L.P. 99.99%
In October 1987, the Partnership acquired a 96-unit apartment complex
("Pinehurst I"). In March 1989, the Partnership acquired an additional 50 units
("Pinehurst II"), from a partnership affiliated with the original General
Partner, that had been constructed on the Partnership's property adjacent to its
existing units.
The Investment Limited Partner and the Successor General Partner are to receive
a Preferred Equity Return equal to 8.8% (9.6% before April 15, 1989) per armum
on their $3,800,000 initial capital contribution for Pinehurst I (the "Preferred
Equity Investment I") and 9.85% (10.875% before May 4, 1990) per annum on their
$1,950,000 capital contribution for Pinehurst II (the Preferred Equity
Investment II). These Preferred Equity Returns are cumulative and
noninterest-bearing. The Preferred Equity Returns are allocated according to the
original limited partners' partnership interests, 99.99% to the Investment
Limited Partner and 0.01% to the Successor General Partner.
Profits from operations are allocated first to the extent of prior allocations
of net losses, then to the Investment Limited Partner and Successor General
Partner until the profits equal cash distributions received by them and finally
to the partners in the same proportion as distributions of cash flow.
Losses from operations are allocated first to the extent of any prior
allocations of net profits and then according to partnership interests to the
extent the partner has a positive capital account; any remainting losses are
allocated to the Successor General Partner.
- 6 -
<PAGE>
Cash flow (defined in the Agreement as cash receipts less cash expenditures)
from the Partnership's operations is first allocated 100% to the partners until
such time as the cumulative distributions of cash flow satisfy the Preferred
Equity Returns. Subsequent to that time, 50% of the remaining cash flow will be
first allocated to any voluntary loan or deficit loans of the Partnership and
then to the partners in the following percentages:
Pinehurst I:
o 66.67% to the Successor General Partner
o 33.33% to the Investment Limited Partner
Pinehurst II:
o 60.01% to the Successor General Partner
o 39.99% to the Investment Limited Partner
Prior to October 4, 1990, the date the original General Partner withdrew from
the Partnership, the operations for each apartment complex (Pinehurst I and II)
were accounted for separately since the Partnership agreement provided for the
distribution of cash flow based upon which complex generated the cash available
for distribution. As provided for in the Agreement, if separate allocations are
not feasible, then the allocation will be 66% for Pinehurst I and 34% for
Pinehurst II. Since the withdrawal of the original General Partner, the
Partnership has accounted for its operations and cash flows as one complex.
The financial statements include only those assets, liabilities and results of
operations that relate to the business of the Partnership.
Rental Property - Rental property is carried at cost less accumulated
depreciation computed using a straight-line basis of accounting over 40 years,
the estimated useful life of buildings and improvements. Clubhouse furnishings
and fixtures are depreciated using an accelerated method over ten years.
The Partnership reviews its property investment for possible impairment at least
annually, and more frequently if circumstances warrant. If this review indicates
that the carrying amount of the property may not be recoverable, the Partnership
estimates the future cash flows expected to result from the operations of the
property and its eventual sale. If the sum of these expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the property, it is written down to its estimated fair value.
The expected future cash flows used in this process rely upon estimates and
assumptions, including expense growth, occupancy, rental rates, and market
capitalization rates. The Successor General Partner believes that the estimates
and assumptions used are appropriate. However, changes in market conditions and
circumstances may occur which would cause these estimates and assumptions to
change, resulting in revised cash flow projections. This in turn, could lead to
future write-downs, which could be material. No write-downs for impairment have
been recorded as of December 31, 1996.
Maintenance and repair expenses are charged against income when incurred.
Organizational Costs - Organizational costs relating to the formation of the
Partnership were capitalized and amortized over five years using the
straight-line method.
Recognition of Revenue and Expenses - Rental income is reported as revenue when
earned, and expenses are charged against such revenue as incurred.
Income Taxes - The net income or loss of the Partnership is taxable directly to
the individual partners; therefore, no provision for income taxes has been made
in these financial statements.
- 7 -
<PAGE>
Use of Estimates - The Partnership's records are maintained using the accrual
basis of accounting for financial reporting and tax purposes. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
2. RELATED-PARTY TRANSACTIONS
The original General Partner had advanced the Partnership $256,140 at the time
of its withdrawal pursuant to operating deficit guarantee payments and the
withdrawal agreement. In connection with this withdrawal from the Partnership by
the original General Partner, the Successor General Partner acquired the right
to this partnership obligation. These loans are noninterest-bearing and
unsecured. Deficit guarantee loans are to be repaid from cash flow after all
cumulative Preferred Equity Returns have been paid (see Note 1).
In 1994 the Partnership reclassified an advance from Summit Preferred Equity
L.P. as a contribution to Partners' Equity of $162,385.
3. MANAGEMENT AGREEMENT
The Partnership's rental property is managed by the Whitney Management
Corporation, Houston, Texas, under terms of a one-year management agreement that
renews automatically. The agreement may be canceled with thirty days' notice by
either party. Management fees, equal to 5% of gross revenue, are paid monthly
and totaled $44,969 in 1996, $43,386 in 1995, and $41,133 in 1994.
4. PREFERRED RETURNS
Cumulative, undistributed Preferred Equity Returns to the partners totaled
$1,304,103 in 1996 and $1,150,630 in 1995. These Preferred Equity Returns are
payable from cash flow or proceeds from a sale or refinancing of the
Partnership's rental property.
5. APARTMENT LEASES
The apartments are rented under leases that range from six months to one year
and are automatically extended until either party gives 30 days notice of
termination.
* * * * * *
-8-
<PAGE>
DOMINION TOTEM PARK
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994,
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
[Letterhead of Deloitte & Touche LLP]
INDEPENDENT AUDITORS' REPORT
General Partner and Limited Partners
Dominion Totem Park Limited Partnership
Tacoma, Washington
We have audited the accompanying balance sheets of Dominion Totem Park Limited
Partnership (the Partnership) as of December 31, 1996 and 1995, and the related
statements of income, partners' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, In all material
respects, the financial position of the Partnership as of December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
February 20, 1997
<PAGE>
<TABLE>
<CAPTION>
DOMINION TOTEM PARK LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RENTAL PROPERTY, at cost:
Land $ 739,872 $ 739,872
Building 3,112,067 3,112,067
Furniture and fixtures 289,219 289,219
----------- ----------
4,141,158 4,141,158
Less accumulated depreciation (991,500) (860,775)
----------- ----------
Total rental property, net 3,149,658 3,280,383
CASH 63,877 39,045
RESTRICTED CASH FOR SECURITY DEPOSITS 17,599 17,709
RENT RECEIVABLE 14,323 20,506
----------- ----------
TOTAL $3,245,457 $3,357,643
========== ==========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts parable $ 17,461 $ 27,032
Distribution payable to limited partner 16,643 16,643
Prepaid rent 20,864 14,382
Security deposits 17,750 17,709
Payable to general partner 15,589 15,589
----------- ------------
Total liabilities 88,307 91,355
COMMITMENT (Note 4)
PARTNERS' EQUITY 3,157,150 3,266,288
----------- -----------
TOTAL $ 3,245,457 $ 3,357,643
=========== ===========
See notes to financial statements. 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOMINION TOTEM PARK LIMITED PARTNERSHIP
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- - --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
RENTAL REVENUE $ 725,356 $ 702,181 $ 680,066
EXPENSES:
Depreciation 130,725 110,859 118,429
Property management 67,953 61,943 66,502
Utilities 91,679 84,704 77,355
Real estate taxes 62,250 61,430 63,766
Repairs and maintenance 47,672 37,417 28,253
General and administrative 34,777 36,223 40,968
--------- --------- ---------
Total expenses 435,056 392,576 395,273
--------- --------- --------
INCOME $ 290,300 $ 309,605 $ 284,793
========= ========= =========
See notes to financial statements 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOMINION TOTEM PARK LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- - ---------------------------------------------------------------------------------------------------------------------
Limited General
partners partner Total
-------- ------- -----
<S> <C> <C> <C>
BALANCE, January 1, 1994 $3,470,766 $ - $3,470,766
Distributions (399,438) (399,438)
Income 284,793 284,793
---------- ----------
BALANCE, December 31, 1994 3,356,121 3,356,121
Distributions (399,438) (399,438)
Income 309,605 309,605
--------- ---------
BALANCE, December 31, 1995 3,266,288 3,266,288
Distributions (399,438) (399,438)
Income 290,300 290,300
--------- ------- ----------
BALANCE, December 31, 1996 $3,157,150 $ - $3,157,150
========== ======= ==========
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOMINION TOTEM PARK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- - -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income $ 290,300 $ 309,605 $ 284,793
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation 130,725 110,859 118,429
Cash provided (used) by changes in operating assets
and liabilities:
Prepaid insurance 222 (2)
Rent receivable 6,183 (3,957) (7,793)
Accounts payable (9,530) 12,446 1,297
Prepaid rent 6,482 (377) 9,607
Security deposits 110 (17,021) (845)
--------- --------- ---------
Net cash provided by operating activities 424,270 411,777 405,486
INVESTING ACTIVITIES:
Capital improvements to property (27,591)
FINANCING ACTIVITIES:
Distributions to limited partner (399,438) (399,438) (399,438)
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH 24,832 (15,252) 6,048
CASH:
Beginning of year 39,045 54,297 48,249
--------- --------- ---------
End of year $ 63,877 $ 39,045 $ 54,297
========= ========= =========
See notes to financial statements.
5
</TABLE>
<PAGE>
DOMINION TOTEM PARK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- - --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: Dominion Totem Park Limited Partnership (the Partnership) was
originally formed July 1, 1987. On September 1, 1988, the Partnership Agreement
was amended and restated to allow for the purchase of a 99% limited partnership
interest by Summit Preferred Equity L.P. (Summit) and Partnership Monitoring
Corporation, with the remaining 1% general partner interest being held by
Dominion Chateau Creste Limited Partnership. The Partnership owns and operates a
90-unit apartment complex, Chateau Creste Apartments, located in Kirkland,
Washington. The Partnership leases apartments under noncancellable lease
agreements with terms of less than one year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Allocations of profit and loss: Pursuant to the Partnership Agreement, as
amended and restated, allocations of operating profits are to be made first to
the extent of prior allocations of losses, then to Summit until all allocations
to Summit are equal to the cumulative cash distributions made to Summit (Note 2)
and then in proportion to capital account balances, as defined. Operating
losses, excluding depreciation, will be allocated first to the extent of prior
allocation of profits, then 99% to Summit and 1 % to the general partner to the
extent of the partners' positive capital account balances and to the extent such
losses are attributable to nonrecourse debt, and then 100% to the general
partner. Depreciation and profit or loss on sale or refinancing are to be
specially allocated as set forth in the Partnership Agreement.
Distributions of cash flow: Distributions of available cash flow for each
calendar month will first be distributed 100% to Summit until it has received
its preferred equity return, as defined (Note 2); thereafter, cash flow will be
distributed pursuant to a formula stipulated in the Partnership Agreement.
Special provisions have also been made for the distribution of proceeds from
sale or refinancing.
Income taxes: The financial statements include only those assets, liabilities,
and results of operations which relate to the business of the Partnership. The
statements do not reflect a provision for federal income taxes as these taxes
are the responsibility of the Partners.
Depreciation: Depreciation is recorded on a straight-line basis over the
estimated useful lives of the assets, which range from five to 40 years.
Accounting for the impairment of long-lived assets: The Partnership reviews its
property investment for possible impairment at least annually, and more
frequently if circumstances warrant. If this review indicates that the carrying
amount of the property may not be recoverable, the Partnership estimates the
future cash flows expected to result from the operations of the property and its
eventual sale. If the sum of these expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the property, it
is written down to its estimated fair value.
The expected future cash flows used in this process rely upon estimates and
assumptions, including expense growth, occupancy, rental rates, and market
capitalization rates. The general partner believes that the estimates and
assumptions used are appropriate. However, changes in market conditions and
circumstances may occur which would cause these estimates and assumptions to
change, resulting in revised cash flow projections. This, in turn, could lead to
future write-downs, which could be material. No write-downs for impairment have
been recorded as of December 31, 1996.
NOTE 2: PREFERRED EQUITY DISTRIBUTIONS
Pursuant to the Partnership Agreement, Summit receives a preferred equity return
on $4,150,000 of its capital contribution reduced by the aggregate amount of
sale or refinancing proceeds previously distributed to Summit. The current rate
of return is 9.625% per annum. During the years ended December 31, 1996, 1995,
and 1994, the Partnership paid or accrued Summit's preferred distributions
aggregating $399,438 for each year.
6
<PAGE>
NOTE 3: PAYABLE TO GENERAL PARTNER
The payable to general partner consists primarily of interest earned on a
rent-up escrow account prior to disbursement and cash advances made to fund
operations. Pursuant to the terms of the Partnership Agreement, such balances
are payable to the general partner at such time that the limited partner has
received its preferred equity investment.
NOTE 4: PROPERTY MANAGEMENT AGREEMENT -
The Partnership has entered into a Property Management Agreement with an
unaffiliated entity to manage the rental property. The Partnership has committed
to pay 3% of revenue as compensation for such services.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. The
Registrant's affairs are managed and controlled by the General Partners. Certain
information concerning the directors and executive officers of the General
Partners are set forth below.
The Registrant, the Registrant's General Partners and their
directors and executive officers, and any persons holding more than ten percent
of the Registrant's BUC$ as required to report their initial ownership of such
BUC$ and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such executive officers, directors and persons
who own greater than ten percent of the Registrant's BUC$ are required by
Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these filing requirements were
satisfied on a timely basis for the current year. In making these disclosures,
the Registrant has relied solely on written representations of the General
Partners' directors and executive officers and persons who own greater than ten
percent of the Registrant's BUC$ of copies of the reports they have filed with
the Securities and Exchange Commission during and with respect to its most
recent fiscal year.
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP and their positions:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Thomas F. Lynch, III President, Chief Executive Officer, Chairman of the
Board of Directors and Director
Barbara J. Brooks Vice President-Finance
Eugene D. Burak Vice President
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
THOMAS F. LYNCH, III, age 38, is the President, Chief Executive
Officer, Chairman of the Board of Directors, and a Director of PBP. He is a
Senior Vice President of PSI, an affiliate of PBP. Mr. Lynch also serves in
various capacities for other affiliated companies. Mr. Lynch joined PSI in
November 1989.
BARBARA J. BROOKS, age 48, is the Vice President-Finance and Chief
Financial Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also
serves in various capacities for other affiliated companies. She has held
several positions within PSI since 1983. Ms. Brooks is a certified public
accountant.
-22-
<PAGE>
EUGENE D. BURAK, age 51, is a Vice President of PBP. He is a First
Vice President of PSI. Prior to joining PSI in September 1995, he was a
management consultant for three years and was with Equitable Capital Management
Corporation from March 1990 to May 1992. Mr. Burak is a certified public
accountant.
CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of PBP.
He is a Senior Vice President of PSI and is the Senior Manager of the Specialty
Finance Asset Management area. Mr. Piskorowski has held several positions within
PSI since April 1972. Mr. Piskorowski is a member of the New York and Federal
Bars.
FRANK W. GIORDANO, age 54, is a Director of PBP. He is a Senior
Vice President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management, LLC, an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.
NATHALIE P. MAIO, age 46, is a Director of PBP. She is a Senior
Vice President and Deputy General Counsel of PSI and supervises non-litigation
legal work for PSI. She joined PSI's Law Department in 1983; presently, she also
serves in various capacities for other affiliated companies.
There are no family relationships among any of the foregoing
directors or executive officers. All of the foregoing directors and executive
officers have indefinite terms.
The Related General Partner and the Special General Partner (collectively the
"Related General Partners")
The directors and executive officers of the Related General
Partners and their positions are as follows:
Name Position
---- --------
J. Michael Fried President and Director
Stephen M. Ross Director
Stuart J. Boesky Vice President
Alan P. Hirmes Vice President
Richard A. Palermo Treasurer
Lynn A. McMahon Secretary
-23-
<PAGE>
J. MICHAEL FRIED, 52, is President and a Director of each of the
Related General Partners. Mr. Fried is President, a Director and a principal
shareholder of Related Capital Company ("Capital"), a real estate finance and
acquisition affiliate of the Related General Partners. In that capacity, he is
the chief executive officer of Capital, and is responsible for initiating and
directing all of Capital's syndication, finance, acquisition and investor
reporting activities. Mr. Fried practiced corporate law in New York City with
the law firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined
Capital in 1979. Mr. Fried graduated from Brooklyn Law School with a Juris
Doctor degree, magna cum laude; from Long Island University Graduate School with
a Master of Science degree in Psychology; and from Michigan State University
with a Bachelor of Arts degree in History.
STEPHEN M. ROSS, 56, is a Director of each of the Related General
Partners and President of The Related Companies, L.P. ("Related"). He graduated
from The University of Michigan with a Bachelor of Business Administration and
from Wayne State School of Law. Mr. Ross then received a Master of Law degree in
taxation from New York University School of Law. He joined the accounting firm
of Coopers & Lybrand in Detroit as a tax specialist and later moved to New York,
where he worked for two large Wall Street investment banking firms in their real
estate and corporate finance departments. Mr. Ross formed The Related Companies,
Inc. in 1972, to develop, manage, finance and acquire subsidized and
conventional apartment developments. To date, Related has developed multi-family
properties totaling in excess of 25,000 units, all of which it manages.
STUART J. BOESKY, 40, is a Vice President of each of the Related
General Partners. Mr. Boesky practiced real estate and tax law in New York City
with the law firm of Shipley & Rothstein from 1984 until February 1986 when he
joined Capital, where he is presently a Managing Director. From 1983 to 1984 Mr.
Boesky practiced law with the Boston law firm of Kaye, Fialkow Richard &
Rothstein (which subsequently merged with Strook & Strook & Lavan) and from 1978
to 1980 was a consultant specializing in real estate at the accounting firm of
Laventhol & Horwath. Mr. Boesky graduated from Michigan State University with a
Bachelor of Arts degree and from Wayne State School of Law with a Juris Doctor
degree. He then received a Master of Law degree in Taxation from Boston
University School of Law.
ALAN P. HIRMES, 42, is a Vice President of each of the Related
General Partners. Mr. Hirmes has been a Certified Public Accountant in New York
since 1978. Prior to joining Capital in October 1983, Mr. Hirmes was employed by
Weiner & Co., certified public accountants. Mr. Hirmes is also a Managing
Director of Capital. Mr. Hirmes graduated from Hofstra University with a
Bachelor of Arts degree.
RICHARD A. PALERMO, 36, is Treasurer of each of the Related
General Partners. Mr. Palermo has been a Certified Public Accountant in New York
since 1985. Prior to joining Related in September 1993, Mr. Palermo was employed
by Sterling Grace Capital Management from October 1990 to September 1993,
Integrated Resources, Inc. from October 1988 to October 1990 and E.F. Hutton &
Company, Inc. from June 1986 to October 1988. From October 1982 to June 1986,
Mr. Palermo was employed by Marks Shron & Company and Mann Judd Landau,
certified public accountants. Mr. Palermo graduated from Adelphi University with
a Bachelor of Business Administration degree.
LYNN A. McMAHON, 41, is Secretary of each of the Related General
Partners. Since 1983, she has served as Assistant to the President of Capital.
From 1978 to 1983, she was employed at Sony Corporation of America in the
Government Relations Department.
There are no family relationships among any of the foregoing
directors or executive officers. All of the foregoing directors and/or executive
officers have indefinite terms.
-24-
<PAGE>
Item 11. Executive Compensation.
The Registrant has no officers or directors. However, under the
terms of the Partnership Agreement, the Registrant has entered into certain
arrangements with the General Partners and their affiliates, which are described
under "Management Compensation" beginning at page 17 and ending on page 20 of
the Prospectus, which is incorporated herein by reference (see Item 14 Exhibits,
Financial Statement Schedules, and Reports on Form 8-K). See also Note 5 to the
Financial Statements in Item 8 above, which is incorporated herein by reference
for a discussion of the amounts paid to the General Partners and their
affiliates during the year ended December 31, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 3, 1997, no person was known by the Registrant to be
the beneficial owner of more than five percent of the Limited Partnership
Interests and/or BUC$; and none of the General Partners nor any director or
officer of the General Partners owns any Limited Partnership Interests or BUC$.
As of March 3, 1997, the directors and officers of the Related
General Partners as a group own in the aggregate 92.7% of the shares of the
common stock of the Related General Partners, but no director or officer of the
General Partners owns directly or beneficially any interest in the voting
securities of PBP.
Item 13. Certain Relationships and Related Transactions.
The Registrant has and will continue to have certain relationships with
the General Partners and their affiliates, as discussed in Item 11. However,
there have been no direct financial transactions between the Registrant and the
directors and officers of the General Partners.
-25-
<PAGE>
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
(a) 1. Financial Statements Page
-------------------- -----------
<S> <C>
Independent Auditors' Report 10
Statements of Financial Condition as of December 31, 1996 and 1995 11
Statements of Income - Years ended December 31, 1996, 1995 and 1994 12
Statements of Changes in Partners' Capital (Deficit) - Years ended December 31,
1996, 1995 and 1994 13
Statements of Cash Flows - Years ended December 31, 1996, 1995 and
1994 14
Notes to Financial Statements 15
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required or
because the required information is contained in the financial
statements or notes hereto.
Separate Financial Statements of the TCR-Pinehurst Limited Partnership 22
Separate Financial Statements of the Dominion Totem Park Limited Partnership 31
(a) 3. Exhibits
(3A) The Registrant's Certificate of Limited Partnership and amendments
thereto, as filed with the Secretary of State of the State of
Delaware, incorporated herein by reference to Exhibit 3B to the
Registrant's Registration Statement on Form S-11, File No.
33-13039, filed with the Securities and Exchange Commission (as
amended, the "S-11 Registration Statement")
(3B) The Registrant's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), incorporated herein by
reference to Exhibit A to the Registrant's Prospectus, dated
August 6, 1987 as supplemented by Supplement No. 1 dated December
8, 1987, Supplement No. 2 dated April 28, 1988, and Supplement No.
3 dated August 31, 1988 (the "Prospectus"), filed pursuant to Rule
424(b) under the Securities Act of 1933
(3C) Amendment No. 1, dated September 29, 1987, to the Partnership Agreement,
incorporated herein by reference to Exhibit (3C) in the Registrant's Form 10-K for
the fiscal year ended December 31, 1987
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page
-----------
<S> <C>
(3D) Amendment No. 2, dated November 2, 1987, to the Partnership Agreement,
incorporated herein by reference to Exhibit (3D) in the Registrant's Form 10-K for
fiscal year ended December 31, 1987
(10A) Form of Purchase and Sale Agreement pertaining to the Registrant's
acquisition of Preferred Equity Investments, incorporated herein
by reference to exhibit 10C to the S-11 Registration Statement
(10B) Form of Amended and Restated Agreement of Limited Partnership of
Operating Partnerships, incorporated herein by reference to
Exhibit 10B to the S-11 Registration Statement
27 Financial Data Schedule (filed herewith) 47
(99A) Pages 17 through 20, 88 and 89 of the Registrant's Prospectus (filed herewith) 48
(b) Reports on Form 8-K
Current Report on Form 8-K dated December 31, 1996 was filed on
January 10, 1997 relating to a preliminary approval order with
respect to the settlement of class action litigation.
</TABLE>
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SUMMIT PREFERRED EQUITY L.P.
<TABLE>
<CAPTION>
<S> <C>
By: RELATED EQUITY FUNDING INC., a General Partner
Date: April 25, 1997
By: /s/ J. Michael Fried
-----------------------------
J. Michael Fried,
President and Director
and
By: PRUDENTIAL-BACHE PROPERTIES, INC., a General Partner
Date: April 25, 1997
By: /s/ Thomas F. Lynch, III
-----------------------------
Thomas F. Lynch, III,
President, Chief Executive Officer, Chairman
of the Board of Directors and Director
RELATED BUC$ ASSOCIATES, INC.
Date: April 25, 1997
By: /s/ J. Michael Fried
-----------------------------
J. Michael Fried,
President
</TABLE>
-28-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, the report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- - ------------------------ ---------------------------------------- ---------------
<S> <C> <C>
/s/ J. Michael Fried President (principal
- - ------------------------- executive officer) and
J. Michael Fried Director of Related Equity Funding, Inc.
(a General Partner of Registrant) April 25, 1997
/s/ Alan P. Hirmes Vice President (principal financial
- - ------------------------- officer) of Related Equity Funding, Inc. April 25, 1997
Alan P. Hirmes
/s/ Richard A. Palermo Treasurer (principal accounting
- - ------------------------- officer) of Related Equity Funding, Inc. April 25, 1997
Richard A. Palermo
/s/ Stephen M. Ross Director of Related Equity Funding, Inc. April 25, 1997
- - -------------------------
Stephen M. Ross
/s/ Thomas F. Lynch, III President, Chief Executive Officer and
- - ------------------------- Chairman of the Board, (principal executive
Thomas F. Lynch, III officer) of Prudential-Bache Properties, Inc.
(a General Partner of the Registrant) April 25, 1997
Vice President - Finance and Chief Financial
/s/ Barbara J. Brooks Officer (principal financial officer) of
- - ------------------------- Prudential-Bache Properties, Inc. April 25, 1997
Barbara J. Brooks
/s/ Nathalie P. Maio Director of Prudential-Bache Properties, Inc. April 25, 1997
- - -------------------------
Nathalie P. Maio
/s/ Eugene D. Burak Vice President of
- - ------------------------- Prudential-Bache Properties, Inc. April 25, 1997
Eugene D. Burak
/s/ Frank W. Giordano Director of Prudential-Bache Properties, Inc. April 25, 1997
- - -------------------------
Frank W. Giordano
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Summit Preferred Equity L.P. and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<CIK> 0000812052
<NAME> Summit Preferred Equity L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 266,427
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,951
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,517,757
<CURRENT-LIABILITIES> 344,417
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,173,340
<TOTAL-LIABILITY-AND-EQUITY> 7,517,757
<SALES> 0
<TOTAL-REVENUES> 572,714
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 128,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 444,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444,300
<EPS-PRIMARY> .63
<EPS-DILUTED> 0
</TABLE>
11.9 of the Partnership Agreement the General Partners and/or their Affiliates
will return to the Partnership an appropriate amount of the Acquisition Fees
paid to them without interest. In addition, the General Partners will receive a
Placement Fee from each Operating Partnership in connection with the Acquisition
by the Partnership of a Preferred Equity Investment therein. See note 4 above.
(6) The Partnership will pay all Acquisition Expenses not paid by the
Operating Partnerships. To the extent that Acquisition Expenses payable by the
Partnership are less than 0.25% of Gross Proceeds, the General Partners will
receive the difference.
(7) The Partnership initially expects to reserve 1.0% of the Gross
Proceeds as a reserve for working capital ("Reserves"). In addition, the
Operating Partnerships are expected to maintain working capital reserves
independent of those maintained by the Partnership to the extent that the
Special General Partner and the Developer determine that the same is necessary
or advisable. See "Investments Objectives and Policies--Interim Investments and
Reserves."
MANAGEMENT COMPENSATION
The following table sets forth the types and estimates of the amounts of
all fees, compensation, income, distributions and other payments that the
General Partners and their Affiliates will or may receive in connection with the
business and operations of the Partnership and the Operating Partnerships. Such
fees, compensation, income, distributions and other payments were not determined
by arm's length bargaining. See "Conflicts Of Interest."
<TABLE>
<CAPTION>
Entity or Entities Receiving Method of Determination
Form of Compensation Compensation or Reimbursement and Estimated Dollar Amount
-------------------- -------------------------------- ---------------------------
OFFERING STAGE
<S> <C> <C>
Selling Commissions .............. Selling Agent, an Affiliate 7% of the aggregate purchase price of BUC$
of Pru-Bache Properties sold by the Partnership (assuming no volume
discounts); actual amount depends upon
number of BUC$ sold; up to $4,050,200
if maximum number of BUC$ is sold without
any quantity discount. (1)
Non-Accountable Expense Allowance.. General Partners (3) The amount, if any, by which Organization
and Offering Expenses are less than 2.5% of
Gross Proceeds; not determinable at this
time. (2)
ACQUISITION STAGE (4)
Acquisition Fees .................. General Partners (3) 4% of the Gross Proceeds in consideration of
the services of the General Partners in
selecting and evaluating Preferred Equity
Investments for acquisition by the Partnership,
negotiating the terms of the Partnership's
acquisition of Preferred Equity Investment, and
closing the acquisition of Preferred Equity
Investments by the Partnership; up to $178,800 if the
minimum sub scripton is sold and $2,314,400 if the
maxmium subscription is sold. (5)
Placement Fees .................... General Partners (3) An amount equal to up to 2% of the Gross Proceeds
payable by the Operating Partnerships in
reimbursement of expenses incurred and services
performed by the General Partners in connection with
the administration of the acquisition of Preferred
Equity Investments, estimated to be $89,400 if the
minimum subscription is sold and $1,157,200 if the
maxmium subscription is sold.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Entity or Entities Receiving Method of Determination
Form of Compensation Compensation or Reimbursement and Estimated Dollar Amount
-------------------- ----------------------------- ---------------------------
<S> <C> <C>
Non-Accountable Acquisition Expense General Partners (3) An amount, if any, by which Acquisition Expenses
Allowance ......................... paid by the Partnership are less than .25% of
Gross Proceeds; not determin able at this time.
OPERATIONAL STAGE (6)
Participating Interest in Cash Flow General Partners (3) 0.5% annually of the aggregate Invested Assets
(see "Glossary"), payment of half of which for any
year will be subordinated to the distribution to BUC$
of Cash Available for Distribution for that year in
an amount equal to 8% per annum on their Adjusted
Contributions; estimated to be not more than $261,817
per year if the maximum number of BUC$ is sold and
sufficient Preferred Equity Investments are acquired
to utilize the Gross Proceeds of such sale; any
amount of such Distribution not made for any year
will be deferred without interest and will be paid
only out of Sale or Refinancing Proceeds after
BUC$holders have received their Priority Return and a
return of their Original Contributions.
Share of Distributions of Operating Special General Partner as 0.01% of all distributions by the Operating
Cash Flow by the Operating Special Limited Partner of Partnerships of operating cash flow from the
Partnerships ...................... Operating Partnerships (3) Properties for any fiscal year after distribution
to the Partnership of amounts sufficient to satisfy
its Preferred Equity Return with respect to such year
and all prior years. Actual amounts depend upon the
results of operations of the Properties and cannot be
estimated at this time. See Allocations and
Distributions."
Distributive Share of Distributions General Partners (3) 2% of all distributions by the Partnership of Cash
of Cash Available for Distribution Available for Distribution for any year After payment
by the Partnership ................ of the Participating Interest in Cash Flow; actual
amounts received depend upon the results of
operations of the Partnership and cannot be
estimated at this time. See "Allocations and
Distributions."
Accountable Operating Expense General Partners (3) The lesser of (i) actual costs incurred in providing
Reimbursement ..................... goods and materials acquired and services performed
for the Partnership, or (ii) with respect to services
performed for the Partnership, 90% of the amount that
an independent third party would charge for such
services.
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Entity or Entities Receiving Method of Determination
Form of Compensation Compensation or Reimbursement and Estimated Dollar Amount
-------------------- -------------------------------- ---------------------------
<S> <C> <C>
SALE OR REFINANCING STAGE
Subordinated Interest in General Partners and Subordinated Interest in Disposition Proceeds be paid
Disposition Proceeds ............... Affiliates (3) by the Partnership upon sale of a Property or
Preferred Equity Investment if the General Partners
or their Affiliates provide substantiai services in
connection therewith, in an amount equal to the
lesser of (i) 3% of the gross sales price, or (ii)
one-half of the normal and competitive rate
customarily charged by unaffiliated parties rendering
similar services, in each case only after the
BUC$holders have received an amount equal to their
Adjusted Contributions plus payment of an annual
cumulative simple interest return thereon of 6% (as
such return may have been satisfied through prior
distributions of Cash Available for Distribution).
(7)
Share of Proceeds of Sale or Special General Partner as 0.01% of all distributions by each Operating
Refinancing of Properties by the Special Limited Partner of Partnership of the net proceeds of the Sale or
Operating Partnerships ............ Operating Partnerships (3) or Refinancing of Properties after distribution to
the Partnership of amounts of Sale or Refinancing
Proceeds (i) sufficient to pay any unsatisfied
portion of its Preferred Equity Return for the year
of distribution and all prior years and (ii) equal in
the aggregate to the amount of the Preferred Equity
Investment; actual amounts depend upon the net
proceeds of the Sale or Refinancing of Properties and
other factors and are not determinable at this time.
Distributive share of Sale and General Partners (3) 2% of all distributions of Sale or Refinancing
Refinancing Proceeds distributed Proceeds by the Partnership until the BUC$holders
by the Partnership ................ have received distributions of Sale or Refinancing
Proceeds from the Partnership in an aggregate amount
equal to (i) their Priority Return for any year not
there tofore satisfied through the distribution by
the Partnership to s of Cash Available for
Distribution and prior distributions of Sale or
Refinancing Proceeds and (ii) an amount equal to the
aggregate Adjusted Contributions of the BUC$ holders;
thereafter, 15% of such distributions of Sale or
Refinancing Proceeds; actual amounts depend upon the
net proceeds of the Sale or Refinancing of Properties
and other factors and are not determinable at this
time. See "Allocations and Distributions."
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</TABLE>
<PAGE>
(1) The estimated amounts are based on the assumption that all of the BUC$
will be sold directly by the Selling Agent. In addition, the Partnership will
reimburse the Selling Agent for certain accountable expenses in connection with
the offering of BUC$. In no event will the total underwriting compensation to be
paid, including underwriting commissions, sales commissions and public offering
expense reimbursements, exceed 10% of the Gross Proceeds, except that up to an
additional 0.5% of the Gross Proceeds may be paid in reimbursement of bona fide
due diligence expenses.
(2) A portion of the nonaccountable expense allowance may be deemed to be
underwriting compensation. See Note 1 above. The General Partners and/or their
Affiliates will pay all Organization and Offering Expenses of the Partnership
excluding underwriting and sales commissions in excess of 2.5% of the Gross
Proceeds. See "Plan of Distribution."
(3) All fees, compensation and interests in Cash Available for
Distribution and Sale or Refinancing Proceeds will be allocated between the
General Partners as they shall determine from time to time.
(4) Pursuant to Section 15.8 of the Partnership Agreement, the General
Partners must commit to Preferred Equity Investments a percentage of the Gross
Proceeds equal to 82.5% of Gross Proceeds. In the event that the Preferred
Equity Investments would otherwise be insufficient, the Acquisition Fees payable
by the Partnership will be decreased by an amount necessary for compliance with
Section 15.8.
(5) Acquisition Fees will be paid to The General Partners or their
Affiliates by the Partnership as proceeds from the offering are received without
regard to the results of the Partnership's operations. However, if The
Partnership is required to return any uninvested Net Proceeds pursuant to
Section 11.9 of the Partnership Agreement, The General Partners and/or their
Affiliates will return to the Partnership an appropriate portion of the
Acquisition Fees paid to Them without interest.
(6) It is expected that each Operating Partnership will pay property management
fees which will be competitive for similar services in the same geographic area
to a property manager that is not an Affiliate of the General Partners. See
"Management of Properties." In the unlikely event that the General Partners or
their Affiliates provide supervisory property management services for the
Partnership's Properties, they will be enticed to receive a fee which is
competitive for similar services in the same geographic area, but not exceeding
SO of the annual Gross Revenues from the Properties.
(7) The General Partners or their Affiliates are entitled to receive a
Subordinated Interest in Disposition Proceeds only on those sales in which such
entity participates and provides substantial services, including but not limited
to any one or more of the following: preparing a brochure or presentation on the
Property or Preferred Equity Investment to be sold, structuring the terms of the
sale transaction, finding prospective purchasers and negotiating the sale. If
non-Affiliates participate in a sale, the subordination requirement of The
Partnership Agreement shall apply only to Affiliates involved in the
transaction. In addition, the Partnership Agreement limits the payment to all
parties upon the sale of a Property to no more than 6% of the gross sales of
such Property.
20
<PAGE>
the General Partner shares in certain Partnership distributions and tax benefits
in a manner disproportionate to their capital contributions, the General Partner
is being compensated directly out of the plan's assets, rather than Partnership
assets, in exchange for the provisions of services to the plan, i.e., for
establishing the Partnership and making it available as an investment to the
plan. If this were the case, then absent a specific exemption applicable to the
transaction, a prohibited transaction could be determined to have occurred
between the investing plan and the General Partner. Accordingly, the General
Partners will not permit a plan to invest in the Partnership if any General
Partner or an Affiliate thereof is a fiduciary of such plan.
Based on the foregoing, and because BUC$ are expected to be held by at
least 100 persons who are independent of the Partnership and independent of one
another, counsel will render an opinion as of the date of the Prospectus that it
is more likely than not that the underlying assets of the Partnership will not
be considered to be plan assets for s, the transactions described in
this Prospectus that the Partnership might enter into with the General Partners
or their Affiliates will not constitute "prohibited transactions" under ERISA,
and the receipt of any Distribution or tax allocation by the General Partners
disproportionate to their capital contributions will not constitute "prohibited
transactions."
DESCRIPTION OF BUC$
The BUC$ will represent all of the economic and virtually all of the ownership
rights attributable to Limited Partnership Interests held by Related BUC$
Associates, Inc., an Affiliate of the Related General Partner, which is serving
as the depositary for such Limited Partnership Interests and as Assignor Limited
Partner. Each BUC will represent a Limited Partnership Interest of $20. BUC$
will be issued in registered form only and will generally be freely transferable
(see below) commencing 45 days after the Final Closing Date, unless the General
Partners, in their discretion, allow earlier transfers, and except when
transfers would be restricted under federal or state securities laws. If the
General Partners believe that it is in the best interest of the Partnership,
they intend to apply to list the BUC$ for trading on NASDAQ or a national
exchange. There can be no assurance that the BUC$ will be listed or quoted or
that, if listed or quoted, a market in the BUC$ will develop.
Subscribers for BUC$ in the Offering will become assignees of the Assignor
Limited Partner upon the closing of the sale of the BUC$ purchased by them. At
such closing, the $20 purchase price (less volume discounts, if any, and Selling
Commissions) for each BUC will be contributed to the Partnership and by
amendment to the Partnership Agreement, the Assignor Limited Partner will become
a Limited Partner with respect to a corresponding amount of Limited Partnership
Interests. By operation of the Partnership Agreement, the Limited Partnership
Interests thereby acquired by the Assignor Limited Partner are assigned to the
subscribers for the BUC$ and the Assignor Limited Partner simultaneously will
cause to be issued BUC$ registered in the names of the BUC$ purchasers or their
nominees.
Although under Delaware law, an assignee, unlike a substituted limited
partner, is not entitled to all the statutory rights of a limited partner,
including voting rights and the right to inspect and copy the Partnership's
books, the Partnership has granted such rights to s under the
Partnership Agreement, to the fullest extent permitted by law.
Following the termination of the Offering, s who wish to exchange
their BUC$ for Limited Partnership Interests and become Limited Partners may do
so by executing and delivering to the Partnership subscription agreements and
applications (which are available upon request from the General Partners) and
making payment not to exceed $100 per transaction to cover expenses involved in
the transfer. s surrendering BUC$ to become substituted Limited
Partners will be admitted to the Partnership monthly following the submission of
all required documents to the Assignor Limited Partner and acceptance of such
investors by the General Partners. Limited Partnership Interests will not be
listed for trading on any securities exchange or included for quotation on the
NASDAQ System and it is not anticipated that a public market will develop for
Limited Partnership Interests. There are also certain restrictions on the
transfers of Limited Partnership Interests. See "Summary of Partnership
Agreement--Transferability of Limited Partnership Interests." Accordingly,
holders of Limited Partnership Interests are expected to encounter greater
difficulty in selling or pledging their Limited Partnership Interests than
holders of BUC$. Therefore, Limited Partnership Interests should only be
considered as a long-term investment. BUC$ which have been exchanged for Limited
Partnership Interests will be cancelled and will not be reissued. INVESTORS WHO
EFFECT SUCH AN EXCHANGE WILL NOT BE ABLE TO RE-EXCHANGE THEIR LIMITED
PARTNERSHIP INTERESTS FOR BUC$.
Bankers Trust Company will act as the transfer agent and registrar for the BUC$.
The transferee of BUC$ shall not be recognized as an assignee of Limited
Partnership Interests unless and until the day such transfer is received and
recorded by the transfer agent of the Partnership in respect of the BUC$. See
"Summary of Partnership Agreement--Transferability of Limited Partnership
Interests" for a discussion of transfers of Limited Partnership Interests and
the restriction that no BUC may be sold, assigned or exchanged if such BUC, when
added to the total of all BUC$ and Limited Partnership Interests sold or
exchanged within the prior 12 months, would result in the termination of the
Partnership.
The General Partners have the ability, without a vote of Limited Partners
or s, to delist BUC$ from public trading markets, to cause the
Assignor Limited Partner to cancel all BUC$ and to cause the holders of such
BUC$ to become substituted Limited Partners
88
<PAGE>
in the Partnership to the extent of their holdings in BUC$ and/or to impose
additional restrictions on transfers of BUC$ or Limited Partnership Interests
should the General Partners deem it advisable or necessary to do so in order to
preserve the tax status of the Partnership as an entity taxable as a partnership
and not as a corporation for federal income tax purposes or, if necessary, to
provide for continued availability of tax benefits. The Partnership does not
intend to redeem or repurchase any of the BUC$ or Limited Partnership Interests
during the life of the Partnership.
SUMMARY OF PARTNERSHIP AGREEMENT
The rights and obligations of the Partners in the Partnership are governed
by the Partnership Agreement, the form of which is set out in its entirety at
the end of this Prospectus as Exhibit A. The s will become assignees
of the Assignor Limited Partner of the Partnership and as such, their rights
will also be governed by the terms of the Partnership Agreement. Prospective
investors should study the Partnership Agreement carefully. The following
statements and other statements in this Prospectus concerning the Partnership
Agreement and related matters are merely an outline, do not purport to be
complete and in no way modify or amend the Partnership Agreement.
BUC$ HOLDERS WILL BE BOUND BY THE PROVISIONS OF THE PARTNERSHIP AGREEMENT
Nature of Partnership
Summit Preferred Equity L.P. is a limited partnership formed under the
Delaware Revised Uniform Limited Partnership Act. The Partnership Agreement
authorizes the issuance and sale for cash of up to 2,893,000 Limited Partnership
Interests and BUC$ representing the assignment of such Limited Partnership
Interests. The Initial Limited Partner acquired 150 Limited Partnership
Interests and will with. draw as a Limited Partner at the first closing of the
sale of BUC$.
The Responsibilities of the General Partners
The General Partners have the exclusive management and control of all
aspects of the business of the Partnership. In the course of their management,
the General Partners may acquire, hold, encumber, sell, dispose of and otherwise
deal with and invest in Preferred Equity Investments upon such terms as they
determine to be in the best interests of the Partnership. They may also employ
such persons, including, under certain circumstances, Affiliates of the General
Partners, as they deem necessary or desirable for the efficient operation of the
Partnership. However, the Partnership Agreement provides that prior to the sale,
pledge or encumbrance of all or substantially all of the assets of the
Partnership, Holders holding more than 50% of the total outstanding Limited
Partnership Interests and BUC$ must approve of such sale or pledge. Neither the
Limited Partners nor the s shall have any authority to transact
business for or participate in the control of the business of the Partnership.
The authority of the General Partners is also subject to certain express
restrictions set forth in the Partnership Agreement. None of the General
Partners will take any action which constitutes its voluntary withdrawal from
the Partnership until the dissolution of the Partnership.
Tax Matters Partner
The Related General Partner has been designated the "Tax Matters Partner"
under Section 15.10 of the Partnership Agreement to manage administrative tax
proceedings conducted at the Partnership level by the IRS with respect to
Partnership matters. Any Partner has the right to participate in such
administrative proceedings relating to the determination of Partnership items at
the Partnership level. Expenses of such administrative proceedings undertaken by
the Tax Matters Partner will be paid for out of Partnership assets. Each Holder
who elects to participate in such proceedings will be responsible for any
expense incurred by such Holder in connection with such participation. Further,
the cost to a Holder of any adjustment, and the cost of any resulting audit or
adjustment of a Holder's tax return, will be borne solely by the affected
Holder. See "Federal Income Tax Considerations--Tax Returns, Tax Information,
Audits and Proceedings"; and "Conflicts of Interest--Tax Matters Partner."
Liability of s and Limited Partners
A 's capital and a Limited Partner's capital are subject to the
risks of the Partnership's business. In general, limited partners are not liable
for a limited partnership's obligations unless they take part in the management
or control of the business of the partnership and thereby incur liability as
general partners. In the opinion of counsel to the Partnership, no Limited
Partner of the Partnership will have any liability under Delaware law for
obligations of the Partnership in excess of the Limited Partner's capital
contribution and share of the Partnership's assets and undistributed profits,
except for any duty to return certain distributions and returns of capital,
unless such Limited Partner takes part in the control of the Partnership's
business.
Under the Delaware Act, the exercise by Limited Partners of the voting
rights contemplated by the Partnership does not constitute taking part in the
management or control of the business of the Partnership. In the opinion of
<PAGE>
counsel to the Partnership, the liability of the BUC$ holders will be no greater
than that of a Limited Partner of the Partnership.
89
