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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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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 33-11907
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DIVERSIFIED HISTORIC INVESTORS IV
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2440837
- -------------------------------- ----------------
incorporation or organization (I.R.S. Employer
(State or other jurisdiction of Identification No.)
1609 WALNUT STREET, PHILADELPHIA, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 8,285.7 Units
UNITS OF LIMITED PARTNERSHIP INTEREST
- -----------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of Units held by non- affiliates of the Registrant:
Not Applicable*
* Securities not quoted in any trading market to Registrant's knowledge.
PART I
Item 1. Business
a. General Development of Business
Diversified Historic Investors IV
("Registrant") is a limited partnership formed
in 1987 under Pennsylvania Law. As of December
31, 1999, Registrant had outstanding 8,285.7
units of limited partnership interest (the
"Units").
Registrant is presently in its
operating stage. It originally owned three
properties or interests therein. One property
has been sold. It currently owns two
properties. See Item 2. Properties, for a
description thereof. For a discussion of the
operations of the Registrant, See Part II, Item
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following is a summary of
significant transactions involving the
Registrant's interests:
During 1994, the Registrant
converted the property ("Henderson Riverfront
Apartments") owned by 700 Commerce Mall General
Partnership ("CMGP"), a Louisiana general
partnership in which the Registrant owns a 95%
interest, into condominiums and began offering
the units for sale. The units were marketed
and sold by an affiliate of the Registrant's co-
general partner ("HRI"). The asking prices of
the units ranged from $72,000 to $135,000,
depending on size, configuration and location
within the building. Funds were necessary
during the selling period for improvements and
repairs to common areas, individual unit
upgrades, marketing, selling costs, and fees.
During 1996 and 1995, these expenses were
approximately $146,000 and $416,000,
respectively, and were funded from the sales
proceeds. One of the difficulties in selling
condominium units is the buyers' frequent
inability to obtain financing. Most banks
offering residential financing require that
their loans meet Federal National Mortgage
Association ("FNMA") requirements. One such
requirement is that the unit being financed
cannot be a part of a project in which 30% or
more of the units are owned by investors. At
conversion, the Henderson Riverfront Apartments
were owned 100% by CMGP and, therefore, did not
meet FNMA requirements. Because of this and
similar market conditions, the seller, CMGP,
provided financing for a large percentage of
the units sold. All loans required a minimum
10% down payment, and all purchasers were
qualified by an independent mortgage brokerage
company, using FNMA guidelines. The loans were
collateralized by the condominium units and
bore interest at rates ranging from 6 1/2% to 8
1/4%. The loans consisted of two types, a 30-
year fixed rate mortgage and a 7/23 loan. The
interest rate on the 7/23 loan during the
initial 7-year term is fixed. Interest after
the 7th anniversary of the loan is reset at 250
basis points in excess of the 10-year Treasury
Note as reported in the Wall Street Journal for
the next business day immediately preceding
such 7th anniversary, rounded upward to the
next highest 1/8% of 1%, with a cap of 13.5%.
Interest and principal are due monthly and all
principal payments are based on a 30-year
amortization schedule. As of December 31,
1996, all 61 units had been sold for an
aggregate amount of $6,009,745 ($4,055,459 net
of selling expenses and capital expenditures,
including those described above). The units
sold ranged in price from $71,250 to $127,065.
Of the units sold, 46 of the buyers opted for
the seller provided financing with loans
ranging from $62,700 to $181,900 (represents
one mortgage secured by two units).
On December 30, 1997, the mortgage
loans were sold. These mortgages were
"nonconforming," which means that they could
not be sold on the standard secondary market.
Moreover, even for "conforming" mortgages the
market for loans secured by properties in
Louisiana is limited, based upon certain
perceived difficulties in exercising
foreclosure rights in Louisiana. However,
despite these problems, the Registrant believed
that then current favorable economic
environment provided an unusual opportunity to
sell the mortgages. Any deterioration in the
real estate markets or the interest rate
environment would have substantially decreased
the value of the mortgage loans and would have
increased the likelihood of defaults
thereunder. In soliciting offers for the
loans, prospective buyers were unwilling to pay
more than 70% to 75% of the face amount of the
loans. However, the Registrant ultimately was
able to procure a purchaser willing to pay
85.5% of the face values. Included in
operations is a loss of $448,957 related to the
sale of the loans.
b. Financial Information about
Industry Segments
The Registrant operates in one
industry segment.
c. Narrative Description of Business
Registrant is in the business of
operating, holding, selling, exchanging and
otherwise dealing in and with real properties
containing improvements that are "Certified
Historic Structures," as such term is defined
in the Internal Revenue Code (the "Code") for
use as apartments, offices, hotels and
commercial spaces, or any combination thereof,
or low income housing eligible for the tax
credit provided by Section 42 of the Code, and
such other uses as the Registrant's general
partner may deem appropriate.
Since the Registrant's inception,
all the properties acquired either by the
Registrant, or the subsidiary partnerships in
which it has an interest, have been
rehabilitated and certified as historic
structures and have received the related
investment tax credit. All the properties are
held for rental operations. At this time it is
anticipated that the two remaining properties
will continue to be held for this purpose until
such time as real property values in the areas
in which these properties are located begin to
increase. At that time, the Registrant will re-
evaluate its investment strategy regarding the
properties.
As of December 31, 1999,
Registrant owned interests in two properties,
one each located in North Carolina and
Pennsylvania. In total, the properties contain
22 apartment units. As of December 31, 1999,
21 of the apartment units were under lease at
monthly rental rates ranging from $525 to $875.
Rental of the apartments is not expected to be
seasonal. For a further discussion of the
properties, see Item 2. Properties.
The Registrant is affected by and
subject to the general competitive conditions
of the residential real estate industry. As a
result of the overbuilding that occurred in the
1980's, the competition for residential tenants
in the local markets where the Registrant's
properties are located is generally strong. As
a result, the Registrant is forced to keep its
rent levels competitively low in order to
maintain moderate to high occupancy levels.
The properties held for rental by the
Registrant are located in Philadelphia,
Pennsylvania and Concord, North Carolina. In
both areas there are several similar
historically certified rehabilitated buildings.
However, there is no organization which holds a
dominant position in the residential housing
market in either of the geographic areas in
which the Registrant's properties are located.
The apartment market remains stable and new
construction remains virtually nonexistent
although the availability of favorable home
financing has placed pressure on the rental
tenant base.
Registrant has no employees.
Registrant's activities are overseen by
Brandywine Construction & Management, Inc.,
("BCMI"), a real estate management firm.
d. Financial Information About
Foreign and Domestic Operations and Export
Sales.
See Item 8. Financial Statements
and Supplementary Data.
Item 2. Properties
As of the date hereof, Registrant
owned two properties, or interests therein. A
summary description of each property held at
December 31, 1999 is given below.
a. The Brass Works - consists of 12
apartments located at 231-237 Race Street,
Philadelphia, Pennsylvania. In May 1987,
Registrant acquired and rehabilitated the
Property for $1,200,000 ($111 per square
foot)("sf") funded by its equity contribution.
The property is managed by BCMI.
At December 31, 1999, all of the apartment
units were under lease (100%) with monthly
rents ranging from $690 to $875. All leases
are renewable, one-year leases. The occupancy
for the previous four years was 100% for 1998,
92% for 1997, 89% for 1996 and 92% for 1995.
The monthly rental range has been approximately
the same since 1995. For tax purposes, this
property has a federal tax basis of $1,203,622
and is depreciated using the straight-line
method with a useful life of 27.5 years. The
annual real estate taxes are $9,256 which is
based on an assessed value of $112,000 taxed at
a rate of $8.264 per $100. No one tenant
occupies ten percent or more of the building.
It is the opinion of the management of the
Registrant that the property is adequately
covered by insurance.
b. Locke Mill Plaza -consists of 10
residential apartment condominium units in a
169 condominium unit project located on Buffalo
Avenue at Union Street in Concord, North
Carolina. In November 1988, Registrant
acquired the units for $665,000 funded by its
equity contribution.
The property is managed by BCMI.
As of December 31, 1999, 9 units were under
lease (80%) with monthly rates ranging from
$525 to $560. All leases are renewable, one-
year leases. The occupancy for the previous
four years was 100% for 1998, 89% for 1997, 95%
for 1996 and 90% for 1995. The monthly rental
range has been approximately the same since
1995. For tax purposes, this property has a
federal tax basis of $696,049 and is
depreciated using the straight-line method with
a useful life of 27.5 years. The annual real
estate taxes are $4,459 which is based on an
assessed value of $424,670 taxed at a rate of
$1.08 per $100. No one tenant occupies ten
percent or more of the building. It is the
opinion of the management of the Registrant
that the property is adequately covered by
insurance.
Item 3. Legal Proceedings
a. To the best of its knowledge,
Registrant is not a party to, nor is any of its
property the subject of, any pending material
legal proceeding.
Item 4. Submission of Matters to a Vote of
Security Holders
No matter was submitted during the
fiscal years covered by this report to a vote
of security holders.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
a. There is no established public
trading market for the Units. Registrant does
not anticipate any such market will develop.
Trading in the Units occurs solely through
private transactions. The Registrant is not
aware of the prices at which trades occur.
Registrant's records indicate that 91 units
were sold or exchanged in 1999.
b. As of December 31, 1999, there
were 945 record holders of Units.
c. In 1999 and 1998 Registrant made
distributions in the amount of $276,190 and
$2,529,533 out of available cash flow.
Item 6. Selected Financial Data
The following selected financial data
are for the five years ended December 31, 1999.
The data should be read in conjunction with the
consolidated financial statements included
elsewhere herein. This data is not covered by
the independent auditors' report.
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Rental income $ 194,123 $ 190,058 $ 180,312 $ 267,148 $ 393,751
Interest income 11,328 35,117 274,358 196,100 125,505
Net loss (92,209) (60,005) (541,583) (25,170) (119,070)
Net loss per unit (11.02) (7.17) (64.71) (3.01) (13.03)
Total assets (net 1,675,218 2,029,350 4,802,128 5,574,564 6,095,438
of depreciation
and amortization)
Dividends
(distributions) 276,190 2,529,533 276,190 276,190 291,206
Item 7. Management's Discussion and Analysis
of Financial Conditions and Results of Operations
(1) Liquidity
At December 31, 1999, Registrant
had cash of approximately $325,890. The
Registrant expects that the funds plus the cash
generated from operations at each property will
be sufficient to fund the operating expenses of
the properties. In addition to the operating
expenses of the properties, the Registrant
distributed $248,571 and $2,276,580 to the
limited partners in July 1999 and March 1998,
respectively. The Registrant is not aware of
any additional sources of liquidity.
As of December 31, 1999,
Registrant had restricted cash of $25,169
consisting primarily of funds held as security
deposits, replacement reserves, escrows for
taxes and insurance and unpaid conversion fees.
As a consequence of these restrictions as to
use, Registrant does not deem these funds to be
a source of liquidity.
(2) Capital Resources
Any capital expenditures needed
are generally replacement items and are funded
out of cash from operations or replacement
reserves, if any. The Registrant is not aware
of any factors which would cause historical
capital expenditures levels not to be
indicative of capital requirements in the
future and accordingly, does not believe that
it will have to commit material resources to
capital investments for the foreseeable future.
(3) Results of Operations
During 1999, Registrant incurred a
net loss of $92,209 ($11.02 per limited
partnership unit) compared to a loss of $60,005
($7.17 per limited partnership unit) in 1998
and a loss of $541,583 ($64.71 per limited
partnership unit) in 1997. Included in the
loss for 1997 is the $448,957 loss related to
the sale of the notes as referred to in Item
1a, above. In July 1999 and March 1998, the
Registrant distributed approximately $248,571
and $2,276,580, respectively, to the limited
partners.
Rental income increased from
$180,312 in 1997 to $190,058 in 1998 to
$194,128 in 1999. The increase from 1998 to
1999 is due to an increase in rental income at
Brass Works due to an increase in the average
rental rates. The increase from 1997 to 1998
is due to an increase in rental income at both
Brass Works and Locke Mill due to an increase
in both the average occupancy and the average
rental rates.
Interest income decreased from
$274,358 in 1997 to $35,117 in 1998 to $11,328
in 1999. The decrease from 1998 to 1999 and
from 1997 to 1998 is due to a decrease in the
average cash balance as a result of the
distributions.
Rental operations expense
decreased from $348,325 in 1997 to $121,027 in
1998 and increased to $129,346 in 1999. The
increase from 1998 to 1999 is due to an
increase in the maintenance expense at the
Brass Works due to an increase in the turnover
of apartment units partially offset by a
decrease in maintenance expense at Locke Mill
due to a decrease in the turnover of
condominium units. The decrease from 1997 to
1998 is due to a decrease at Henderson due to
one-time fees incurred in 1997 associated with
the sale of the notes.
General and administrative expense
decreased from $108,000 in 1997 to $73,500 in
1998 and increased to $77,000 in 1999. The
increase from 1998 to 1999 is due to fees paid
to the General Partner. The decrease from 1997
to 1998 is due to the sale of the Henderson
notes and a subsequent reduction in the
administrative fees charged to the Registrant.
In 1999, income of $20,000 was
recognized at the Registrant's three properties
compared to income of $19,000 in 1998 and a
loss of $402,000 in 1997. A discussion of
property operations/activities follows:
In 1999, Registrant incurred a
loss of $5,000 at The Henderson Riverfront
Apartments compared to income of $29,000,
including depreciation expense of $39,000 in
1998 and a loss of $402,000 including
depreciation expense of $39,000 in 1997. The
decrease from 1998 to 1999 is due to a decrease
in interest income combined with an increase in
legal expense. Interest income decreased due to
a decrease in the average cash balance. Legal
expense increased due to fees paid in
connection with a tenant claim resolved in
1999. The decrease in income from 1997
(exclusive of the loss on the sale of the
notes) to 1998 is due to a decrease in interest
income due to a decrease in the average cash
balance.
In 1999, Registrant recognized
income of $20,000, including $49,000 in
depreciation expense at the Brass Works,
compared to income of $18,000, including
$48,000 depreciation expense in 1998 and income
of $2,000, including $48,000 of depreciation
expense in 1997. The increase in income from
1998 to 1999 is due to an increase in rental
income partially offset by an increase in
maintenance expense. The increase in rental
income is due to an increase in the average
rental rates. The increase in the maintenance
expense is due to an increase in the turnover
of apartment units. The increase in income
from 1997 to 1998 is due to an increase in
rental income due to an increase in the average
occupancy (92% to 98%) and an increase in the
average rental rates.
In 1999, Registrant recognized
income of $5,000 at the Locke Mill Plaza
including $26,000 of depreciation expense,
compared to income of $1,000 including $26,000
of depreciation expense in 1998 and a loss of
$2,000, including $26,000 of depreciation
expense in 1997. The increase in income from
1998 to 1999 is due to a decrease in
maintenance expense due to a decrease in the
turnover of condominium units. The increase in
income from 1997 to 1998 is due to an increase
in rental income due to an increase in the
average occupancy (89% to 93%) and an increase
in the average rental rates.
Item 7A. Quantitative and Qualitative
Disclosures about Market Risk
Not applicable.
Item 8. Financial Statements and
Supplementary Data
Registrant is not required to furnish
the supplementary financial information
referred to in Item 302 of Regulation S-K.
Independent Auditor's Report
To the Partners of
Diversified Historic Investors IV
We have audited the accompanying consolidated
balance sheet of Diversified Historic Investors
IV (a Pennsylvania Limited Partnership) and
subsidiaries as of December 31, 1999 and 1998
and the related statements of operations and
changes in partners' equity and cash flows for
the years ended December 31, 1999, 1998 and
1997. These consolidated 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 in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the consolidated 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
audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in
all material respects, the financial position
of Diversified Historic Investors IV as of
December 31, 1999 and 1998, and the results of
operations and cash flows for the years ended
December 31, 1999, 1998 and 1997, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming
an opinion on the basic financial statements
taken as a whole. The Schedule of Real Estate
and Accumulated Depreciation on page 19 is
presented for the purposes of additional
analysis and is not a required part of the
basic financial statements. Such information
has been subjected to the auditing procedures
applied in the audit of the basic financial
statements and, in our opinion, is fairly
stated in all material respects in relation to
the basic financial statements taken as a
whole.
Gross, Kreger & Passio
Philadelphia, Pennsylvania
February 9, 2000
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1999 and 1998 10
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998, and 1997 11
Consolidated Statements of Changes in Partners' Equiity
for the Years Ended December 31, 1999, 1998, and 1997 12
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998, and 1997 13
Notes to consolidated financial statements 14-17
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciaton 19
Notes to Schedule XI 20
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial
statements or notes thereto.
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
Assets
1999 1998
------ ------
Rental properties at cost:
Land $ 74,324 $ 74,324
Buildings and improvements 2,246,555 2,246,555
Furniture and fixtures 29,814 26,054
---------- ----------
2,350,693 2,346,933
Less - accumulated depreciation (1,043,546) (952,232)
---------- ----------
1,307,147 1,394,701
Cash and cash equivalents 325,890 603,499
Restricted cash 25,169 23,673
Other assets 17,012 7,477
---------- ----------
Total $1,675,218 $2,029,350
========== ==========
Liabilities and Partners' Equity
Liabilities:
Accounts payable:
Trade $ 43,456 $ 30,876
Other liabilities 1,538 821
Tenant security deposits 11,435 10,465
---------- ----------
Total liabilities 56,429 42,162
---------- ----------
Partners' equity 1,618,789 1,987,188
---------- ----------
Total $1,675,218 $ 2,029,350
========== ===========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
Revenues:
Rental income $194,123 $190,058 $180,312
Interest income 11,328 35,117 274,358
-------- -------- --------
Total revenues 205,451 225,175 454,670
-------- -------- --------
Costs and expenses:
Rental operations 129,346 121,027 348,325
General and administrative 77,000 73,500 108,000
Loss on sale of notes 0 0 448,957
Depreciation and amortization 91,314 90,653 90,971
-------- -------- --------
Total costs and expenses 297,660 285,180 996,253
-------- -------- --------
Net loss ($ 92,209) ($ 60,005) ($541,583)
======== ======== ========
Net loss per limited partnership unit ($ 11.02) ($ 7.17) ($ 64.71)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Dover Historic Limited
Advisors III (1) Partners (2) Total
---------------- ------------ -----
Percentage participation in
profit or loss 1% 99% 100%
Balance at December 31, 1996 ($140,755) $5,535,254 $5,394,499
Net loss (5,416) (536,167) (541,583)
Distribution to partners (27,619) (248,571) (276,190)
-------- ---------- ----------
Balance at December 31, 1997 (173,790) 4,750,516 4,576,726
Net loss (600) (59,405) (60,005)
Distribution to partners (252,953) (2,276,580) (2,529,533)
-------- ---------- ----------
Balance at December 31, 1998 (427,343) 2,414,531 1,987,188
Net loss (922) (91,287) (92,209)
Distribution to partners (27,619) (248,571) (276,190)
-------- ---------- ----------
Balance at December 31, 1999 ($455,884) $2,074,673 $1,618,789
======== ========== ==========
(1) General Partner
(2) 8,285.7 limited partnership units outstanding at December 31,
1999, 1998, and 1997.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
Cash flows from operating activities:
Net loss ($ 92,209) ($ 60,005) ($ 541,583)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 91,314 90,653 90,971
Changes in assets and liabilities:
(Increase) decrease in restricted cash (1,496) 33,012 50,751
(Increase) decrease in other assets (9,534) 152,794 (157,705)
Increase (decrease) in accounts
payable - trade 12,579 (182,126) 57,539
Decrease in accounts payable -
related parties 0 0 (39)
Decrease in deferred income 0 0 (13,282)
Increase (decrease) in other
liabilities 717 77 (651)
Increase (decrease) in tenant
security deposits 970 (1,190) 1,780
-------- ---------- ----------
Net cash provided by (used in)
operating activities: 2,341 33,215 (512,219)
-------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (3,760) (2,213) (3,991)
Sale of notes receivable 0 0 3,449,018
-------- ---------- ----------
Net cash (used in) provided by
investing activities (3,760) (2,213) 3,445,027
-------- ---------- ----------
Cash flows from financing activities:
Distributions to partners (276,190) (2,529,533) (276,190)
-------- ---------- ----------
Net cash used in financing
activities (276,190) (2,529,533) (276,190)
-------- ---------- ----------
(Decrease) increase in cash and cash
and cash equivalents (277,609) (2,498,531) 2,656,618
Cash and cash equivalents at
beginning of year 603,499 3,102,030 445,412
-------- ---------- ----------
Cash and cash equivalents at end of year $325,890 $ 603,499 $3,102,030
======== ========== ==========
Supplemental Schedule of Non-Cash
Investing Activities:
Net assets transferred 0 0 $2,227,249
Notes receivable received from
the sale of units 0 0 1,930,501
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors IV (the
"Partnership") was formed in January 1987, with
Dover Historic Advisors III as the General
Partner and DHP, Inc., (formerly Dover Historic
Properties, Inc.,) as the limited partner.
Upon the admission of additional limited
partners, the initial limited partner withdrew.
The Partnership was formed to acquire,
rehabilitate, and manage real properties which
are certified historic structures as defined in
the Internal Revenue Code (the "Code"), or
which were eligible for designation as such,
utilizing the net proceeds from the sale of
limited partnership units. Any rehabilitations
undertaken by the Partnership were done with a
view to obtaining certification of expenditures
therefor as "qualified rehabilitation
expenditures" as defined in the Code.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting
policies applied in the preparation of the
accompanying consolidated financial statements
follows:
1. Principles of Consolidation
The accompanying consolidated financial
statements of the Partnership include the
accounts of one subsidiary partnership (the
"Venture"), in which the Partnership has a
controlling interest, with appropriate
elimination of inter-partnership transactions
and balances. These financial statements
reflect all adjustments (consisting only of
normal recurring adjustments) which, in the
opinion of the Partnership's General Partner,
are necessary for a fair statement of the
results for the year.
2. Costs of Issuance
Costs incurred in connection with the offering
and sale of limited partnership units were
charged against partners' equity as incurred.
3. Depreciation
Depreciation is computed using the straight-
line method over the estimated useful lives of
the assets. Buildings and improvements are
depreciated over 25 years and furniture and
fixtures over five years.
4. Net Loss Per Limited Partnership Unit
The net loss per limited partnership interest
(a "Unit") is based on the weighted average
number of limited partnership Units outstanding
during the period (8,285.7 Units in 1999, 1998,
and 1997).
5. Income Taxes
Federal and state income taxes are payable by
the individual partners; therefore, no
provision or liability for income taxes is
reflected in the financial statements.
6. Cash and Cash Equivalents
The Partnership considers all highly liquid
investments purchased with a maturity of less
than three months to be cash equivalents.
7. Concentration of Credit Risk
Financial instruments which potentially subject
the Partnership to concentration of credit risk
consist principally of cash and cash
equivalents. The Partnership maintains its
cash and cash equivalents in financial
institutions insured by the Federal Deposit
Insurance Corporation up to $100,000 per
company. At December 31, 1999, uninsured funds
held at one institution approximate $186,978.
8. Restricted Cash
Restricted cash includes amounts held for
tenant security deposits, real estate tax
reserves and other cash restricted as to use.
9. Revenue Recognition
Revenues are recognized when rental payments
are due on a straight-line basis. Rental
payments received in advance are deferred until
earned.
10. Rental Properties
Rental properties are stated at cost. A
provision for impairment of value is recorded
when a decline in value of property is
determined to be other than temporary as a
result of one or more of the following: (1) a
property is offered for sale at a price below
its current carrying value; (2) a mortgage loan
on a property has significant balloon payments
due within the foreseeable future which the
Partnership does not have the resources to
meet, and anticipates it will be unable to
obtain replacement financing or debt
modification sufficient to allow it to continue
to hold the property over a reasonable period
of time; (3) a property has been, and is
expected to continue, generating significant
operating deficits and the Partnership is
unable or unwilling to sustain such deficit
results of operations, and has been unable, or
anticipates it will be unable, to obtain debt
modification, financing or refinancing
sufficient to allow it to continue to hold the
property for a reasonable period of time, or
(4) a property's value has declined based on
management's expectations with respect to
projected future operational cash flows and
prevailing economic conditions. An impairment
loss is indicated when the undiscounted sum of
estimated future cash flows from an asset,
including estimated sales proceeds, and
assuming a reasonable period of ownership up to
5 years, is less than the carrying amount of
the asset. The impairment loss is measured as
the difference between the estimated fair value
and the carrying amount of the asset. In the
absence of the above circumstances, properties
and improvements are stated at cost. An
analysis is done on an annual basis at December
31.
11. Use of Estimates
The preparation of the financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
amounts reported in the financial statements
and accompanying notes. Actual results could
differ from those estimates.
NOTE C - PARTNERSHIP AGREEMENT
The significant terms of the amended and
restated Agreement of Limited Partnership (the
"Agreement"), as they relate to the financial
statements, follow:
The Agreement provides that beginning with the
date of the admission of subscribers as limited
partners, all distributable cash from
operations (as defined) will be distributed 90%
to the limited partners and 10% to the General
Partner.
All distributable cash from sales or
dispositions (as defined) will be distributed
to the limited partners up to their original
capital contributions plus an amount equal to
six percent of their original capital
contributions per annum on a cumulative basis,
less the sum of all prior distributions to
them; thereafter, after receipt by the General
Partner or its affiliates of any accrued but
unpaid real estate brokerage commissions, the
distributable cash will be distributed 15% to
the General Partner and 85% to the limited
partners.
Net income or loss from operations of the
Partnership is allocated one percent to the
General Partner and 99% to the limited
partners.
NOTE D - ACQUISITIONS
The Partnership acquired two properties and one
general partnership interest in the Venture
during the period from May 1987 to November
1988, as discussed below.
In May 1987, the Partnership purchased a three-
story building located in Philadelphia,
Pennsylvania consisting of 12 apartment units.
The cost to acquire and rehabilitate this
property was approximately $1,200,000.
In July 1987, the Partnership was admitted,
with a 95% general partnership interest, to a
Pennsylvania general partnership which owns a
building located in New Orleans, Louisiana
consisting of 61 apartment units, for cash
contributions of $4,620,000. As of December
31, 1996, all of the units were sold.
In November 1988, the Partnership purchased a
building located in Concord, North Carolina,
consisting of 10 condominium units, for
$665,000.
NOTE E - SALE OF UNITS AT HENDERSON
During 1994, CMGP entered into agreements
converting the Henderson apartments into
condominiums and began offering the Units for
sale. The Units were marketed and sold by an
affiliate of the Registrant's co-general
partner ("HRI"). The asking prices of the
Units ranged from $72,000 to $135,000,
depending on size, configuration and location
within the building. Funds were necessary
during the selling period for improvements and
repairs to common areas, individual unit
upgrades, marketing, selling costs, and fees.
During 1996, these expenses were approximately
$146,000 and were funded by sales proceeds.
CMGP provided financing for a large percentage
of the units sold. All loans required a
minimum 10% down payment, and all purchasers
were qualified by an independent mortgage
brokerage company, using FNMA guidelines. The
notes were collateralized by the condominium
units and bore interest at rates ranging from 6
1/2% to 8 1/4%. The notes consisted of two
types, a 30-year fixed rate mortgage and a 7/23
loan. The interest rate on the 7/23 loan
during the initial 7-year term was fixed.
Interest after the 7th anniversary of the loan
was to be reset at 250 basis points in excess
of the 10-year Treasury Note, as reported in
the Wall Street Journal for the next business
day immediately preceding such 7th anniversary,
rounded upward to the next highest 1/8% of 1%,
with a cap of 13.5%. Interest and principal
were due monthly and all principal payments
were based on a 30-year amortization schedule.
As of December 31, 1996, all of the 61 units
had been sold. The units sold ranged in price
from $71,250 to $127,065. Of the units sold,
46 of the 61 sellers opted for the seller
provided financing.
Interest income has been recognized as interest
became due. On December 30, 1997, the mortgage
loans were sold at an average price of 85.5% of
the full value of the portfolio. Included in
operations in 1997 is a loss of $448,957
related to the sale of the loans.
NOTE F - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of
the results of operations in different time
periods for financial reporting ("book")
purposes and for income tax ("tax") purposes.
A reconciliation of net loss and partners'
equity follows:
For the Years Ended December 31,
1999 1998 1997
------ ------ ------
Net loss - book ($ 92,209) ($ 60,005) ($ 541,583)
Excess of book over tax
depreciation 21,807 20,250 22,630
Gain on sale of units 0 0 402,439
Timing differences 0 0 (1,109)
Minority interest (tax only) 0 0 18
---------- ---------- -----------
Net loss - tax ($ 70,402) ($ 39,755) ($ 117,605)
========== ========= ==========
For the Years Ended December 31,
1999 1998 1997
------ ------ ------
Partners' equity - book $1,618,791 $1,987,188 $4,576,726
Costs of issuance 1,077,141 1,077,141 1,077,141
Cumulative tax over book loos 233,343 211,538 191,295
---------- ---------- ----------
Partners' equity - tax $2,929,275 $3,275,867 $5,845,162
========== ========== ==========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Gross Amount at
which Carried at
Initial Cost to Partnership (b) December 31, 1999
Buildings Buildings Date
and and Accum. of Date
Descrip- Improve- Improve- Total Deprec. Constr. Ac-
tion(a) Land ments Land ments (c) (d) (d) (e) (a) quired
12
apartment
units in
Philadelphia,
PA $54,000 $1,209,858 $54,000 $1,398,732 $1,452,732 $ 660,070 1988 5/22/87
10
apartment
units in
North
Concord,
NC 20,324 692,522 20,324 877,637 897,961 383,476 1988 11/30/88
------- ---------- ------- ---------- ---------- ----------
$74,324 $1,902,380 $74,324 $2,276,369 $2,350,693 $1,043,546
======= ========== ======= ========== ========== ==========
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1999
(A) Each property is a certified historic
structure as defined in the Internal
Revenue Code of 1986. The "date of
construction" refers to the period in
which the properties were rehabilitated.
(B) Includes development/rehabilitation costs
incurred pursuant to development
agreements entered into when the
properties were acquired.
(C) The aggregate cost of real estate owned at
December 31, 1999, for Federal income tax
purposes is approximately $1,899,671. The
depreciable basis of buildings and
improvements is reduced for Federal income
tax purposes by the historic
rehabilitation credit obtained.
(D) Reconciliation of land, buildings and
improvements:
1999 1998 1997
------ ------ ------
Balance at beginning of year $2,346,933 $2,344,720 $2,340,729
Additions during the year:
Improvements 3,760 2,213 3,991
---------- ---------- ----------
Balance at end of year $2,350,693 $2,346,933 $2,344,720
Reconciliation of accumulated depreciation:
1999 1998 1997
----- ------ ------
Balance at beginning of year $ 952,232 $861,579 $770,607
Depreciation expense for the year 91,314 90,653 90,972
---------- -------- --------
Balance at end of year $1,043,546 $952,232 $861,579
========== ======== ========
(E) See Note B to the consolidated financial
statements for depreciation methods and
lives.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of
Registrant
a. Identification of Directors -
Registrant has no directors.
b. Identification of Executive
Officers
The General Partner of the
Registrant is Dover Historic Advisors III (DoHA-
III), a Pennsylvania general partnership. The
partners of DoHA-III are as follows:
Name Age Position Term of Office Period Served
SWDHA, Inc. -- Partner in DoHA-III No fixed term Since May 1997
EPK, Inc. -- Partner in DoHA-III No fixed term Since May 1997
For further description of DoHA-
III, see paragraph e. of this Item. There is
no arrangement or understanding between either
person named above and any other person
pursuant to which any person was or is to be
selected as an officer.
c. Identification of Certain
Significant Employees. Registrant has no
employees. Its administrative and operational
functions are carried out by a property
management and partnership administration firm.
d. Family Relationships. None.
e. Business Experience. DoHA-III is
a general partnership formed in 1987. The
partners of DoHA-III are EPK, Inc. and SWDHA,
Inc. EPK, Inc., is managing partner of DoHA
III and is thus responsible for management and
control of DoHA III, which in turn is
responsible for the management and control of
the Registrant and has general responsibility
and authority for conducting its operations.
On May 13, 1997, SWDHA, Inc.
replaced Gerald Katzoff and EPK, Inc. replaced
DHP, Inc. as partners of DoHA-III. Spencer
Wertheimer, the President of SWDHA, Inc., is an
attorney with extensive experience in real
estate activities ventures.
EPK, Inc. is a Delaware
corporation formed for the purpose of managing
properties or interests therein. EPK, Inc. is
a wholly-owned subsidiary of D, LTD, an entity
formed in 1985 to act as the holding company
for various corporations engaged in the
development and management of historically
certified properties and conventional real
estate as well as a provider of financial (non-
banking) services.
The officers and directors of EPK,
Inc. are described below.
Spencer Wertheimer was appointed
on May 13, 1997 as President, Treasurer and
Sole Director of EPK, Inc. Mr. Wertheimer is
an attorney with extensive experience in real
estate activities ventures.
Donna M. Zanghi (age 42) was
appointed on May 13, 1997 as Vice President and
Secretary of EPK, Inc. Ms. Zanghi previously
served as Secretary and Treasurer of DHP, Inc.
since June 14, 1993 and as a Director and
Secretary/Treasurer of D, LTD. She was
associated with DHP, Inc. and its affiliates
since 1984 except for the period from December
1986 to June 1989 and the period from November
1, 1992 to June 14, 1993.
Michele F. Rudoi (age 34) was
appointed on May 13, 1997 as Assistant
Secretary of EPK, Inc. Ms. Rudoi previously
served as Assistant Secretary and Director of
both D, LTD and DHP, Inc. since January 27,
1993.
Item 11. Executive Compensation
a. Cash Compensation - During 1999,
Registrant paid no cash compensation to DoHA-
III, any partner therein or any person named in
paragraph c. of Item 10.
b. Compensation Pursuant to Plans -
Registrant has no plan pursuant to which
compensation was paid or distributed during
1999, or is proposed to be paid or distributed
in the future, to DoHA-III, any partner
therein, or any person named in paragraph c. of
Item 10 of this report.
c. Other Compensation - No
compensation not referred to in paragraph a. or
paragraph b. of this Item was paid or
distributed during 1999 to DoHA-III, any
partner therein, or any person named in
paragraph c. of Item 10.
d. Compensation of Directors -
Registrant has no directors.
e. Termination of Employment and
Change of Control Arrangement - Registrant has
no compensatory plan or arrangement, with
respect to any individual, which results or
will result from the resignation or retirement
of any individual, or any termination of such
individual's employment with Registrant or from
a change in control of Registrant or a change
in such individual's responsibilities following
such a change in control.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
a. Security Ownership of Certain
Beneficial Owners - No person is known to
Registrant to be the beneficial owner of more
than five percent of the issued and outstanding
Units.
b. Security Ownership of Management -
No equity securities of Registrant are
beneficially owned by any person named in
paragraph c. of Item 10.
c. Changes in Control - Registrant
does not know of any arrangement, the operation
of which may at a subsequent date result in a
change in control of Registrant.
Item 13. Certain Relationships and Related
Transactions
Pursuant to Registrant's Amended and
Restated Agreement of Limited Partnership, DoHA-
III is entitled to 10% of Registrant's
distributable cash from operations in each
year. The amount allocable to DoHA-III for
1999, 1998 and 1997 was $27,619, $252,953 and
$27,619, respectively.
a. Transactions with Management -
Fees paid during 1999 to the general partner
were $5,000.
b. Certain Business Relationships -
Registrant has no directors.
c. Indebtedness of Management - No
employee of Registrant, Registrant's general
partner (or any employee thereof), or any
affiliate of any such person, is or has at any
time been indebted to Registrant.
PART IV
Item 14.(A) Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statements:
a. Consolidated Balance Sheets at December 31, 1999 and 1998.
b. Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.
c. Consolidated Statements of Changes in Partners' Equity for
the Years Ended December 31, 1999, 1998 and 1997.
d. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI - Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(a) Exhibit Number Document
3 Registrant's Amended and
Restated Certificate of
Limited Partnership and
Agreement of Limited
Partnership, previously
filed as part of Amendment
No. 1 of Registrant's
Registration Statement on
Form S-11, are
incorporated herein by
reference.
21 Subsidiaries of the
Registrant are listed in
Item 2. Properties of this
Form 10-K.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
ended December 31, 1999.
(c) Exhibits:
See Item 14(A)(3) above.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed
on its behalf by the undersigned,thereunto duly authorized.
Date: August 25, 2000 DIVERSIFIED HISTORIC INVESTORS IV Income Fund
---------------
By: Dover Historic Advisors III, General Partner
By: EPK, Inc., General Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President
By: /s/ Michele F. Rudoi
---------------------
MICHELE F. RUDOI
Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
DOVER HISTORIC ADVISORS III General Partner
By: EPK, Inc., General Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President
By: /s/ Michele F. Rudoi
----------------------
MICHELE F. RUDOI
Assistant Secretary