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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-12651
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UNIVERSITY REAL ESTATE FUND 10, LTD.
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(Exact name of registrant as specified in its charter)
Colorado 95-3776748
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Ross Avenue, Suite 4600, Dallas, Texas 75201
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(Address of principal executive offices) (Zip code)
200 Crescent Court, Suite 1300, Dallas, Texas 75201
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(Former address, if changed since last report)
Registrant's telephone number, including area code (214) 740-2209
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Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12 (g) of the Act:
Limited Partnership Units
15% Nonrecourse General Obligation
Promissory Notes due December 31, 1998
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
All of the registrant's 20,192 Limited Partnership Units are held by non-
affiliates of the registrant. The aggregate market value of units held by non-
affiliates is not determinable since there is no public trading market for
Limited Partnership Units and transfers of units are subject to certain
restrictions.
Documents Incorporated by Reference: None
Exhibit Index: See Page 13
TOTAL OF 41 PAGES
1
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UNIVERSITY REAL ESTATE FUND 10, LTD.
INDEX TO ANNUAL REPORT ON FORM 10-K
Item No. Page
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PART I
1 Business........................................................... 3
2 Properties......................................................... 4
3 Legal Proceedings.................................................. 5
4 Submission of Matters to a Vote of Security Holders................ 5
PART II
5 Market for Registrant's Units of Limited Partnership and Related
Security Holder Matters........................................... 5
6 Selected Financial Data............................................ 6
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 6
8 Financial Statements and Supplementary Data........................ 9
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 10
PART III
10 Directors and Executive Officers of the Registrant................. 10
11 Executive Compensation............................................. 11
12 Security Ownership of Certain Beneficial Owners and Management..... 11
13 Certain Relationships and Related Transactions..................... 11
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 12
2
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PART I
ITEM 1. BUSINESS
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ORGANIZATION
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University Real Estate Fund 10, Ltd., (the "Partnership" or "Registrant") was
organized on February 4, 1982, as a limited partnership under the provisions of
the Colorado Uniform Limited Partnership Act of 1981, and commenced operations
on April 5, 1982.
The general partner of the Partnership is University Special Partners, Ltd.
("USP" or the "General Partner"), a Colorado limited partnership. The general
partner of USP is Southmark Investment Group, Inc., a wholly-owned subsidiary of
Southmark Corporation ("Southmark"). The principal place of business for the
General Partner is 2711 LBJ Freeway, Suite 950, Dallas, Texas 75234.
On April 4, 1982, a registration statement on Form S-11 was declared effective
by the Securities and Exchange Commission whereby the Partnership offered for
sale $18,000,000 of Limited Partnership Units and $12,000,000 of 15% Nonrecourse
General Obligation Promissory Notes Payable ("Promissory Notes") due December
31, 1998, with the General Partner's option to increase up to $30,000,000 of
units and $20,000,000 of notes. The units represent equity interests in the
Partnership and entitle the holder thereof to participate in certain Partnership
allocations and distributions. Purchasers of the Promissory Notes could have
elected whether to have interest payable quarterly ("Current Notes"), or accrued
and converted quarterly to additional principal, which would in turn accrue
interest until December 31, 1988 ("Deferred Notes"). The sale of Limited
Partnership Units and Promissory Notes closed on April 15, 1983, with 20,452
Partnership Units sold at $1,000 each, or gross proceeds of $20,452,000 to the
Partnership. Net proceeds from the issuance of Current Notes were $6,007,000
and from Deferred Notes were $7,655,000.
SALE OF GENERAL PARTNER INTEREST
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On March 9, 1993, Southmark and several of its affiliates (including the
General Partner) entered into an Asset Purchase Agreement with SHL Acquisition
Corp. III, a Texas corporation, and its permitted assigns (collectively "SHL")
to sell various general and limited partnership interests owned by Southmark and
its affiliates, including the general partnership interest of the Partnership.
On April 22, 1993, Southmark and SHL executed the First Amendment to Asset
Purchase Agreement whereby SHL acquired an option to purchase the general
partner interest of the Partnership, rather than the Partnership interest
itself. On December 16, 1993, SHL assigned its rights under the amended Asset
Purchase Agreement to Hampton Realty Partners, L.P., a Texas limited partnership
("Hampton") and Hampton and Southmark affiliates also entered into an Option
Agreement whereby Hampton acquired the right to purchase the option assets,
including the general partnership interest of the Partnership subject to the
approval of the Limited Partners. On April 20, 1994, Insignia Financial Group,
Inc., a Delaware corporation, and certain of its affiliates (collectively
"Insignia") entered into an Option Purchase Agreement with Hampton to acquire
Hampton's rights to solicit proxies from the Limited Partners seeking their
consent to Hampton becoming the general partner of the Partnership. On August 8,
1994, the Insignia contract was terminated. On December 30, 1994, Hampton
entered into an Assignment and Assumption of Option Agreement with JKD Financial
Management, Inc. ("JKD"), a Texas corporation, whereby, among other things, JKD
obtained the right to acquire Hampton's rights to proxy into the Partnership
subject to approval of the Limited Partners. As of the date hereof, JKD has not
exercised its right to acquire the general partner interest in the Partnership.
Effective as of December 14, 1992, the Partnership entered into a Portfolio
Services Agreement and a Property Management Agreement with Hampton UREF
Management, Ltd. ("Hampton UREF"), a Texas limited partnership, pursuant to
which Hampton UREF began providing management for the Partnership's properties
and certain other portfolio services. The operations of the Partnership's
properties were managed by Hampton Management, Inc. (formerly "SHL Management,
Inc.") through a subcontract agreement with Hampton UREF. From April 20, 1994
through December 31, 1994, the Partnership's properties were managed by Insignia
or an affiliate, first pursuant to a Property Management Subcontract Agreement
with Hampton UREF and then a Property Management Agreement with the Partnership
itself. As of December 30, 1994, Hampton UREF entered into an Assignment and
Assumption of Portfolio Services Agreement with JKD pursuant to which JKD
oversees the management of the Partnership.
3
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CURRENT OPERATIONS
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General:
The Partnership's primary business has been is to own, operate and ultimately
dispose of its income-producing real property for the benefit of its partners.
At December 31, 1994, the Partnership owned one income-producing property,
Valley Bank Tower. Approximately 93% of the total rental revenue recognized by
the Partnership in 1994 was attributable to two tenants at Valley Bank Tower. In
February 1995, the Partnership sold Valley Bank Tower. See Item 2 -
"Properties". The only remaining asset of the Partnership at December 31, 1995
was a promissory note received as partial consideration in the sale of Valley
Bank Tower amounting to $640,000. On January 31, 1996, the Partnership entered
into an Assignment Agreement with Hampton. This agreement transfers all right,
title and interest in and to the $640,000 Valley Bank Note receivable and all
security thereon to Hampton. This transfer is considered and will be applied as
a partial repayment of operating advances payable, affiliate.
In 1987, the Partnership reduced the interest payment rate on the Promissory
Notes to 6% per annum. Interest continued to accrue at 15% with the unpaid
portion being deferred. The Promissory Note Agreement provides that interest
payments may be reduced, without the consent of noteholders, to a rate not less
than 6% per annum provided that the amount of interest earned and currently
payable but unpaid does not exceed an amount equal to 9% of the principal
balance of the Promissory Notes. The Partnership has failed to make the
required principal and interest payments on the Promissory Notes due since
December 31, 1988. Under the terms of the Promissory Note Agreement, failure to
make the required payments constitutes an event of default. Upon the occurrence
of an event of default with respect to nonpayment of interest, any portion of
the stated interest not paid (defaulted interest) bears interest at the rate of
15% per annum and becomes additional principal on the Promissory Notes.
Limited Partners are entitled to receive distributions of cash received from
operations, property sales or refinancing and cash from other sources, if any
remains after payment of Partnership expenses, debt service on the Promissory
Notes and mortgage notes payable, and the maintenance of working capital
reserves in amounts determined by the General Partner. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further discussion of liquidity and capital resources.
Business Plan:
The business of the Partnership is not seasonal. In February 1995, the
Partnership sold the Valley Bank Tower real estate investment and its sole
remaining asset at December 31, 1995 was a $640,000 promissory note relating to
the sale (the "Valley Bank Note"). The Valley Bank Note has a three-year term,
bears interest at 7.5% and requires quarterly interest payments to the
Partnership. The Partnership will be dissolved after the collection or
disposition of the Valley Bank Note. On January 31, 1996, the Partnership
assigned the Valley Bank Note to Hampton as partial repayment of operating
advances. See Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The Partnership does not directly employ any personnel. From December 14, 1992
through April 20, 1994, Hampton UREF and its affiliates managed the day-to-day
operations of the Partnership and its properties under terms of a Property
Management and Portfolio Services Agreements. On April 20, 1994, the day-to-day
management responsibilities of the Partnership and its properties were assumed
by an affiliate of Insignia through subcontract agreements with Hampton UREF. On
August 8, 1994, the subcontract agreements were terminated and Insignia entered
into a Property Management Agreement directly with the Partnership. On December
30, 1994, Hampton UREF entered into an Assignment and Assumption of Portfolio
Services Subcontract Agreement with JKD, which is now responsible for winding up
the affairs of the Partnership for the General Partner.
ITEM 2. PROPERTIES
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In June 1994, the Mountain Top Apartments Site was sold. In February 1995, the
Partnership's final real estate investment, Valley Bank Tower, was sold to West
Washington Associates, LLC, for $7,400,000, including the Valley Bank Note of
$640,000, which is the Partnership's sole remaining asset at December 31, 1995.
The Partnership, which leased the land on which Valley Bank Tower is located,
assigned the lease in connection with the sale. See Item 8 - "Note 4 - Real
Estate Investments" for further details of the terms of the lease.
4
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ITEM 3. LEGAL PROCEEDINGS
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University Real Estate Fund 10, Ltd., et al., vs. C. F. Halstead, et al
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In November 1988, the Partnership filed a suit in the Equity Court of Jefferson
County, Alabama against the developers of a large shopping center alleging that
the blasting, excavating, grading and other activities performed by the
defendants resulted in the collapse of the Mountain Top Apartments. In 1989 and
1990, the insurance carrier remitted $5,136,631 to the Partnership in settlement
of damage done to the property, and retained the right of subrogation for these
insurance proceeds against the defendants. A portion of these proceeds were
used in 1989 to pay off the related mortgage notes and accrued interest of
$3,681,566, and legal fees and other expenses of $203,206 related to early
retirement of debt. A portion of the remaining proceeds was used for the legal
action against the excavation company which is allegedly responsible for the
damage. In late 1992, a settlement agreement was reached whereby the
Partnership would receive an additional $512,487. Of that amount, $220,896 (net
of legal fees of $243,104) was received in December 1992 and $8,329 (net of
legal fees of $4,158) was received in March 1993. An additional $36,000 is
still due the Partnership, however payment is uncertain due to the engineering
company's insurer being insolvent. At December 31, 1995, the Partnership does
not anticipate that the funds will ever be received by the Partnership.
Madison Building a/k/a Murdock Madison Building vs. University Real Estate Fund
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10, Ltd.; Case #93 CV 1073
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Madison Building, a/k/a/ Murdock Madison Building, the holder of a second lien
on the Partnership's leasehold estate, initiated a foreclosure action as a
result of the maturity of a second lien mortgage note on Valley Bank Tower in
the amount of $1.2 million in November 1992. On June 14, 1993, Oak Brook
Corporation was appointed receiver of the Building. The Partnership completed a
refinancing of the second lien, obtained a satisfaction of judgment, and
obtained a termination of the receivership.
Fiore Inns, et al vs. Madison Building, et al; Case #93 CV 2011 and #94 CV 1421
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Fiore Inns, Inc., the ground lessor of the property upon which the Valley Bank
Tower building is located alleged that the building had not been properly
maintained. The Partnership vigorously denied such allegations. Fiore Inns,
Inc. commenced this action on April 29, 1994, seeking termination of the ground
lease. The court granted the Partnership's motion to dismiss in part. The
Partnership filed a counterclaim for declaratory judgment seeking a declaration
that Fiore's attempted termination of the ground lease was invalid. Fiore filed
an action, Case No. 94 CV 1421, seeking foreclosure of the ground lease or a
declaration that its termination of the ground lease was valid. The Partnership
reached a settlement agreement with Fiore Inns, Inc. with respect to the
foreclosure litigation. The settlement agreement, dated February 24, 1995,
included the sale of Valley Bank Tower to an affiliate of Fiore Inns, Inc. for
total consideration amounting to $7,400,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED
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SECURITY HOLDER MATTERS
-----------------------
(A) There is no established public trading market for Limited Partnership
Units, nor is one expected to develop.
(B) Title of Class Number of Record Unit Holders
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Limited Partnership Units 2,275 as of March 1, 1996
(C) There have been no distributions paid to the partners. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
5
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ITEM 6. SELECTED FINANCIAL DATA
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The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in Item 8.
<TABLE>
<CAPTION>
Statements of Years Ended December 31,
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Operations 1995 1994 1993 1992 1991
- ---------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental income................. $ 359,409 $ 2,316,140 $ 2,330,650 $ 2,300,630 $ 2,233,072
Expenses...................... (10,891,332) (11,575,828) (11,283,532) (10,004,657) (9,182,514)
Provision for loss on
note receivable............. - - (411,255) - -
Gain on settlement of
litigation.................. - - - 464,000 -
Gain (loss) on sale or
disposition of real estate.. 1,015,404 1,127,551 - - 262,628
Loss before extra-
ordinary items.............. (9,475,355) (8,047,602) (8,655,936) (6,520,944) (5,987,807)
Extraordinary gain (loss)..... (531,935) - - - 853,742
Net loss...................... (10,007,290) (8,047,602) (8,655,936) (6,520,944) (5,134,065)
Net loss per Limited
Partnership Unit:
Loss before extra-
ordinary items.............. $ (443.99) $ (374.42) $ (402.07) $ (302.90) $ (278.13)
Extraordinary gain (loss)... (24.93) - - - 39.65
------------ ------------ ------------ ------------ ------------
Net loss.................... $ (468.92) $ (374.42) $ (402.07) $ (302.90) $ (238.48)
============ ============ ============ ============ ============
<CAPTION>
As of December 31,
------------------------------------------------------------------------
Balance Sheets 1995 1994 1993 1992 1991
- -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Real estate, net.............. $ - $ 5,252,024 $ 5,471,058 $ 5,804,387 $ 6,147,695
Total assets.................. 1,012,128 6,030,016 11,398,947 13,089,079 13,039,632
Mortgage and promis-
sory notes payable.......... 71,597,823 66,144,175 60,943,318 54,483,426 48,446,166
Partners' deficit............. (76,945,316) (66,938,026) (58,890,424) (50,234,488) (43,713,544)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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FINANCIAL CONDITION
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During the three year period ending in 1995, the Partnership experienced losses
totaling approximately $28,000,000 not considering the effects of gains or
losses arising in connection with property dispositions, foreclosures,
refinancing or extraordinary items. This amount represents interest that was
accrued and expensed, but not paid on advances from affiliates and on the
Promissory Notes. Depreciation and amortization was $1,015,665, amortization of
discounts on mortgage notes payable and note receivable were $136,785 and
$138,885, respectively, and amortization of deferred financing expenses was
$353,955. The Partnership experienced a decrease in cash and cash equivalents of
$756,962 during the three year period ending December 31, 1995.
Because of inadequate cash reserves and the expectation of continued poor
operations, the Partnership has liquidated all of its real estate portfolio.
Englewood Shopping Center, Downtown West Village Shopping Center, Ashford Chase,
Quail Creek and Timbers West Apartments were lost to foreclosure during the past
six years. During 1989, Southmark affiliates advanced $944,464 to the
Partnership to cover working capital needs. In 1989, the sale of Willowick Pool
Apartments provided a significant source of cash of $3,578,679. In 1990, the
Partnership received approximately $1,252,000 from the insurance carrier
relating to damage incurred at Mountain
6
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Top Apartments, and approximately $1,138,000 was returned to Southmark
affiliates as repayment of advances received in prior years. In 1992, the
Partnership received $220,896 (net of legal fees of $243,104) and in 1993 $8,329
(net of legal fees of $4,158) in partial settlement of litigation surrounding
Mountain Top Apartments as discussed in Item 3 - "Legal Proceedings".
The Mountain Top Apartments were unoccupied due to severe structural damage
suffered in 1988. In June 1994, the Mountain Top Apartments Site was sold.
Since 1988, the Partnership has serviced a note receivable, (the "Spring Oaks
Note"), subject to a prior mortgage lien, relating to the sale of Spring
Oaks Plaza in 1988. In 1993, the Partnership agreed to accept a discounted
payoff of the Spring Oaks note in the amount of $2,350,000, payable in two
installments. At December 31, 1993, the Partnership received a total of
$1,500,000 which was recorded as a reduction to the outstanding balance on the
Spring Oaks note receivable. The second installment of $850,000 was due and
received in January 1994. As a result of its receipt of the final installment
in January 1994, the Partnership's second lienholder rights were terminated.
See Item 8 - "Note 5 - Note Receivable".
At the beginning of 1995, the Partnership owned one property, Valley Bank Tower.
Valley Bank Tower's occupancy had remained at 100% over the last three years and
rental rates had remained steady. In February 1995, Valley Bank Tower, the
Partnership's remaining operating property, was sold for $7,400,000 to West
Washington Associates, LLC, an affiliate of Fiore Inns, Inc., which enabled the
Partnership to settle litigation described in Item 3 - "Legal Proceedings". A
portion of the proceeds were used to pay off the first and second lienholders on
the property and for a repair allowance agreement. The purchase price (net of
underlying debt) of Valley Bank Tower was payable in the form of the Valley Bank
Note of $640,000 and net cash proceeds of $838,146. Of the net cash proceeds
paid to the Partnership, approximately $750,000 was used to repay a portion of
the outstanding balance remaining in operating advances payable to Hampton, and
the remaining amounts were used for working capital purposes.
The balance of advances, which were assigned to Hampton affiliates, including
accrued interest of $2,667,424, at December 31, 1995 was $5,988,317. Cash and
cash equivalents, which totaled $1,110,511 at the beginning of 1993, decreased
to $94,721 at December 31, 1994 and $9,206 at December 31, 1995. This is not a
significant cash balance in relation to the Partnership's liabilities.
In 1995, 1994, and 1993, the Partnership did not make any payments on the
Promissory Notes. All quarterly principal and interest payments due since
December 31, 1988 remain unpaid. Under the terms of the Note Agreement, failure
to make the required payments constitutes an event of default.
The Partnership's cash balance of $9,206 does not provide a reasonable level of
working capital for more than immediate operating needs and the Partnership is
maintaining liquidity levels through deferral of significant amounts of
liabilities.
RESULTS OF OPERATIONS
- ---------------------
Revenues:
Rental income was $359,409 in 1995, as compared to $2,316,140 in 1994 and
$2,330,650 in 1993.
There were no major changes in the tenant base of Valley Bank Tower for the
first two months of 1995 as compared to 1994. Approximately 93% of the total
rental income recognized by the Partnership in 1995 and 1994 was attributable to
two Valley Bank Tower tenants. In February 1995, Valley Bank Tower, the
Partnership's remaining operating real estate investment, was sold.
Expenses:
From 1994 to 1995, total expenses decreased $684,496 as discussed below. A
majority of the change is attributable to the sale of Valley Bank Tower in
February 1995.
Interest expense increased $871,498 during 1995 as compared to 1994 and $619,242
during 1994 as compared to 1993. The increases are primarily due to interest
accrued on the increasing principal balance (resulting from accrued interest
becoming principal) of the Promissory Notes, on which no payments have been made
since 1988.
7
<PAGE>
Depreciation and amortization decreased $393,676 in 1995 as compared to 1994 and
increased by $7,892 in 1994 as compared to 1993. The decrease in 1995 is due to
the sale of Valley Bank Tower. The increase in 1994 is due to improvements made
on Valley Bank Tower during the year.
Property tax expense amounted to $12,806 in 1995, $76,835 in 1994 and $79,867
in 1993. The decrease in 1995 from 1994 is due to the sale of Valley Bank
Tower. The expense in 1994 is consistent with that of 1993.
Amortization of deferred financing expenses amounted to $119,619 in 1995 and
1994 increasing slightly from $114,717 in 1993. Over the past three years,
amortization of deferred financing expenses have been relatively consistent.
General and administrative costs decreased by $260,212 in 1995 as compared to
1994 and decreased by $187,889 in 1994 as compared to 1993. The decrease in
1995 is due primarily to the sale of Valley Bank Tower and the decrease in 1994
is primarily due to a large amount of legal expenses relating to the second lien
debt litigation and the use of real estate appraisal consultants for Valley Bank
Tower that had occurred during 1993.
General and administrative expenses - affiliates decreased by $183,253 in 1995
as compared to 1994 and decreased by $41,323 in 1994 as compared to 1993. The
decrease in 1995 is due to a decrease in Asset Management Fees which are charged
at 0.75% of the Partnership's Tangible Asset Value and Overhead Fees which
include salaries, travel and other expenses allocated to services provided for
the benefit of the Partnership. The decrease in 1994 is due to a decrease in
"Overhead Fees" and "Portfolio Service Fees".
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1995, the Partnership held cash and cash equivalents of $9,206.
The Partnership experienced negative cash flows from 1995 operating activities
due to the substantial decrease in cash received from tenants (Valley Bank Tower
was sold February 1995). Payments on the Promissory Notes, due since December
31, 1988, remain in default.
At December 31, 1995, the Partnership had sold its remaining operating property
for cash and a promissory note receivable. Valley Bank Tower was sold in
February 1995 in conjunction with the settlement of the Fiore Inns, Inc.
litigation (see Item 3 - "Legal Proceedings"). The Partnership's remaining asset
at December 31, 1995 is the $640,000 Valley Bank Note which bears interest at a
rate equal to 7.5% per annum. Interest only payments are to be paid quarterly,
commencing May 24, 1995. All unpaid principal and interest is due February 25,
1998. The principal on the note may not be voluntarily prepaid in whole or in
part prior to February 25, 1996. Subsequent to December 31, 1995, the
Partnership entered into an Assignment Agreement with Hampton which transfers
all right, title and interest in the promissory note receivable to Hampton as
partial repayment of operating advances. Hampton received payment in full for
the promissory note receivable amounting to $652,099 subsequent to February 25,
1996.
Neither the General Partner and its affiliates nor Hampton and its assigns have
any obligation to provide financial support to the Partnership. It is
anticipated that the Partnership will be dissolved after the assignment of the
promissory note receivable, described above.
8
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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<TABLE>
<CAPTION>
Page
INDEX Number
----- ------
<S> <C>
Financial Statements:
Report of Independent Accountants, December 31, 1995 and 1994.. F-1
Report of Independent Accountants, December 31, 1993........... F-2
Balance Sheets at December 31, 1995 and 1994................... F-3
Statements of Operations for the Three Years Ended
December 31, 1995........................................... F-4
Statements of Partners' Deficit for the Three Years
Ended December 31, 1995..................................... F-5
Statements of Cash Flows for the Three Years Ended
December 31, 1995........................................... F-6
Notes to Financial Statements.................................. F-8
Financial Statement Supplementary Data for the Three Years
Ended December 31, 1995:
Schedules V and VI - Real Estate Investments and Accumulated
Depreciation and Amortization............................... F-23
Schedule X - Supplementary Statements of Operations
Information................................................. F-24
</TABLE>
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Partners of
University Real Estate Fund 10, Ltd.
We have audited the accompanying balance sheet of University Real Estate Fund
10, Ltd. (the "Partnership") as of December 31, 1995 and 1994, and the related
statements of operations, partners' deficit, and cash flows for the years then
ended. 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 audits 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 8 to the
financial statements, the Partnership subsequently disposed of its remaining
significant asset. This condition raises substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state, in all material respects, the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ WALLACE SANDERS & COMPANY
Dallas, Texas
March 8, 1996
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Partners of
University Real Estate Fund 10, Ltd.
In our opinion, the accompanying statements of operations, of partners' deficit
and of cash flows for the year ended December 31, 1993 present fairly, in all
material respects, the results of operations and cash flows of University Real
Estate Fund 10 Ltd. for the year ended December 31, 1993, in conformity with
generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the financial statements of University Real Estate Fund 10, Ltd. for any
period subsequent to December 31, 1993.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership has suffered
recurring losses from operations and has a Partners' deficit. Additionally,
the Partnership has defaulted on the nonrecourse general obligation promissory
notes payable. These circumstances raise substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Price Waterhouse, L.L.P.
PRICE WATERHOUSE, L.L.P.
Dallas, Texas
April 24, 1994
F-2
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1995 1994
- ------ ------------ ------------
<S> <C> <C>
Real estate investments:
Buildings and improvements $ - $ 10,327,271
Less: Accumulated depreciation and
amortization - (5,075,247)
------------ ------------
- 5,252,024
------------ ------------
Promissory note receivable 640,000 -
Accrued interest 4,865 -
------------ ------------
644,865 -
------------ ------------
Cash and cash equivalents (including $0 and
$3,149 for security deposits at December 31,
1995 and 1994, respectively) 9,206 94,721
Accounts receivable - 57,111
Prepaid expenses and other assets - 147,684
Deferred financing expenses (net of accumulated
amortization of $1,629,905 and $1,510,286 at
December 31, 1995 and 1994, respectively) 358,857 478,476
------------ ------------
$ 1,012,928 $ 6,030,016
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable $ - $ 4,350,021
Accounts payable and accrued expenses 151,052 311,642
Commissions payable, affiliate 221,052 221,052
Operating advances payable, affiliate 5,988,317 6,288,024
Security deposits - 3,149
15% Nonrecourse general obligation promissory
notes payable 71,597,823 61,794,154
------------ ------------
77,958,244 72,968,042
------------ ------------
Partners' deficit:
Limited Partners - 30,000 limited partnership
units authorized, 20,192 and 20,376 limited
partnership units issued and outstanding at
December 31, 1995 and 1994, respectively (72,218,460) (62,711,534)
General Partner (4,726,856) (4,226,492)
------------ ------------
(76,945,316) (66,938,026)
------------ ------------
$ 1,012,928 $ 6,030,016
============ ============
</TABLE>
F-3
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Rental income $ 359,409 $ 2,316,140 $ 2,330,650
Interest 37,012 11,503 708,201
Other income 4,152 73,032 -
------------ ----------- -----------
Total revenues 400,573 2,400,675 3,038,851
------------ ----------- -----------
Expenses:
Interest 10,320,508 9,449,010 8,829,768
Depreciation and amortization 78,735 472,411 464,519
Property taxes 12,806 76,835 79,867
Property management fees -
affiliates 18,927 109,128 108,209
Other property operating expense 188,642 753,265 861,680
Amortization of deferred financing
expenses 119,619 119,619 114,717
General and administrative 55,155 315,367 503,256
General and administrative -
affiliates 96,940 280,193 321,516
Provision for loss on note
receivable - - 411,255
------------ ----------- -----------
Total expenses 10,891,332 11,575,828 11,694,787
------------ ----------- -----------
Loss from operations (10,490,759) (9,175,153) (8,655,936)
Other income:
Gain on disposition of real estate 1,015,404 1,127,551 -
------------ ----------- -----------
Loss before extraordinary item (9,475,355) (8,047,602) (8,655,936)
Extraordinary item - loss from
liquidation of debt (531,935) - -
------------ ----------- -----------
Net loss $(10,007,290) $(8,047,602) $(8,655,936)
============ =========== ===========
Net loss allocated general partner $ (500,364) $ (402,380) $ (432,797)
Net loss allocated limited partners $ (9,506,926) $(7,645,222) $(8,223,139)
------------ ----------- -----------
Net loss $(10,007,290) $(8,047,602) $(8,655,936)
============ =========== ===========
Net loss per limited partnership unit $ (468.92) $ (374.42) $ (402.07)
============ =========== ===========
</TABLE>
F-4
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------ ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992 $(3,391,315) $(46,843,173) $(50,234,488)
Net loss (432,797) (8,223,139) (8,655,936)
----------- ------------ ------------
Balance at December 31, 1993 (3,824,112) (55,066,312) (58,890,424)
Net loss (402,380) (7,645,222) (8,047,602)
----------- ------------ ------------
Balance at December 31, 1994 (4,226,492) (62,711,534) (66,938,026)
Net loss (500,364) (9,506,926) (10,007,290)
----------- ------------ ------------
Balance at December 31, 1995 $(4,726,856) $(72,218,460) $(76,945,316)
=========== ============ ============
</TABLE>
F-5
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants $ 413,371 $ 2,278,424 $ 2,268,518
Cash paid to suppliers and affiliates (260,579) (1,344,612) (1,958,217)
Cash received from other income 4,152 73,032 -
Interest received 32,146 11,503 569,316
Interest paid (841,318) (532,553) (898,577)
Property taxes paid (89,641) (79,867) (81,360)
----------- ----------- -----------
Net cash provided by (used in)
operating activities (741,869) 405,927 (100,320)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from the settlement of Spring
Oaks wrap-note - 772,509 1,482,122
Additions to real estate investments (31,191) (253,377) (131,190)
Proceeds received from the disposition
of real estate investments 5,579,884 197,524 -
----------- ----------- -----------
Net cash provided by investing
activities 5,548,693 716,656 1,350,932
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from mortgage notes payable - 1,100,000 -
Payments on mortgage notes payable (4,892,339) (1,227,005) (906,269)
Payments on operating advances,
affiliates - (2,011,368) -
----------- ----------- -----------
Net cash used in financing activities (4,892,339) (2,138,373) (906,269)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (85,515) (1,015,790) 344,343
Cash and cash equivalents at beginning
of year 94,721 1,110,511 766,168
----------- ----------- -----------
Cash and cash equivalents at end of year $ 9,206 $ 94,721 $ 1,110,511
=========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Mortgage note and accrued interest payable
retired in connection with the disposition
of the note receivable $ - $ 3,225,000 $ -
=========== =========== ===========
Promissory note receivable received as proceeds
in disposition of real estate $ 640,000 $ - $ -
=========== =========== ===========
</TABLE>
F-6
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Loss to Net Cash Provided by (Used in)
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Net loss $(10,007,290) $(8,047,602) $(8,655,936)
------------ ----------- -----------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Gain on disposition of real estate (1,015,404) (1,127,551) -
Loss from liquidation of debt 531,935 - -
Expenses paid by purchaser - 26,621 -
Depreciation and amortization 78,735 472,411 464,519
Amortization of discounts on note
receivable - - (138,885)
Amortization of discounts on
mortgage notes payable 10,384 62,946 63,456
Amortization of deferred financing
expenses 119,619 127,119 107,218
Provision for loss on note receivable - - 411,255
Changes in assets and liabilities:
Accrued interest on promissory
note receivable (4,866) - -
Accounts receivable 57,111 (34,664) (12,393)
Prepaid expenses and other assets 147,684 16,022 (148,172)
Accounts payable and accrued expenses (160,589) (13,706) 8,663
Accrued interest on operating advances
payable, affiliate (299,707) 466,101 533,988
Security deposits (3,149) (3,052) (36,738)
Accrued interest on 15% nonrecourse
general obligation promissory notes
payable 9,803,668 8,461,282 7,302,705
------------ ----------- -----------
Total adjustments 9,265,421 8,453,529 8,555,616
------------ ----------- -----------
Net cash provided by (used in) operating
activities $ (741,869) $ 405,927 $ (100,320)
============ =========== ===========
</TABLE>
F-7
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
University Real Estate Fund 10, Ltd. (the "Partnership") was organized on
February 4, 1982, as a limited partnership under the provisions of the Colorado
Uniform Limited Partnership Act of 1981, and commenced operations on April 5,
1982. The general partner of the Partnership is University Special Partners,
Ltd. ("USP" or the "General Partner"), a Colorado limited partnership. The
general partner of USP is Southmark Investment Group, Inc., a wholly-owned
subsidiary of Southmark Corporation ("Southmark"). The principal place of
business for the General Partner is 2711 LBJ Freeway, Suite 950, Dallas, Texas
75234.
See "Note 2 - Transaction with Affiliates" for a more detailed discussion
regarding the organization.
Real Estate Investments
- -----------------------
Real estate investments are generally stated at cost except in cases where it
has been determined that the property has sustained a permanent impairment in
value. At such time, a provision for loss is recorded to reduce the basis of
the property to its net realizable value. Improvements are capitalized and
repairs and maintenance are charged to operations as incurred.
Depreciation and Amortization
- -----------------------------
Buildings and improvements are depreciated using the straight-line method over a
life of 5 to 25 years. Tenant improvements are amortized over the terms of the
related tenant lease, using the straight-line method.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand, demand deposits, money market
funds and investments in certificates of deposit with original maturities of
three months or less. Cash and cash equivalents also include cash held in
segregated accounts for tenant security deposits.
Note Receivable
- ---------------
The note receivable is recorded at its original basis, net of discount, deferred
gain and allowance for uncollectible amounts. Interest income is recognized as
it is earned. Interest accrual is ceased when management determines that
collection is doubtful.
Mortgage Discounts
- ------------------
Discounts on mortgage notes payable are amortized using the effective interest
method over the remaining terms of the related notes. Amortization of discounts
is included in interest expense.
Deferred Financing Expenses
- ---------------------------
The sales commissions, offering expenses and deferred financing expenses
associated with the 15% Nonrecourse General Obligation Promissory Notes Payable
and mortgage notes payable have been deferred and are amortized using the
straight-line method over the related terms of the notes.
F-8
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Rental Revenue
- --------------
The Partnership leases its commercial property under noncancelable operating
leases that expire over the next 10 years. Some leases provide concessions and
periods of escalating or free rent. Rental income is recognized on a straight-
line basis over the life of the related lease. The excess of rental income
recognized over the contractual rental payments is recorded as accrued rent
receivable.
Income Taxes
- ------------
No provision for Federal income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to Federal
income taxes and the tax effect of its activities accrues to the partners.
Use of Estimates
- ----------------
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.
Allocation of Net Income and Net Loss
- -------------------------------------
The Partnership Agreement provides for net losses of the Partnership for both
financial statement and income tax reporting purposes to be allocated 95% to the
Limited Partners and 5% to the General Partner. Net income is to be allocated
as follows: (i) 95% to the Limited Partners and 5% to the General Partner until
such time as the net loss of the Partnership previously allocated is recouped,
(ii) thereafter, net income of the Partnership shall be allocated to the General
Partner to the extent it has received current or prior distributions of cash
from operations or cash from property sales and refinancing or other sources,
(iii) thereafter, net income of the Partnership shall be allocated to the
Limited Partners to the extent they have received current or prior distributions
of cash from operations or cash from property sales and refinancing or other
sources (this provision will apply unless the distributions represent a return
of the Limited Partners' original invested capital), (iv) any additional net
income shall be allocated 95% to the Limited Partners and 5% to the General
Partner, (v) no additional net income is allocated to the General Partner
pursuant to (ii) above until subsequent cash distributions equal to net income
allocated pursuant to (iv) have been made to it.
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and Treasury Regulation Sections establish
criteria for allocations of Partnership deductions attributable to nonrecourse
debt. The Partnership's allocations for 1995 have been made in accordance with
these provisions.
Net Loss Per Limited Partnership Unit
- -------------------------------------
Net loss per limited partnership unit is computed by dividing net loss allocated
to the Limited Partners by the weighted average number of limited partnership
units outstanding. The weighted average number of limited partnership units
outstanding was 20,274 at December 31, 1995, 20,419 at December 31, 1994 and
20,452 at December 31, 1993.
F-9
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
On March 9, 1993, Southmark and several of its affiliates (including the General
Partner) entered into an Asset Purchase Agreement with SHL Acquisition Corp.
III, a Texas corporation, and its permitted assigns (collectively "SHL") to sell
various general and limited partnership interests owned by Southmark and its
affiliates, including the general partnership interest of the Partnership. On
April 22, 1993, Southmark and SHL executed the First Amendment to Asset Purchase
Agreement whereby SHL acquired an option to purchase the general partner
interest of the Partnership, rather than the Partnership interest itself. On
December 16, 1993, SHL assigned its rights under the amended Asset Purchase
Agreement to Hampton Realty Partners, L.P., a Texas limited partnership
("Hampton") and Hampton and Southmark affiliates also entered into an Option
Agreement whereby Hampton acquired the right to purchase the option assets,
including the general partnership interest of the Partnership subject to the
approval of the Limited Partners. On April 20, 1994, Insignia Financial Group,
Inc., a Delaware corporation, and certain of its affiliates (collectively
"Insignia") entered into an Option Purchase Agreement with Hampton to acquire
Hampton's rights to solicit proxies from the Limited Partners seeking their
consent to Hampton becoming the general partner of the Partnership. On August 8,
1994, the Insignia contract was terminated. On December 30, 1994, Hampton
entered into an Assignment and Assumption of Option Agreement with JKD Financial
Management, Inc. ("JKD"), a Texas corporation, whereby, among other things, JKD
obtained the right to acquire Hampton's rights to proxy into the Partnership
subject to approval of the Limited Partners. As of the date hereof, JKD has not
exercised its right to acquire the general partner interest in the Partnership.
Effective as of December 14, 1992, the Partnership entered into a Portfolio
Services Agreement and a Property Management Agreement with Hampton UREF
Management, Ltd. ("Hampton UREF"), a Texas limited partnership, pursuant to
which Hampton UREF began providing management for the Partnership's properties
and certain other portfolio services. The operations of the Partnership's
properties were managed by Hampton Management, Inc. (formerly "SHL Management,
Inc.") through a subcontract agreement with Hampton UREF. From April 20, 1994
through December 31, 1994, the Partnership's properties were managed by Insignia
or an affiliate, first pursuant to a Property Management Subcontract Agreement
with Hampton UREF and then a Property Management Agreement with the Partnership
itself. As of December 30, 1994, Hampton UREF entered into an Assignment and
Assumption of Portfolio Services Agreement with JKD pursuant to which JKD
oversees the management of the Partnership.
Affiliates of the General Partner had advanced funds to the Partnership in order
to meet past working capital requirements (see Note 8 - "Financial Condition and
Going Concern Considerations"). These advances were sold by the General Partner
to Hampton Realty Partners in connection with the Asset Purchase
Agreement dated March 9, 1993 as discussed above. These advances accrue
interest at prime plus 1%. The prime rate at December 31, 1995 and 1994 was
8.5% and at December 31, 1993 was 6.0%.
The Partnership pays property management fees based on 5% of gross rental
revenues for supervising the maintenance and operations of the Partnership's
properties. Under the Partnership Agreement, the General Partner is to receive
fees for its services and expenses in supervising the affairs of the
Partnership. Effective December 1992, these fees were paid to Hampton and
its affiliates. These Partnership management fees are based
upon a payment equal to 9% of interest paid to promissory note holders. Since
December 1988, the Partnership has not made the required payments on these notes
and accordingly, no Partnership management fees have since been paid.
F-10
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - TRANSACTIONS WITH AFFILIATES (CONTINUED)
- -------------------------------------------------
Beginning December 14, 1992, the Partnership began reimbursing SHL, and
subsequently Hampton, for its costs, including overhead, of administering the
Partnership's affairs. Reimbursements are "Overhead Fees" which include
salaries, travel and other expenses properly allocated to the services provided
for the benefit of the Partnership, and an Asset Management Fee is charged at
0.75% of the Partnership's Tangible Asset Value. The Partnership's Tangible
Asset Value of the Partnership's real properties is determined by applying a
capitalization rate of 10% to annualize the net operating income of each real
property, plus the book value of all other tangible assets.
Compensation and reimbursements paid to or accrued for the benefit of Hampton
and affiliates are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Property management fees $ 18,927 $109,128 $108,209
Charged to interest expense:
Interest on operating advances payable 456,293 466,101 533,988
Charged to general and administrative expense:
Partnership and financial administration,
data processing, accounting and tax
reporting, and investor relations 77,756 131,222 161,624
Asset management fees 20,124 145,599 159,892
-------- -------- --------
Total compensation and reimbursements $573,100 $852,050 $963,713
======== ======== ========
</TABLE>
During 1995 and 1994, the Partnership paid $756,000 and $2,011,367,
respectively, to Hampton as repayment of operating advances and accrued interest
thereon. In addition, on January 31, 1996 the Partnership assigned the Valley
Bank Note in the amount of $640,000 to Hampton as partial repayment of operating
advances.
F-11
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - TAXABLE INCOME (LOSS)
- ------------------------------
A reconciliation between financial statement net loss and loss for tax purposes
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Financial statement net loss $ (10,007,291) $ (8,047,602) $ (8,655,936)
Add (deduct):
Amortization of discounts on
mortgage notes payable 10,384 62,945 63,456
Interest expense on advances from
Southmark affiliates not deductible
for tax purposes 456,293 466,101 533,987
Interest expense on promissory
notes not deductible for tax purposes 205,538 177,394 153,104
Amortization of discount on note receivable - - (138,885)
Tax gain on installment sale of Spring Oaks - 618,961 567,106
Provision for loss on sale of note receivable - - 411,255
Excess of tax over book depreciation (41,617) (250,905) (259,431)
Other tax statement adjustments - 11,723 (34,987)
Book income not picked up in prior year for tax 3,149 - -
Recognize gain on sale of Valley Bank Towers
for tax purposes 2,710,924 - -
Book reduction inaccrual of accounting fees
due to economic performance under (S)461(h) (25,000) - -
-------------- -------------- --------------
Taxable income (loss) $ (6,687,620) $ (6,961,383) $ (7,360,331)
============== ============== ==============
The tax basis of the Partners' equity accounts are as follows:
General partners (4,582,193) $ (4,247,812) $ (3,900,396)
Limited partners (66,311,760) (60,257,033) (53,656,098)
-------------- -------------- --------------
$ (70,893,953) $ (64,504,845) $ (57,556,494)
============== ============== ==============
</TABLE>
The Partnership reports certain transactions differently for tax and financial
statement purposes. The aggregate cost of the Partnership's total assets for
Federal income tax purposes was $4,668,642, prior to the sale of the final real
estate investment in February 1995, and $6,451,572 and $11,426,617 at December
31, 1994 and 1993, respectively.
University Real Estate Fund 10, Ltd. is a partnership and is not subject to
Federal and state income taxes. Accordingly, no recognition has been given to
income taxes in the accompanying financial statements of the Partnership since
the income or loss of the Partnership is to be included in the tax returns of
the individual partners. The tax returns of the Partnership are subject to
examination by Federal and state taxing authorities. If such examinations
result in adjustments to distributive shares of taxable income or loss, the tax
liability of the partners could be adjusted accordingly.
F-12
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - TAXABLE INCOME (LOSS) (CONTINUED)
- ------------------------------------------
The tax attributes of the Partnership's net assets flow directly to each
individual partner. Individual partners will have different investment bases
depending upon the timing and prices of acquisition of Limited Partnership
Units. Further, each partner's tax accounting, which is partially dependent
upon their individual tax position, may differ from the accounting followed in
the financial statements. Accordingly, there could be significant differences
between each individual partner's tax basis and their proportionate share of the
net assets reported in the financial statements. Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, requires disclosure
---------------------------
by a publicly held partnership of the aggregate difference in the basis of its
net assets for financial and tax reporting purposes. However, the Partnership
does not have access to information about each individual partner's tax
attributes in the Partnership, and the aggregate tax basis cannot be readily
determined. In any event, the General Partner does not believe that, in the
Partnership's circumstances, the aggregate difference would be meaningful
information.
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
The cost and accumulated depreciation and amortization of the Partnership's real
estate investments held at December 31, 1995 and 1994, is set forth in the
following tables:
<TABLE>
<CAPTION>
Buildings and Accumulated
1995 Improvements Depreciation Net Book Value
---- ------------ ------------ --------------
<S> <C> <C> <C>
None $ - $ - $ -
============ ============ ==============
<CAPTION>
1994
----
<S> <C> <C> <C>
Valley Bank Tower $ 10,327,271 $ (5,075,247) $ 5,252,024
============ ============ ==============
</TABLE>
In February 1995, the Partnership sold its final real estate investment, Valley
Bank Tower, to West Washington Associates, LLC, an affiliate of Fiore Inns, Inc.
The sale included all of the Partnership's right, title and interest pursuant to
the ground lease and the leasehold estate and improvements thereon commonly
known as Valley Bank Tower. The net proceeds from the sale, after repayment of
the underlying mortgage obligations and expenses of the sale, were as follows:
1) A promissory note receivable of $640,000 with quarterly interest only
payments at 7.5% per annum, commencing May 24, 1995. All unpaid principal
and interest is due on February 25, 1998. The principal on the note may
not be voluntarily prepaid in whole or in part prior to February 25, 1996.
2) Cash of $838,146.
The Partnership realized a gain on the sale of Valley Bank Tower of $1,015,404
and a loss from liquidation of debt of $531,935.
The Partnership leased the land on which the Valley Bank Tower is located. The
lease agreement called for annual rent of $63,700 payable through June 2002.
The lease was transferred to the new owners at the time of sale.
F-13
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - REAL ESTATE INVESTMENTS (CONTINUED)
- --------------------------------------------
In prior years, the Mountain Top Apartments had suffered severe structural
damage and had since been unoccupied. The Partnership wrote off its basis in
the property along with the insurance loss recovery proceeds, which had
previously been recorded as a deferred credit. In June, 1994, the Mountain Top
Apartments Site was sold for net consideration totaling $197,524 and a gain of
$1,127,551 was recognized relating to this transaction. (See Note 10 -
"Property Dispositions").
NOTE 5 - PROMISSORY NOTE RECEIVABLE
- -----------------------------------
In prior years, the Partnership sold Spring Oaks Plaza in Las Vegas, Nevada.
With this sale, the Partnership entered into a purchase money promissory note
(the "Spring Oaks Note") and a junior note. The junior note had since been paid
off. In 1993, the Partnership entered into an agreement with the borrower to
accept a discounted payoff of its equity position in the Spring Oaks Note in the
amount of $2,350,000, its approximate market value, payable in two installments.
The Partnership received cash of $1,482,122 (net of $17,878 of fees) during 1993
and $772,509 (net of $77,491 of fees and closing costs) in January 1994 in
payment of the discounted amount. At December 31, 1993, the Partnership recorded
a provision for loss of $411,255 to reduce the carrying value of the Spring Oaks
Note. Additionally, the note was reduced by the amount of the deferred gain to
properly record it at its net realizable value.
A summary of the activity for the note receivable for the Spring Oaks
three years ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Balance at beginning of year $ 4,024,130 $ 5,778,622
Amortization of discount - 138,885
Principal payoff (772,509) (1,482,122)
Debt Forgiveness (3,251,621) (411,255)
----------- -----------
Balance at end of year $ - $ 4,024,130
=========== ===========
</TABLE>
On February 24, 1995, the Partnership sold Valley Bank Tower to West Washington
Associates, LLC, for a gross sales price of $7,400,000. Terms of the sale
included a promissory note receivable from West Washington Associates, LLC, to
the Partnership amounting to $640,000 bearing interest at a rate equal to 7.5%
per annum (the "Valley Bank Note"). Interest only payments are to be paid
quarterly, commencing May 24, 1995. All unpaid principal and interest is due
February 25, 1998. On January 31, 1996, the Partnership entered into an
Assignment Agreement with Hampton. This agreement transfers all right, title and
interest in and to the $640,000 Valley Bank Note receivable and all security
thereon to Hampton. This transfer is considered and will be applied as a partial
repayment of operating advances payable, affiliate.
In conjunction with the sale of Valley Bank Tower, the Partnership entered into
a Participation Agreement with Insignia. The Participation Agreement stipulates
that the Partnership, upon the sale of the real estate investment, is to pay
Insignia 10% of the net proceeds of sale. Net proceeds consists of cash and the
$640,000 Valley Bank Note. On February 28, 1996, Hampton paid $62,500 to
Insignia on behalf of the Partnership's obligation in the Participation
Agreement to pay Insignia 10% of the net proceeds of the sale of the Valley Bank
Tower.
F-14
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - MORTGAGE NOTES PAYABLE
- -------------------------------
The following sets forth the terms of the Partnership's mortgage notes payable
at December 31, 1995 and 1994. All mortgage notes were secured by real estate
investments.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Mortgage note payable bearing interest at 9%,
discounted to yield 11.75%, secured by a first
lien deed of trust on Valley Bank Tower,
payable in monthly installments of principal
and interest of $54,337; due November 2005
(net of unamortized discount of $337,295 at
December 31, 1994) $ - $ 3,345,114
Mortgage note payable bearing interest at 9%,
secured by a second lien deed of trust on
Valley Bank Tower, payable in monthly
installments of principal and interest of
$19,828; due April 2000 - 1,004,907
------------ ------------
$ - $ 4,350,021
============ ============
</TABLE>
In October 1990, the Partnership exercised its right to extend the maturity date
of the second lien mortgage note on Valley Bank Tower from November 1990 to
November 1992 by payment of an extension fee of $50,000. The second lienholder
posted the property for foreclosure in March 1993. At a receivership hearing
held on April 8, 1993, the judge ruled that all cash flow from the property
after payment of operating expenses and the first lien would go towards the
interest and principal on the second lien note and effective June 14, 1993, Oak
Brook Corporation was appointed the receiver on Valley Bank Tower. On April 18,
1994, the Partnership entered into a loan agreement with Insignia whereby
Insignia replaced the second lienholder upon funding $1,100,000 to the
Partnership. In 1995, pursuant to the Valley Bank Tower sale agreement, both
notes were repaid.
NOTE 7 - PROMISSORY NOTES PAYABLE
- ---------------------------------
The Partnership had outstanding 15% Nonrecourse General Obligation Promissory
Notes Payable ("Promissory Notes") of $71,597,823 and $61,794,154 at December
31, 1995 and 1994, respectively. The Partnership has failed to make the
required principal and interest payments on the Promissory Notes due since
December 31, 1988. Under the terms of the note agreements, failure to make the
required payments constitutes an event of default. Upon the occurrence of an
event of default with respect to nonpayment of interest, any portion of the
stated interest not paid (defaulted interest) bears interest at the rate of 15%
per annum and becomes additional principal on the Promissory Notes (see Note 8 -
"Financial Condition and Going Concern Considerations"). Purchasers of the
Promissory Notes irrevocably elected at the time of purchase to receive interest
quarterly or to defer receipt of the interest until December 31, 1988.
Purchasers of Promissory Notes of $7,655,000 elected to defer receipt of such
interest. Interest deferred is added quarterly to the outstanding principal,
and thereafter earns interest at the rate of 15% per annum, which interest is
also deferred. Beginning in 1989, interest on all of the Promissory Notes was
due quarterly. The Promissory Notes mature on December 31, 1998, however, these
notes are subject at any time, on any regular interest payment date, to full or
partial redemption.
In 1987, the Partnership reduced the interest payment rate on the Promissory
Notes to 6% per annum. Interest continued to accrue at 15% with the unpaid
portion being deferred. The Promissory Note agreement provides that interest
payments may be reduced to a rate not less than 6% per annum provided that the
amount of interest earned and currently payable but unpaid does not exceed an
amount equal to 9% of the principal balance of the Promissory Notes. Total
deferred interest amounted to $57,935,822 and $48,132,154 at December 31, 1995
and 1994, respectively, and has been added to the principal balance outstanding.
F-15
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - FINANCIAL CONDITION AND GOING CONCERN CONSIDERATIONS
- -------------------------------------------------------------
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. However, due to the subsequent
assignment of the Valley Bank Note to Hampton, it is anticipated that the
Partnership will be dissolved. The financial statements do not include any
adjustments that might result from the liquidation.
At December 31, 1995, the Partnership's remaining significant asset was the
Valley Bank Note relating to the sale of Valley Bank Tower in February 1995.
On January 31, 1996, the Valley Bank Note was assigned in settlement of a
portion of the affiliate debt (see Note 13 - "Subsequent Events").
NOTE 9 - DISTRIBUTIONS
- ----------------------
Distributions to the partners are at the discretion of the General Partner and
are subject to payment of expenses of the Partnership, including debt service
and maintenance of reserves. Distributions are to be paid from operations of
the Partnership's properties, from sales or refinancing of properties, or from
other sources, if any.
Distributions of cash from operations are allocated 95% to the Limited Partners
and 5% to the General Partner. Distributions of cash from sales or refinancings
and cash from other sources are made in the following order:
a) First, 99% to the Limited Partners and 1% to the General Partner until the
aggregate amounts distributed to the Limited Partners including all prior
distributions (exclusive of any distributions of cash from operations
which in total exceeded an 8% per annum cumulative return on adjusted
invested capital) to Limited Partners shall be equal to the total of the
original invested capital contributed to the Partnership and a sum equal
to 8% per annum on the adjusted invested capital of such Limited Partners,
calculated cumulatively from the last day of the quarter during which
original invested capital was contributed to the Partnership;
a) then; with respect to the remainder, 85% to the Limited Partners and 15%
to the General Partner.
No distributions were made to the Partners in 1995, 1994 or 1993.
F-16
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - PROPERTY DISPOSITIONS
- -------------------------------
In February 1995, Valley Bank Tower was sold. A gain on disposition of real
estate of $1,015,404 and a loss from liquidation of debt of $531,935 was
recognized in 1995 relating to this transaction as follows:
<TABLE>
<S> <C>
Cash proceeds $ 838,146
Repayment of mortgage principal 4,814,028
Promissory note receivable 640,000
Contingency escrow 15,000
-----------
Total proceeds 6,307,174
Less: net assets sold (5,291,770)
-----------
Gain on disposition of real estate $ 1,015,404
===========
Net book value of debt $ 4,282,093
Repayment of mortgage principal (4,814,028)
-----------
Loss from liquidation of debt $ (531,935)
===========
</TABLE>
In June, 1994, the Mountain Top Apartments Site was sold. The liability
originally recorded for future estimated legal, consulting and building razing
costs had reduced to $931,528 due to expenditures incurred. A gain of
$1,127,551 was recognized during 1994 relating to this transaction as follows:
<TABLE>
<S> <C>
Purchase price $ 225,000
Credit to purchaser for taxes paid (4,307)
Selling expenses incurred (23,169)
Write-off of:
Utility deposits outstanding on the property (1,501)
Accrued legal, consulting and building razing costs 931,528
----------
Gain on disposition of real estate $1,127,551
==========
</TABLE>
NOTE 11 - SOUTHMARK BANKRUPTCY
- ------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership nor its General
Partner were included in the filing. Southmark's reorganization plan became
effective August 10, 1990. Under the plan, most of Southmark's assets, which
include Southmark's interests in the General Partner, are being sold or
liquidated for the benefit of creditors.
Because neither the Partnership nor the General Partner were included in the
Southmark bankruptcy proceedings, there has been no direct effect on the
Partnership's operations during the bankruptcy period or resulting from
confirmation of the plan. Ultimate decision-making authority with respect to
the operations of the Partnership remains with the General Partner until such
time as the Limited Partners approve a substitute general partner.
F-17
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------
The fair value of the financial instruments is not necessarily representative of
the amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement. The following table
summarizes the Partnership's financial instruments:
<TABLE>
<CAPTION>
December 31, 1995
-------------------------
Carrying Approximate
Amount Fair Value
----------- -----------
<S> <C> <C>
Financial assets:
Promissory note receivable, net $ 644,865 $ 650,000
Cash and cash equivalents 9,206 9,000
----------- -----------
Total financial assets $ 654,071 659,000
=========== ===========
Financial liabilities:
Accounts payable and accrued
liabilities $ 151,052 $ 9,000
Operating advances payable and
commissions payable, affiliate 6,209,369 650,000
15% Nonrecourse general obligation
promissory notes payable 71,597,823 -
----------- -----------
Total financial liabilities $77,958,244 $ 659,000
=========== ===========
</TABLE>
The fair value of financial instruments classified as financial assets
reflects their approximate value upon liquidation of the assets subsequent to
year end. The fair value of financial instruments classified as financial
liabilities reflects anticipated value upon settlement and liquidation of the
Partnership.
NOTE 13 - SUBSEQUENT EVENTS
- ---------------------------
On January 31, 1996, the Partnership entered into an Assignment Agreement with
Hampton. This agreement transfers all right, title and interest in and to the
$640,000 Valley Bank Note and all security thereon to Hampton. This
transfer is considered and will be applied as a partial repayment of operating
advances payable, affiliate. On February 29, 1996, Hampton paid $65,200 to
Insignia on behalf of the Partnership's obligation in the Participation
Agreement to pay Insignia 10% of the net proceeds of the sale of Valley Bank
Tower.
F-18
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - PRO FORMA INFORMATION
- -------------------------------
Unaudited pro forma balance sheet information as of December 31, 1994, has been
prepared to reflect the financial condition of the Partnership as if the sale of
the Valley Bank Tower had occurred on December 31, 1993.
<TABLE>
<CAPTION>
Historical
December 31, Pro Forma
1994 Adjustments Pro Forma
------------- ------------ -----------
<S> <C> <C> <C> <C>
Real estate investments $ 5,252,024 $ (5,252,024) (A) $ -
Cash 94,721 (8,676) (B) 86,045
Note receivable - 640,000 (C) 640,000
Other assets 683,271 (208,751) (A) 474,520
------------ ------------ -----------
$ 6,030,016 $ (4,829,451) $ 1,200,565
============= ============ ===========
Mortgage notes payable $ 4,350,021 $ (4,350,021) (A) $ -
Accounts payable and other
liabilities 314,791 (123,780) (A) 191,011
Payables to affiliates 6,509,076 (750,000) (D) 5,759,076
Promissory notes payable 61,794,154 - 61,794,154
Partners' deficit (66,938,026) 394,350 (A) (66,543,676)
------------- ------------ -----------
$ 6,030,016 $ (4,829,451) $ 1,200,565
============= ============ ===========
</TABLE>
F-19
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - PRO FORMA INFORMATION (CONTINUED)
- -------------------------------------------
Unaudited pro forma information for the year ended December 31, 1994, has been
prepared to reflect the results of operations as if the sales of the Mountain
Top Apartment Site and Valley Bank Tower had occurred on January 1, 1994. The
results are not necessarily indicative of the results which would have occurred
had these transactions been consummated at the beginning of 1994 or of future
results of operations of the Partnership.
<TABLE>
<CAPTION>
Historical
December 31, Pro Forma
1994 Adjustments Pro Forma
------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 2,316,140 $(2,316,140) (E) $ -
Gain on disposition of
real estate 1,127,551 (1,127,551) (F) -
Other 84,535 33,227 (G) 117,762
----------- ----------- -------------
3,528,226 (3,410,464) 117,762
----------- ----------- -------------
Expenses:
Interest 9,449,010 (521,627) (E) 8,927,383
Depreciation and
amortization 592,030 (472,411) (E) 119,619
Operating expenses 939,228 (934,329) (E) 4,899
General and
administrative 595,560 (46,511) (E) 549,049
----------- ----------- -------------
11,575,828 (1,974,878) 9,600,950
----------- ----------- -------------
Net loss $(8,047,602) $(1,435,586) $ (9,483,188)
=========== =========== =============
Net loss per limited
partnership unit $(374.42) $(66.79) $ (441.21)
=========== =========== =============
</TABLE>
Pro Forma Adjustments
- ---------------------
(A) To record the effect of the sale of Valley Bank Tower including (1) a
reduction in real estate investments and retirement of underlying mortgage
obligations and (2) reductions in other assets, accounts payable and other
liabilities resulting from the disposition of the rental property.
(B) To record the cash proceeds from the sale ($838,146), cash proceeds held in
escrow ($15,000), cash surrendered ($319), cash repayment of operating
advances ($750,000), cash payments for additions to real estate investments
($31,191) and repayment of principal on mortgage note payable ($80,312).
(C) To record the note receivable received as proceeds from the sale.
(D) To record the reduction of operating advances repaid from the sale proceeds.
(E) To remove the revenues and expenses related to the Valley Bank Tower rental
operations.
(F) To remove the gain associated with the sale of the Mountain Top Apartments
Site.
(G) To record interest income associated with the note receivable received as
proceeds from the sale of the Valley Bank Tower net of 10% participation fee
($36,690) and remove the interest income associated with its operations for
the year ($3,463).
F-20
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - PRO FORMA INFORMATION (CONTINUED)
- -------------------------------------------
Unaudited pro forma balance sheet information as of December 31, 1995, has been
prepared to reflect the financial condition of the Partnership as if the
assignment of the $640,000 promissory note receivable had occurred on December
31, 1994.
<TABLE>
<CAPTION>
Historical
December 31, Pro Forma
1995 Adjustments Pro Forma
------------- ------------ -----------
<S> <C> <C> <C> <C>
Promissory note receivable $ 644,865 $ (644,865) (A) $ -
Cash 9,206 - 9,206
Other assets 358,857 - 358,857
------------ --------- ------------
$ 1,012,928 $(644,865) $ 368,063
============ ========= ============
Accounts payable and other
liabilities $ 151,052 $ - $ 151,052
Payables to affiliates 6,209,369 (640,000) (A) 5,569,369
Promissory notes payable 71,597,823 - 71,597,823
Partners' deficit (76,945,316) (4,865) (A) (76,950,181)
------------ --------- ------------
$ 1,012,928 $(644,865) $ 368,063
============ ========= ============
</TABLE>
F-21
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - PRO FORMA INFORMATION (CONTINUED)
- -------------------------------------------
Unaudited pro forma information for the year ended December 31, 1995 has been
prepared to reflect the results of operations as if the sale of Valley Bank
Tower had occurred on January 1, 1994 and the assignment of the promissory note
receivable had been assigned on January 1, 1995. The results are not
necessarily indicative of the results which would have occurred had these
transactions been consummated at the beginning of 1994 and 1995 or of future
results of operations of the Partnership.
<TABLE>
<CAPTION>
Historical
December 31, Pro Forma
1995 Adjustments Pro Forma
------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 359,409 $ (359,409) (B) $ -
Gain on disposition of real estate 1,015,404 (1,015,404) (B) -
Other 41,164 (41,16437,012) (A) -
------------ -------------- --------------
1,415,977 (1,415,977) -
------------ -------------- --------------
Expenses:
Interest 10,320,508 (146,265) (B) 10,174,243
Depreciation and amortization 198,354 (78,735) (B) 119,619
Operating expenses 220,375 (220,375) (B) -
General and administrative 152,095 (97,955) (B) 54,140
Loss from liquidation of debt 531,935 (531,935) (B) -
------------ -------------- --------------
11,423,267 (1,075,265) 10,348,002
------------ -------------- --------------
Net loss $(10,007,290) $ (340,712) $ (10,348,002)
============ ============== ==============
Net loss per limited partnership unit $(468.92) $ (15.97) $ (484.89)
============ ============== ==============
</TABLE>
(A) To record the effect of the assignment of the $640,000 promissory note
receivable and removing the interest income associated with the promissory
note.
(B) To record the effect of the sale of Valley Bank Tower including (1) removal
of the gain on disposal of real estate, (2) removal of the loss from
liquidation of debt and (3) removal of the revenues and expenses related to
the remaining Valley Bank Tower rental operations.
F-22
<PAGE>
SCHEDULES V AND VI
UNIVERSITY REAL ESTATE FUND 10, LTD.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
For the Years Ended December 31, 1995, 1994 and 1993
Changes in real estate investments and accumulated depreciation and amortization
for the three years ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ----------- -----------
<S> <C> <C> <C>
SCHEDULE V:
Real estate investments:
- ------------------------
Balance at beginning of year $ 10,327,271 $10,073,894 $ 9,942,704
Improvements 31,191 253,377 131,190
Dispositions (10,358,462) - -
------------ ----------- -----------
Balance at end of year $ - $10,327,271 $10,073,894
============ =========== ===========
</TABLE>
SCHEDULE VI:
<TABLE>
<CAPTION>
Accumulated depreciation and amortization:
- ------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 5,075,247 $4,602,836 $4,138,317
Depreciation and amortization 78,735 472,411 464,519
Dispositions (5,153,982) - -
----------- ---------- ----------
Balance at end of year $ - $5,075,247 $4,602,836
=========== ========== ==========
</TABLE>
(a) Buildings and improvements are depreciated using the straight-line method
over a life of 5 to 25 years.
(b) The Valley Bank Tower real estate investment was sold February 1995.
F-23
<PAGE>
SCHEDULE X
UNIVERSITY REAL ESTATE FUND 10, LTD.
SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Charged to Expense
-----------------------------
Item 1995 1994 1993
- ------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Maintenance and repairs $ 30,549 $122,475 $141,574
Amortization of deferred
financing expenses 119,619 119,619 114,717
Taxes, other than payroll and
income taxes 12,806 76,835 79,867
</TABLE>
Royalty expense is not applicable to these financial statements.
Advertising cost are not set forth inasmuch as such items do not exceed one
percent of total revenues as shown in the related statements of operations.
F-24
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------ -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Price Waterhouse LLP served as the independent accountant previously engaged to
audit the financial statements of University Real Estate Fund 10, Ltd. (the
"Partnership") for the three years ended December 31, 1993. On May 10, 1995,
the Partnership's Manager selected Wallace Sanders & Company to serve the
Partnership as its independent accountant to audit the Partnership's financial
statements for the calendar year ended December 31, 1994. The failure of the
Manager of the Partnership to select Price Waterhouse LLP as the Partnership's
independent accountant to audit the financial statements for the year ended
December 31, 1994, constituted Price Waterhouse LLP being "dismissed" (as such
term is used in Item 304 of Regulation S-K).
The report of Price Waterhouse LLP on the Partnership's financial statements for
the three years ended December 31, 1993 included an explanatory paragraph
following the opinion paragraph describing an uncertainty about the
Partnership's ability to continue as a going concern. During the years Price
Waterhouse LLP served as the independent accountants to audit the financial
statements of the Partnership and thereafter through the date hereof, the
Partnership has not had any disagreement with Price Waterhouse LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which disagreement, if not resolved to the
satisfaction of Price Waterhouse LLP, would have caused Price Waterhouse LLP to
make reference to the subject matter of the disagreement in connection with this
report. The decision to change accountants was not recommended by an audit or
similar committee (since the Manager has no such committee) and was made only by
the Manager.
The Partnership has provided Price Waterhouse LLP with a copy of the foregoing
disclosures at the same time as the filing of this report with the Commission
and has requested such former accountant to furnish the Partnership with a
letter addressed to the Securities and Exchange Commission (the "Commission")
stating whether Price Waterhouse LLP agrees with the statements made by the
Partnership herein and, if not, stating the respects in which it does not agree.
Price Waterhouse LLP by letter dated July 18, 1995, addressed to the Office of
the Chief Accountant of the Commission, advised that it agrees with the
statements made by the Partnership. A copy of the Price Waterhouse LLP letter
was attached to Form 8-K as filed with the Securities and Exchange Commission on
July 18, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The Partnership does not have officers or directors. USP, a Colorado limited
partnership, is the General Partner. The General Partner of USP is Southmark
Investment Group, Inc., a Nevada corporation. The executive officer and
director of Southmark who controls the affairs of the Partnership is as follows:
<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Glen Adams, Director, 57 Chairman of the Board, Chief Executive
President Officer and President of Southmark
Corporation. Prior to joining Southmark, Mr.
Adams served as Chairman, President and
General Counsel (1986-1989) of The Great
Western Sugar Company, a sugar manufacturer,
managing and liquidating its assets during
Chapter 11 proceedings. He previously served
as Vice President and General Counsel of Hunt
International Resources Corp., a holding
company for Great Western and other entities,
from 1983 to 1986. Mr. Adams also serves as
a Director of Zale Corporation, U.S. Home
Corporation and Southmark San Juan, Inc., an
affiliate of Southmark.
</TABLE>
10
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
No individual principal or principals as a group received over $60,000 in direct
remuneration from the Registrant.
The General Partner is not compensated directly for its services as general
partner of the Partnership. Certain officers and directors of the General
Partner and Hampton receive compensation from the General Partner and Hampton
and/or their affiliates (but not from Registrant) for services performed for
various affiliated entities, which may include services performed for
Registrant. See Item 13 - "Certain Relationships and Related Transactions" and
Note 2 to the financial statements appearing in Item 8.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(A) Security ownership of certain beneficial owners.
No individual or groups as defined by Section 13(d)(3) of the
Securities Exchange Act of 1934, known to the registrant is the
beneficial owner of more than 5 percent of the Registrant's
securities.
(B) Security ownership of management.
Neither the General Partner nor any of its officers or directors own
any limited partnership units.
The General Partner is entitled to distributions of cash from
operations and from other sources (primarily from the sale or
refinancing of Partnership properties and the reserve account) as set
forth in Item 8 -"Note 9 - Distributions".
(C) Change in Control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
Beginning December 14, 1992, Property Management and Portfolio Services
Agreements were entered into with Hampton UREF and the Partnership began paying
property management fees, through a subcontract agreement with the Hampton UREF,
to Hampton and began reimbursing Hampton for its costs of administering the
Partnership's affairs. Beginning April 20, 1994, the Partnership began paying
property management fees to Insignia until the final operating property was sold
February 1995, through a Property Management Subcontract Agreement with Hampton
UREF and later the Partnership directly. See Item 1 and Notes 2 and 12 to the
accompanying financial statements included at Item 8 herein.
Compensation or reimbursements paid to or accrued for the benefit of Hampton and
affiliates and Insignia during 1995 are as follows:
<TABLE>
<S> <C>
Property management fees $ 18,927
Charged to interest expense:
Interest on operating advances principal 456,293
Charged to general and administrative expense:
Partnership and financial administration,
data processing, accounting and tax
reporting, and investor relations 77,756
Asset management fees 20,124
--------
Total compensation and reimbursements $573,100
========
</TABLE>
11
<PAGE>
ITEM 14. ASSIGNMENT OF VALLEY BANK NOTE
- -------- ------------------------------
On January 31, 1996, the Partnership entered into an Assignment Agreement
with Hampton. This agreement transfers all right, title and interest in and to
the $640,000 Valley Bank Note receivable and all security thereon to Hampton.
This transfer is considered and will be applied as a partial repayment of
operating advances payable, affiliate.
PART IV
-------
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- -------- -----------------------------------------------------------------
(a) (1) Financial Statements
Financial Statements for University Real Estate Fund 10, Ltd. listed in
the Index to the Financial Statements and Supplementary Data on page 9
are filed as part of this Annual Report.
(a) (2) Financial Statement Schedules
Financial Statement Supplementary Data for University Real Estate Fund
10, Ltd. listed in the Index to the Financial Statements and
Supplementary Data on page 9 are filed as part of this Annual Report.
Page
----
(a) (3) Index to Exhibits................................ 13
(b) Reports on Form 8-K.............................. 15
12
<PAGE>
(a)(3) The following documents are filed as part of this report and is an
index to the exhibits:
Exhibit
Number Description
------ -----------
3. and 4. Limited Partnership Agreement (Incorporated by reference to
Registration Statement No. 2-74914 on Form S-11 filed by
Registrant).
4.1 Trust Indenture Agreement (Incorporated by reference to
Exhibit 4.1 to Registration Statement 2-74914 on Form S-11
Filled by Registrant).
10.1 Agreed Order Approving Compromise Settlement and Mutual
Release Agreement dated November 19, 1991, between Southmark
Corporation and the Southmark Affiliated Limited Partnership.
(2)
10.2 Asset Purchase Agreement among Southmark Corporation and its
affiliates and SHL Acquisition Corp. III dated March 9, 1993.
(3)
10.3 Asset Purchase Agreement among Southmark Corporation and its
affiliates and SHL Acquisition Corp. III dated March 9, 1993,
as amended by the First Amendment to Asset Purchase Agreement
dated April 22, 1993. Incorporated by reference to the Annual
Report of the Registrant of Form 10-K for the period ended
December 31, 1993, as filed with the Securities and Exchange
Commission on July 13, 1994.
10.4 Asset Purchase Agreement among Southmark Corporation and its
affiliates and SHL Acquisition Corp. III dated March 9, 1993,
as amended by the Second Amendment to Asset Purchase
Agreement dated December 14, 1993. (3)
10.5 University 10 and University 12 Option Agreement entered into
as of December 16, 1993, by and among University Partners,
Ltd., University Special Partners, Ltd. and Hampton Realty
Partners, L.P. and/or its Permitted Assigns. (3)
10.6 Portfolio Services Agreement between the Partnership and
Hampton UREF Management, Ltd. dated December 16, 1993 to be
effective as of December 14, 1992. (3)
10.7 Property Management Agreement dated December 16, 1993 between
the Partnership and Hampton UREF Management, Ltd. (3)
10.8 Assignment of Rights of the Asset Purchase Agreement between
SHL Acquisition Corp. III and Hampton HCW, Hampton Realty
Partners, L.P., and Hampton UREF Management, Ltd. dated
December 16, 1993. (3)
10.9 Promissory Note dated April 18, 1994 by and between
University Real Estate Fund 10, a Colorado Limited
Partnership, and Insignia Financial Group, Inc., a Delaware
Corporation. Incorporated by reference to the Quarterly
Report of the Registrant of Form 10-Q for the period ending
June 30, 1994, as filed with the Securities and Exchange
Commission on November 1, 1994.
10.10 Portfolio Services Subcontract Agreement between Hampton UREF
Management, Ltd. and IFGP Corporation dated April 20, 1994.
(3)
13
<PAGE>
Exhibit
Number Description
------ -----------
10.11 Property Management Subcontract Agreement between Hampton
UREF Management Ltd. and Insignia Management Group, L.P.
dated April 20, 1994. (3)
10.12 Purchase Agreement between Hampton Realty Partners, L.P. and
Insignia Financial Group, Inc. dated April 20, 1994. (3)
10.13 Portfolio Services Subcontract Agreement between Hampton UREF
Management, Ltd. and IFGP Corporation dated April 20, 1994,
as amended July 31, 1994. (3)
10.14 Termination of Purchase Agreement between Hampton Realty
Partners, L.P. and Insignia Financial Group, Inc. dated
August 8, 1994. (3)
10.15 Property Management Subcontract Agreement between Hampton
UREF Management Ltd. and Insignia Management Group, L.P.
dated April 20, 1994, as amended August 8, 1994. (3)
10.16 Termination of Property Management Agreement between Hampton
UREF Management, Ltd. and the Partnership dated August 8,
1994. (3)
10.17 Property Management Agreement between the Partnership and
Insignia Commercial Group, Inc. dated August 8, 1994. (3)
10.18 University 10 and University 12 Option Agreement between
University Partners, Ltd. and University Special Partners,
Ltd. and Hampton Realty Partners, L.P. dated December 16,
1993, as amended August 8, 1994. (3)
10.19 Termination of Property Management Subcontract Agreement
between Hampton UREF Management, Ltd. and Insignia Management
Group, Ltd. dated September 1, 1994. (3)
10.20 Assignment and Assumption of Portfolio Services Agreement
between Hampton UREF Management, Ltd. and JKD Financial
Management, Inc. dated December 30, 1994.
10.21 Assignment and Assumption of Option Agreement between Hampton
Realty Partners, L.P. and JKD Financial Management, Inc.
dated December 30, 1994.
10.22 Agreement of Sale and Purchase Agreement for Valley Bank
Tower.
10.23 Promissory Note Dated February 24, 1995 from West Washington
Associates, LLC, in the principal amount of $640,000.
11. Statement regarding computation of net loss per limited
partnership unit: net loss per limited partnership unit is
computed by dividing net loss allocated to the Limited
Partners by the weighted average number of limited
partnership units outstanding. The weighted average number of
limited partnership units outstanding was 20,274 at December
31, 1995, 20,419 at December 31, 1994 and 20,452 at December
31, 1993.
16. Letter dated July 18, 1995 from Price Waterhouse with respect
to a change in certifying accountant. Incorporated by
reference to Form 8-K - Current Report for the period ending
September 30, 1995, as filed with the Securities and Exchange
Commission on July 20, 1995.
14
<PAGE>
(2) Incorporated by reference to the Annual Report of McNeil Real Estate Fund
IV, Ltd. (Commission file number 0-7894), on Form 10-K for the period
ended December 31, 1991, as filed with the Securities and Exchange
Commission on March 24, 1992.
(3) Incorporated by reference to the Quarterly Report of the Registrant of
Form 10-Q for the period ending September 30, 1994, as filed with the
Securities and Exchange Commission on September 22, 1995.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended December 31, 1995.
15
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
SIGNATURE PAGE
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.
UNIVERSITY REAL ESTATE FUND 10, LTD.
By: UNIVERSITY SPECIAL PARTNERS, LTD.
General Partner
By: SOUTHMARK INVESTMENT GROUP, INC.,
a General Partner
June 4, 1996 By: /s/ Glen Adams
- -------------------- -------------------------------------
Date Glen Adams, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
June 4, 1996 By: /s/ Glen Adams
- -------------------- -------------------------------------
Date Glen Adams, President and Director
Southmark Investment Group, Inc.
June 4, 1996 By: /s/ Charles B. Brewer
- -------------------- -------------------------------------
Date Charles B. Brewer,
Executive Vice President
Southmark Investment Group, Inc.
16
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
SIGNATURE PAGE
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.
UNIVERSITY REAL ESTATE FUND 10, LTD.
By: UNIVERSITY SPECIAL PARTNERS, LTD.
General Partner
By: SOUTHMARK INVESTMENT GROUP, INC.,
a General Partner
June 4, 1996 By: /s/ Glen Adams
- -------------------- -------------------------------------
Date Glen Adams, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
June 4, 1996 By: /s/ Glen Adams
- -------------------- -------------------------------------
Date Glen Adams, President and Director
Southmark Investment Group, Inc.
June 4, 1996 By: /s/ Charles B. Brewer
- -------------------- -------------------------------------
Date Charles B. Brewer,
Executive Vice President
Southmark Investment Group, Inc.
17
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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