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, 2002
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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 _______________
Commission file number 33-11907
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DIVERSIFIED HISTORIC INVESTORS IV
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2440837
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1521 LOCUST STREET, PHILADELPHIA, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215)557-9800
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: 8,285.7 Units
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UNITS OF LIMITED PARTNERSHIP INTEREST
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(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. [X]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
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* 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, 2002, 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 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. Because of mortgage underwriting and banking market conditions,
the seller, CMGP, provided financing for a large percentage of the
units sold. 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). 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. However, 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. The loans were sold
for 85.5% of their aggregate face value.
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
either acquired 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, 2002, Registrant owned two properties,
one each located in North Carolina and Pennsylvania. In total, the
properties contain 22 apartment units. As of December 31, 2002, 19 of
the apartment units were under lease at monthly rental rates ranging
from $500 to $1,125. 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. The
properties held for rental by the Registrant are located in the Old
City Historic District 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 in both areas and new
construction remains virtually nonexistent in Concord, North Carolina
although the availability of favorable home financing has placed
pressure on the rental tenant base. The Registrant is able to raise
rental rates and stay fully occupied in the Philadelphia property but
at the same time, competitive pressure exists from other buildings in
the Old City area and the emerging Northern Liberties neighborhood.
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 December 31, 2002, Registrant owned two properties, or
interests therein, as follows:
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, 2002,
11 of the apartment units were under lease (92%) with monthly rents
ranging from $850 to $1,125. All leases are renewable, one-year
leases. The occupancy for the previous four years was 99% for 2001,
100% for 2000, 100% for 1999 and 100% for 1998. The monthly rental
range for the previous four years was $650 to $1,095 during 2001, $650
to $925 during 2000, $690 to $875 during 1999, and $665 to $815 during
1998. The monthly rental range increased to its present level due to
the increase in popularity of the Old City neighborhood in which the
property is located, and the sustained ability of the property to be
fully occupied (other than transitory vacancies) at increasing monthly
rental rates. For tax purposes, the building and land have a federal
tax basis of $1,114,068 and the building is depreciated using the
straight-line method with a useful life of 27.5 years. The annual real
estate taxes are $12,694, which is based on an assessed value of
$153,600 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,
2002, 8 units were under lease (80%) with monthly rates ranging from
$500 to $560. All leases are renewable, one-year leases. The occupancy
as of year end for the previous four years was 100% for 2001, 60% for
2000, 80% for 1999, and 100% for 1998. The monthly rental range has
been approximately the same since 1998. For tax purposes, the
building and land have a federal tax basis of $661,862 and the
building is depreciated using the straight-line method with a useful
life of 27.5 years. The annual real estate taxes are $4,803 which is
based on an assessed value of $475,550 taxed at a rate of $1.01 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 65 units were sold or exchanged in
2002.
b. As of December 31, 2002, there were 1,012 record holders
of Units.
c. Registrant did not declare any cash dividends in 2002 or 2001.
Item 6. Selected Financial Data
The following selected financial data are for the five years
ended December 31, 2002. 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.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Rental income $199,638 $203,679 $188,729 $194,123 $190,058
Interest
income 5,604 8,944 10,061 11,328 35,117
Net loss (116,040) (69,298) (86,597) (92,209) (60,005)
Net loss per
unit (13.86) (8.28) (10.35) (11.02) (7.17)
Total assets
(net of
depreciation
and
amortization) 1,411,051 1,520,361 1,590,514 1,675,218 2,029,350
Dividends
(distributions) 0 0 0 276,190 2,529,533
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
(1) Liquidity
At December 31, 2002, Registrant had cash of
approximately $307,657. The Registrant expects that those funds plus
the cash generated from operations at each property will be sufficient
to fund the operating expenses of the properties.
As of December 31, 2002, Registrant had restricted cash
of $27,890 consisting primarily of funds held as security deposits,
replacement reserves, escrows for taxes and insurance. 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 expenditure 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 2002, Registrant incurred a net loss of $116,040
($13.86 per limited partnership unit) compared to a loss of $69,298
($8.28 per limited partnership unit) in 2001 and a loss of $86,597
($10.35 per limited partnership unit) in 2000.
Rental income was $199,638 in 2002, $203,679 in 2001, and
$188,729 in 2000. The decrease in rental income from 2001 to 2002 is
due to a decrease in average occupancy at Locke Mill (88% to 80%) and
a decrease in average occupancy at the Brass Works (99% to 91%). The
increase in rental income from 2000 to 2001 is due to an increase in
average occupancy (71% to 88%) at Locke Mill Plaza combined with an
increase in average rental rates at the Brass Works.
Interest income was $5,604 in 2002, $8,944 in 2001, and
$10,061 in 2000. The decrease in interest income from 2001 to 2002 is
due to a decrease in average invested cash balances and a decrease in
interest rates on money market accounts. The decrease from 2000 to
2001 is due to the decrease in interest rates on money market
accounts.
Rental operations expense was $ 151,436 in 2002, $117,380
in 2001, and $119,337 in 2000. The increase in rental operations
expense from 2001 to 2002 is due to an increase in insurance expense
at the Registrants two properties, an increase in maintenance expense,
leasing commissions, and real estate tax expense at the Brass Works,
and an increase in wages and salaries and condominium fees, partially
offset by a decrease in leasing commissions at Locke Mill. The
increase in insurance expense at the Brass Works and Locke Mill is due
to an increase in premiums due to insurance market conditions. The
increase in maintenance expense and leasing commissions at the Brass
Works is due to an increase in turnover of apartment units. The
increase in real estate tax expense at the Brass Works is due to an
increase in the property's appraised value on which the taxes are
based. The increase in wages and salaries expense at Locke Mill is due
to an increase in maintenance wages. The increase in condominium fees
are due to an increase in budgeted operating expenses at Locke Mill.
The decrease in leasing commissions at Locke Mill is due to a decrease
in turnover of apartment units. The decrease in rental operation
expense from 2000 to 2001 is due to a decrease in maintenance expense
at the Brass Works, partially offset by an increase in marketing and
leasing expense at Locke Mill. The decrease in maintenance expense at
the Brass Works is due to a decrease in apartment preparation expense.
The increase in marketing and leasing expense at Locke Mill is due to
the increase in unit occupancy.
Bad debt expense of $2,861 was incurred during 2002 due
to the write off of tenant accounts receivable that were deemed
uncollectible.
General and administrative expense was $72,000 in both
2002 and 2001, and $74,425 in 2000. The decrease in general and
administrative expense from 2000 to 2001 is due to a decrease in fees
paid to the general partner.
During 2002, a loss of approximately $11,000 was incurred
at the Registrants three properties compared to income of
approximately $36,000 during 2001, and income of $19,000 in 2000. A
discussion of property operations/activities follows:
In 2002, Registrant recognized net income of $12,000
including $51,000 in depreciation expense at the Brass Works, compared
to net income of $36,000 including $49,000 in depreciation expense in
2001, and net income of $21,000, including $49,000 in depreciation
expense in 2000. The decrease in net income from 2001 to 2002 is due
to a decrease in rental income and an increase in rental operations
expense and bad debt expense. The decrease in rental income is due to
a decrease in average occupancy (99% to 92%). The increase in rental
operations expense is due to an increase in maintenance expense,
leasing commissions, insurance expense, and real estate tax expense.
The increase in maintenance expense and leasing commissions are due to
an increase in turnover of apartment units. The increase in insurance
expense is due to an increase in premiums due to insurance market
conditions. The increase in real estate tax expense is due to an
increase in the property's appraised value on which the taxes are
based. The bad debt expense is due to the write off of tenant accounts
receivables that were deemed uncollectible. The increase in net income
from 2000 to 2001 is due to an increase in rental income combined with
a decrease in maintenance expense. The increase in rental income is
due to an increase in average rental rates. The decrease in
maintenance expense is due to a decrease in apartment preparation
expense.
In 2002, Registrant incurred a loss of $22,000 at Locke
Mill Plaza including $28,000 of depreciation expense, compared to a
loss of $7,000 including $27,000 of depreciation expense in 2001, and
a loss of $9,000 including $27,000 of depreciation expense in 2000.
The increase in loss from 2001 to 2002 is due to a decrease in rental
income and an increase in rental operations expense. The decrease in
rental income is due to a decrease in average occupancy (88% to 80%).
The increase in rental operations expense is due to an increase in
wages and salaries expense, condominium fees and insurance expense,
partially offset by a decrease in leasing commissions. The increase in
wages and salaries expense is due to an increase in maintenance wages.
The increase in condominium fees are due to an increase in budgeted
operating expenses at Locke Mill. The increase in insurance expense is
due to an increase in premiums due to insurance market conditions. The
decrease in leasing commissions is due to a decrease in turnover of
apartment units. The decrease in loss from 2000 to 2001 is due to an
increase in rental income, partially offset by an increase in
marketing and leasing expense. The increase in rental income is due to
an increase in average occupancy (71% to 88%). The increase in
marketing and leasing expense is due to the increase in unit
occupancy.
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.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Securities
Exchange Act of 1934 reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to
our management, including our managing partner's principal
executive officer and principal financial officer, as appropriate,
to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.
Under the supervision of our managing partner's principal executive
officer and principal financial officer we have carried out an
evaluation of the effectiveness of our adopted disclosure controls
and procedures as of the end of the period covered by this report.
Based upon that evaluation, our managing partner's president and
treasurer concluded that our disclosure controls and procedures are
effective.
There have been no significant changes in our internal controls
over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting during our most recent fiscal quarter.
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, 2002 and 2001 and the related
statements of operations and changes in partners' equity and cash
flows for the years ended December 31, 2002, 2001 and 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2002 and 2001,
and the results of operations and cash flows for the years ended
December 31, 2002, 2001 and 2000, in conformity with accounting
principles generally accepted in the United States of America.
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 beginning 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
May 21, 2003
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, 2002
and 2001 11
Consolidated Statements of Operations for the Years
Ended December 31, 2002, 2001, and 2000 12
Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 2002, 2001,
and 2000 13
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2002, 2001, and 2000 14
Notes to consolidated financial statements 15-18
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 20
Notes to Schedule XI 21
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, 2002 and 2001
Assets
2002 2001
---- ----
Rental properties at cost:
Land $ 74,324 $ 74,324
Buildings and improvements 2,246,555 2,246,555
Furniture and fixtures 54,251 44,660
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2,375,130 2,365,539
Less - accumulated depreciation (1,322,696) (1,227,712)
---------- ----------
1,052,434 1,137,827
Cash and cash equivalents 307,657 336,033
Restricted cash 27,890 25,042
Other assets 23,070 21,459
---------- ----------
Total $1,411,051 $1,520,361
========== ==========
Liabilities and Partners' Equity
Liabilities:
Accounts payable - trade $ 18,826 $ 16,268
Other liabilities 30,749 28,909
Tenant security deposits 14,622 12,290
---------- ----------
Total liabilities 64,197 57,467
Partners' equity 1,346,854 1,462,894
---------- ----------
Total $1,411,051 $1,520,361
========== ==========
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, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
Revenues:
Rental income $199,638 $203,679 $188,729
Interest income 5,604 8,944 10,061
-------- -------- --------
Total revenues 205,242 212,623 198,790
-------- -------- --------
Costs and expenses:
Rental operations 151,436 117,380 119,337
General and administrative 72,000 72,000 74,425
Bad debt 2,861 0 0
Depreciation and amortization 94,985 92,541 91,625
-------- -------- --------
Total costs and expenses 321,282 281,921 285,387
-------- -------- --------
Net loss ($116,040) ($ 69,298) ($ 86,597)
======== ======== ========
Net loss per limited
partnership unit ($ 13.86) ($ 8.28) ($ 10.35)
======== ======== ========
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, 2002, 2001 and 2000
Dover
Historic Limited
Advisors Partners
III(1) (2) Total
-------- -------- -----
Percentage participation in
profit or loss 1% 99% 100%
== === ====
Balance at December 31, 1999 ($455,884) $2,074,673 $1,618,789
Net loss (866) (85,731) (86,597)
-------- ---------- ----------
Balance at December 31, 2000 (456,750) 1,988,942 1,532,192
Net loss (693) (68,605) (69,298)
-------- ---------- ----------
Balance at December 31, 2001 (457,443) 1,920,337 1,462,894
Net loss (1,160) (114,880) (116,040)
-------- ---------- ----------
Balance at December 31, 2002 ($458,603) $1,805,457 $1,346,854
======== ========== ==========
(1) General Partner
(2) 8,285.7 limited partnership units outstanding at December 31,
2002, 2001, and 2000.
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, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
Cash flows from operating
activities:
Net loss ($116,040) ($ 69,298) ($ 86,597)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Depreciation and amortization 94,985 92,541 91,625
Changes in assets and liabilities:
(Increase) decrease restricted
cash (2,847) (2,255) 2,382
(Increase) decrease in other
assets (1,611) 596 (5,044)
Increase (decrease) in accounts
payable - trade 2,557 (28,408) 1,223
Increase (decrease) in other
liabilities 1,842 27,529 (160)
Increase in tenant security
deposits 2,330 25 830
-------- -------- --------
Net cash (used in) provided by
operating activities (18,784) 20,730 4,259
-------- -------- --------
Cash flows from investing
activities:
Capital expenditures (9,591) (14,846) 0
-------- -------- --------
Net cash used in investing
activities (9,591) (14,846) 0
-------- -------- --------
(Decrease) increase in cash and
cash equivalents (28,375) 5,884 4,259
Cash and cash equivalents at
beginning of year 336,033 330,149 325,890
-------- -------- --------
Cash and cash equivalents at end
of year $307,658 $336,033 $330,149
======== ======== ========
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 in which the
Partnership had 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 2002, 2001, and 2000).
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, 2002,
uninsured funds held at one institution are approximately $200,000.
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 the value of a 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 deficits, 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 1%
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 a partnership owning a third property 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
owned 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. As of December 31, 1997, the
mortgages from the seller provided financing in connection with the
sale of the units were sold.
In November 1988, the Partnership purchased 10 condominium units, in a
building located in Concord, North Carolina, for $665,000.
NOTE E - 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,
2002 2001 2000
---- ---- ----
Net loss - book ($116,040) ($69,298) ($86,597)
Excess of book over
tax depreciation 19,415 20,302 21,726
Minority interest
(tax only) 70 (372) (339)
-------- ------- -------
Net loss - tax ($ 96,555) ($49,368) ($65,210)
======== ======= =======
For the years ended December 31,
2002 2001 2000
---- ---- ----
Partners' equity - book $1,346,856 $1,462,894 $1,532,192
Costs of issuance 1,077,141 1,077,141 1,077,141
Cumulative tax over
book loss 294,142 274,659 254,730
---------- ---------- ----------
Partners' equity - tax $2,718,139 $2,814,694 $2,864,063
========== ========== ==========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
Cost
Initial Cost Capitalized
to Partnership Subsequent to
(b) Aquisition
Buildings
and
Descrip- Improve- Improve- Date of Date
tion Land ments ments Total Constr. Acquired
- ------- ---- --------- -------- ----- ------- --------
(a) (d) (b)(d) (a)
12
apart-
ment
units
in
Phila-
delphia,
PA $54,000 $1,209,858 $385,440 $1,595,298 1988 5/22/87
10
apartment
units in
Concord,
NC 20,324 692,522 12,986 705,508 1988 11/30/88
------- ---------- -------- ----------
$74,324 $1,902,380 $398,426 $2,300,806
======= ========== ======== ==========
Gross Amount Which
carried at
December 31, 2002
Buildings
and
Descrip- Improve- Accumulated
tion Land ments Total Depr.
- ------- ---- --------- ----- -----------
(a) (d)(e) (d)(e)
12
apart-
ment
units
in
Phila-
delphia,
PA $54,000 $1,595,298 $1,649,298 $ 929,702
10 apartment
units in
North
Concord,
NC 20,324 705,508 725,832 392,994
------- ---------- ---------- ----------
$74,324 $2,300,806 $2,375,130 $1,322,696
======= ========== ========== ==========
DIVERSIFIED HISTORIC INVESTORS IV
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 2002
(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, 2002, for
Federal income tax purposes is approximately $1,775,930. 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:
2002 2001 2000
---- ---- ----
Balance at beginning of year $2,365,539 $2,350,693 $2,350,693
Additions during the year:
Improvements 9,591 14,846 0
---------- ---------- ----------
Balance at end of year $2,375,130 $2,365,539 $2,350,693
========== ========== ==========
Reconciliation of accumulated depreciation:
2002 2001 2000
---- ---- ----
Balance at beginning of year $1,227,712 $1,135,171 $1,043,546
Depreciation expense for the year 94,984 92,541 91,625
---------- ---------- ----------
Balance at end of year $1,322,696 $1,227,712 $1,135,171
========== ========== ==========
(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 and 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 and
ventures.
Donna M. Zanghi (age 45) 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 has been
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 37) was appointed on May 13, 1997
as Assistant Secretary of EPK, Inc. Ms. Rudoi has also served as
Assistant Secretary and Director of both D, LTD and DHP, Inc. from
January 27, 1993.
Item 11. Executive Compensation
a. Cash Compensation - During 2002, Registrant did not pay
any cash compensation to DoHA-III.
b. Compensation Pursuant to Plans - Registrant has no plan
pursuant to which compensation was paid or distributed, 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 - Compensation not referred to in
paragraph a. or paragraph b. of this Item was not paid or distributed
during 2002 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 2002, 2001 and 2000 was $0.
a. Transactions with Management - Fees paid during 2002 to
the general partner were $0.
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, 2002 and 2001.
b. Consolidated Statements of Operations
for the Years Ended December 31, 2002, 2001 and
2000.
c. Consolidated Statements of Changes in
Partners' Equity for the Years Ended December
31, 2002, 2001 and 2000.
d. Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001 and
2000.
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, 2002.
(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: January 14, 2004 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 January 14, 2004
---------------------- ----------------
SPENCER WERTHEIMER,
President
By: /s/ Michele F. Rudoi January 14, 2004
----------------------- ----------------
MICHELE F. RUDOI,
Assistant Secretary
Exhibit 31
CERTIFICATION
I, Spencer Wertheimer, certify that:
1. I have reviewed this annual report on Form 10-K for the period
ended December 31, 2002 of Diversified Historic Investors IV;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) [Omission in accordance with SEC Release Nos. 33-
8238, 34-47986 and IC-26068 (June 5, 2003)] for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to me by others within those entities, particularly during
the period in which this report is being prepared;
(b) [Omitted in accordance with SEC Release Nos. 33-8238, 34-
47986 and IC-26068 (June 5, 2003)];
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. I have disclosed, based on my most recent evaluation of
internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: January 14, 2004 /s/ Spencer Wertheimer
---------------- ----------------------
Name: Spencer Wertheimer
Title: President (principal
executive officer) of the
registrant's managing
partner, EPK, Inc.
Date: January 14, 2004 /s/ Spencer Wertheimer
---------------- ----------------------
Name: Spencer Wertheimer
Title: Treasurer (principal
financial officer) of the
registrant's managing
partner, EPK, Inc.
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Diversified Historic
Investors IV on Form 10-K for the period ended December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Spencer Wertheimer, President and Treasurer of the
Company's managing partner, EPK, Inc., certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: January 14, 2004 /s/ Spencer Wertheimer
---------------- ----------------------
Name: Spencer Wertheimer
Title: President (principal
executive officer) of the
registrant's managing
partner, EPK, Inc.
Date: January 14, 2004 /s/ Spencer Wertheimer
---------------- ----------------------
Name: Spencer Wertheimer
Title: Treasurer (principal
financial officer) of the
registrant's managing
partner, EPK, Inc.