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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-14934
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DIVERSIFIED HISTORIC INVESTORS
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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: 11,609.6 Units
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. [ ]
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 ("Registrant") is a
limited partnership formed in 1984 under Pennsylvania law. As of
December 31, 1998, Registrant had outstanding 11,609.6 units of
limited partnership interest (the "Units").
Registrant is presently in its operating stage. It
originally owned eight properties or interests therein. Partial or
complete interests in six properties have been lost through
foreclosure. See Item 2. Properties, for a description thereof. It
currently owns two properties and a portion of its original interest
in one property. 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.
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 which 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. Each of the three properties currently owned
by the Registrant are held for rental operations. At this time it is
anticipated that all the properties will continue to be held for this
purpose. At such time as real property values begin to increase, the
Registrant will re-evaluate its investment strategy regarding the
properties.
As of December 31, 1998, Registrant owned three
properties located in Pennsylvania. In total, the three properties
contain 44 apartment units and 6,188 square feet ("sf") of commercial
space. As of December 31, 1998, 42 of the apartment units were under
lease at monthly rental rates ranging from $635 to $1,390. In
addition, all of the commercial space was under lease at annual rates
ranging from $6.64 to $11.16 per sf. Rental of the apartments and
commercial space is not expected to be seasonal. For further
discussion of the properties, see Item 2. Properties.
The Registrant is affected by and subject to the
general competitive conditions of the residential and commercial real
estate industries. The properties currently owned by the Registrant
are all located in the Olde City Historic District (the "District") in
Philadelphia, Pennsylvania in which there are several similar
historically certified rehabilitated buildings. The Registrant's main
competitor in this market is Historic Landmarks for Living which owns
several similar residential buildings in the District. The District
has recently reemerged as a popular place to live for young
professionals and has created a large demand for the apartments units
owned by the Registrant.
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 three
properties, or interests therein. A summary description of each
property held at December 31, 1998 is given below.
a. The Smythe Stores Condominium Complex - consists
of five adjoining buildings located at 101-111 Arch Street, in the
Olde City Historic District (the "District") of Philadelphia,
Pennsylvania. In November, 1984, the Registrant acquired 20
residential units of the complex's 49 units as the 100% equity owner
of these units. The acquisition and rehabilitation cost was
$4,056,375 ($171 per sf) funded by an equity contribution and a series
of condominium mortgages with an original combined principal balance
of $2,440,000. The combined principal balance at December 31, 1998 is
$2,637,188. Each mortgage bears interest at 12%. Scheduled interest
payments were made through April 1, 1988. At that time, due to
insufficient cash flow, the Registrant ceased making payments. In
1990, the lender was placed in receivership by the Resolution Trust
Corporation ("RTC"). The two entities which purchased the mortgages
from the RTC each filed complaints for foreclosure due to nonpayment.
Foreclosure proceedings on nine units were filed in the Court of
Common Pleas, Philadelphia County in the matter of Bruin Holdings,
Inc. ("Bruin") v. Diversified Historic Investors and foreclosure
proceedings on eleven units were filed in the Court of Common Pleas,
Philadelphia County in the matter of EMC Mortgage Corporation ("EMC")
v. Diversified Historic Investors. In March 1996, the Bruin cases
were settled and the nine mortgages were sold. The Registrant entered
into an agreement with the new holder of the mortgages whereby monthly
payments of interest are to be made in an amount equal to net
operating income. In December 1996, the eleven units associated with
the EMC cases were foreclosed by the lender.
The remaining nine units are managed by BCMI. As
of December 31, 1998, all 9 apartment units were under lease (100%) at
monthly rental rates ranging from $825 to $1,390. All leases are
renewable, one-year leases. The occupancy for the previous four years
was 96% for 1997, 78% for 1996, 85% for 1995 and 82% for 1994. The
monthly rental range has been approximately the same since 1994. For
tax purposes, this property has a federal tax basis of $1,861,637 and
is depreciated using the straight-line method with a useful life of
27.5 years. The annual real estate taxes are $11,440 which is based
on an assessed value of $138,432 taxed at a rate of $8.264 per $100.
It is the opinion of the management of the Registrant that the
property is adequately covered by insurance.
b. The Third Quarter Apartments - consists of 17
apartments and 1,000 square feet of commercial space located in the
District at 47 North Third Street. In November, 1984, the Registrant
acquired the building and is the 100% equity owner of the property.
The property was acquired and rehabilitated for $1,725,000 ($102 per
sf), funded by an equity contribution and two mortgage loans of
$860,000 and $140,000. On June 1, 1993, the first mortgage was
modified. The terms of the modification include the addition of all
accrued and unpaid interest to the principal balance, changing the due
date to October 1998 and revising the payment terms. The first
mortgage has a principal balance at December 31, 1998 of $1,213,303
and bears interest at 12%. The new payment terms require monthly
payments of interest equal to net operating income, with a minimum of
$6,833 per month. The property has been making payments of at least
the minimum amount of $6,833 per month in order to keep the loan
current. In October 1998, the due date was extended to October 2003.
The second note has a principal balance of $138,444, bears interest at
15%, and was due in 1992. In 1991, the Registrant stopped making
scheduled mortgage payments. No notice of default has yet been
received from the lender.
The property is managed by BCMI. As of December
31, 1998, 16 of the units were under lease (94%) at monthly rental
rates ranging from $635 to $1,100 and all of the commercial space was
under lease (100%) at an annual rental rate of $11.16 per sf. All
residential leases are renewable, one-year leases. The occupancy for
the previous four years was 88% for 1997, 93% for 1996, 87% for 1995
and 95% for 1994. The monthly rental range has been approximately the
same since 1994. The occupancy for the commercial space has been 58%
for 1997 and 100% for 1996, 1995, and 1994. The annual rental rate
was $8.40 per sf for the previous four years. For tax purposes, this
property has a federal tax basis of $1,821,087 and is depreciated
using the straight-line method with a useful life of 27.5 years. The
annual real estate taxes are $17,454 which is based on an assessed
value of $211,200 taxed at a rate of $8.264 per $100. It is the
opinion of the management of the Registrant that the property is
adequately covered by insurance.
c. Wistar Alley - located in the District at 30-32
North Third Street, in Philadelphia, Pennsylvania, consists of two
adjoining buildings which contain 18 residential units and 5,188 sf of
commercial area. The Registrant acquired the buildings in December
1984 and is the 100% equity owner of the property. The property was
acquired and rehabilitated for $2,230,000 ($101 per sf), funded by an
equity contribution and three mortgage loans aggregating $1,400,000.
On June 1, 1993, the first mortgage was modified. The terms of the
modification include the addition of all accrued and unpaid interest
to the principal balance, changing the due date to October 1998 and
revising the payment terms. The first mortgage has a principal
balance at December 31, 1998 of $1,413,800 and bears interest at 2
1/2% over the Federal Home Bank Board Cost of Funds Index with a
maximum of 14 1/2% and a minimum of 8 1/2%. The rate was 8 1/2% at
December 31, 1998. The new payment terms require monthly payments of
interest equal to net operating income, with a minimum of $9,000 per
month. The property has not generated sufficient cash flow to satisfy
the minimum requirement; however, the loan has not been declared in
default. In October 1998, the due date was extended to October 2003.
The second and third notes have principal balances at December 31,
1998 of $380,114, and $96,689. The notes bear interest at 11%, and
prime plus 1 1/2%, therefore 9.25% at December 31, 1998, respectively,
and both principal and interest are due at the earlier of the sale of
the Property or the year 2009.
The property is managed by BCMI. As of December
31, 1998, 17 of the residential units were under lease (94%) at
monthly rents ranging from $730 to $1,125 and all of the commercial
space was under lease (100%) at an annual rental rates ranging from
$6.64 to $10.45 per sf. All residential leases are renewable, one-
year leases. The occupancy for the residential units for the previous
four years was 90% for 1997, 88% for 1996, 83% for 1995 and 86% for
1994. The monthly rental range has been approximately the same since
1994. The occupancy for the commercial space for the previous four
years has been 100% for 1997, 100% for 1996, 38% for 1995 and 100% for
1994. The average annual rental rate has been $6.00 to $13.85 per sf
in 1997, $5.14 to $13.85 per sf for 1996, $13.85 per sf for 1995 and
$9.28 per sf to $13.45 per sf for 1994.
The following is a table showing commercial lease
expirations at Wistar Alley for the next five years.
Total annual % of gross
Number of Total sf of rental covered annual rental
Years leases expiring expiring leases by expiring leases from property
1999 1 2,388 $24,960 12%
2000 0 0 0 0%
2001 0 0 0 0%
2002 1 2,800 18,600 9%
2003 0 0 0 0%
For tax purposes, this property has federal tax basis
of $2,207,537 and is depreciated using the straight-line method with a
useful life of 27.5 years. The annual real estate taxes are $23,139
which is based on an assessed value of $280,000 taxed at a rate of
$8.264 per $100. 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
party to, nor is any of its property the subject of any pending
material legal proceedings.
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 85 Units of record
were sold or exchanged in 1998.
b. As of December 31, 1998, there were 1,233 record
holders of Units.
c. Registrant did not declare any cash dividends in
1998 or 1997.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1998. 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.
1998 1997 1996 1995 1994
Rental income $ 486,864 $ 420,903 $ 480,731 $ 634,710 $ 795,515
Interest income 1,569 620 623 527 5,332
Net loss (736,581) (810,675) (127,434) (178,506) (966,711)
Net loss per Unit (62.81) (69.13) (10.86) (15.22) (82.44)
Total assets (net 2,984,193 3,185,727 3,453,392 4,946,064 7,528,198
of depreciation
and amortization)
Debt obligations 5,879,538 5,877,215 5,834,574 5,607,067 7,910,843
Note: See Part II, Item 7.3 Results of Operations for a discussion of
factors which materially affect the comparability of the information
reflected in the above table.
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
(1) Liquidity
At December 31, 1998, Registrant had cash of
approximately $12,884. Cash generated from operations is used
primarily to fund operating expenses and debt service. If cash flow
proves to be insufficient, the Registrant will attempt to negotiate
with the various lenders in order to remain current on all
obligations. The Registrant is not aware of any additional sources of
liquidity.
As of December 31, 1998, Registrant had restricted
cash of $73,440 consisting primarily of funds held as security
deposits and escrows for taxes. As a consequence of these
restrictions as to use, Registrant does not deem these funds to be a
source of liquidity.
In recent years the Registrant has realized
significant losses, including the foreclosure of five properties and a
portion of a sixth property, due to the properties' inability to
generate sufficient cash flow to pay their operating expenses and debt
service. The Registrant has first mortgages in place on each of its
remaining properties that are basically "cash-flow" mortgages,
requiring all available cash after payment of operating expenses to be
paid to the first mortgage holder. Therefore it is unlikely that any
cash will be available to the Registrant to pay its general and
administrative expenses, to pay debt service on the past-due
subordinate mortgage with respect to the Third Quarter or to pay any
debt service on the two accrual mortgages with respect to Wistar
Alley.
It is the Registrant's intention to continue to
hold the properties until they can no longer meet debt service
requirements (or with respect to Third Quarter and Wistar Alley, the
lender seeks payment on the past due mortgage) and the properties are
foreclosed, or the market value of the properties increases to a point
where they can be sold at a price which is sufficient to repay the
underlying indebtedness.
Since the lenders have agreed either to forebear
from taking any foreclosure action as long as cash flow payments are
made, to accrue all debt service in lieu of payment, or have (in the
case of Third Quarter) not moved to declare a default for a
substantial period of time after the mortgage due date, the Registrant
believes it is appropriate to continue presenting its financial
statements on a going concern basis.
(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 investment for the foreseeable future. If the
need for capital expenditures does arise, the first mortgage holder
for Third Quarter, Wistar Alley and Smythe Stores has agreed to fund
capital expenditures. The mortgagee funded $0, $0 and $2,323,
respectively during 1998 for capital expenditures.
(3) Results of Operations
During 1998, Registrant incurred a net loss of
$736,581 ($62.81 per limited partnership unit) compared to a net loss
of $810,675 ($69.13 per limited partnership unit) compared to a net
loss of $127,434 ($10.86 per limited partnership unit) in 1996.
Rental income decreased from $480,731 in 1996 to
$420,903 in 1997 and increased to $486,864 in 1998. The increase from
1997 to 1998 is the result of an increase at all three properties due
to an increase in the average occupancy and the average rental rates.
The decrease from 1996 to 1997 is mainly the result of the foreclosure
of the eleven units in 1996 at Smythe Stores partially offset by an
increase at Wistar Alley due to an increase in average occupancy (88%
to 90%) and an increase in the average monthly rental rates and an
increase at Third Quarter due to an increase in the average monthly
rental rates.
Other income decreased from $166,277 in 1996 to $0
in 1997 and 1998. The decrease from 1996 to 1997 and 1998 is the
result of the write-off of accounts payable in 1996 due to a
recalculation and subsequent forgiveness of a portion of the
administrative fees charged by BCMI to the Registrant.
Rental operations expenses decreased from $395,732
in 1996 to $289,820 in 1997 to $285,652 in 1998. The decrease from
1997 to 1998 is due to a decrease in maintenance expense at Wistar
Alley partially offset by an increase in maintenance and commissions
expense at both Smythe Stores and Third Quarter. Maintenance expense
at Wistar Alley decreased due to deferred maintenance performed at the
property in 1997. Maintenance and commissions expense increased at
Smythe Stores and Third Quarter due to an increase in the turnover of
apartment units. The decrease from 1996 to 1997 resulted mainly from
the loss of the eleven units at Smythe Stores in 1996 and a decrease
in condominium fees at Smythe Stores following an increase in those
fees in 1996 due to a special assessment charged by the condominium
association that year for capital improvements to the building. There
was also a decrease in property tax expense at Third Quarter due to a
successful appeal to reduce the assessed value.
General and administrative expenses decreased from
$80,048 in 1996 to $69,830 in 1997 to $69,840 in 1998. The decrease
from 1996 to 1997 and 1998 is the result of a reduction in the
administrative fee charged due to the foreclosure of several
properties owned by the Registrant.
Interest expense decreased from $1,283,218 in 1996
to $638,892 in 1997 to $635,899 in 1998. The decrease from 1996 to
1997 is mainly due to an increase in the principal balance of the
mortgage at Smythe Stores in 1996, due to the capitalization of past
due interest. In addition, interest expense at Wistar Alley increased
from 1996 to 1997 due to an increase in the principal balance of the
first mortgage due to advances made by the first mortgage holder
partially offset by a decrease in interest expense at Third Quarter
due to a decrease in interest incurred on past due real estate taxes
paid in 1996.
Depreciation and amortization decreased from
$308,684 in 1996 to $233,656 in 1997 and to $233,623 in 1998. The
decrease from 1996 to 1997 and 1998 results mainly from the loss of
the eleven units at Smythe Stores.
In 1998, a loss of $616,000 was incurred at the
Registrant's three properties compared to a loss of $686,000 in 1997
and a loss of $168,000 in 1996. A discussion of property
operations/activities follows:
In 1998, Registrant incurred a loss of $354,000 at
the nine units owned at the Smythe Stores Condominium complex
including $74,000 of depreciation expense compared to a loss of
$370,000 including $75,000 of depreciation expense in 1996 and income
of $163,000 including $154,000 of depreciation expense in 1996.
Included in operations in 1996 is an extraordinary gain of $1,293,000
representing the excess of the liabilities satisfied in the
foreclosure over the fair market value of the assets. The 1996 loss
without the effect of the foreclosure would have been $1,130,000. The
decrease in the loss from 1997 to 1998 is the result of an increase in
rental income due to an increase in the average rental rates,
partially offset by an increase in maintenance and commission expense.
Both maintenance and commissions expense increased due to a higher
turnover of apartment units. The decrease in the loss from 1996 to
1997 is mainly due to the loss of 11 of the condominium units and a
corresponding decrease in the rental income, operating expenses and
depreciation. Condominium fees also decreased due to a special
assessment charged by the condominium association that year for
capital improvements to the building.
On June 30, 1992 Diversified Historic Properties,
Inc., co-partner of the Registrant's general partner, assigned to D,
LTD (its parent) a note receivable from the Registrant in the amount
of $127,418 which bears interest at 10% with the entire principal and
accrued interest due on June 30, 1997. On October 8, 1993 D, LTD
obtained a judgment in the amount of $156,873 on this note in Common
Pleas Court for Philadelphia County, Pennsylvania. The judgment
accrues interest at 15%. Interest accrued was $6,713 during both 1997
and 1998. Payments on the judgment are to be made from available cash
flow from any of the three properties and before any distribution can
be made to the Registrant's limited partners. The balance of the note
at December 31, 1998 was $72,118.
In 1998, Registrant sustained a loss of $164,000
at the Third Quarter Apartments including $72,000 of depreciation and
amortization expense compared to a loss of $174,000 including $72,000
of depreciation and amortization expense in 1997 and a loss of
$190,000 including $70,000 of depreciation and amortization expense in
1996. The decrease in the loss from 1997 to 1998 is the result of an
increase in rental income due to an increase in the average occupancy
(88% to 93%) and an increase in the average rental rates partially
offset by an increase in maintenance and commissions expense increased
due to a higher turnover of apartment units. The decrease in the loss
from 1996 to 1997 is due mainly to a decrease in interest incurred on
past due real estate taxes and a decrease in real estate taxes due to
a successful appeal to reduce the assessed value partially offset by
an increase in rental income due to an increase in the average rental
rates.
In 1998, Registrant sustained a loss of $98,000 at
Wistar Alley including $88,000 of depreciation and amortization
expense compared to a loss of $142,000 including $87,000 of
depreciation and amortization expense in 1997 and a loss of $141,000
including $85,000 of depreciation and amortization expense in 1996.
The decrease in the loss from 1997 to 1998 is the result of an
increase in rental income due to an increase in the average occupancy
(90% to 96%) and an increase in the average rental rates combined with
a decrease in maintenance expense. Maintenance expense decreased due
to deferred maintenance performed at the property in 1997; in 1998,
maintenance expense declined to more typical levels. Although there
was no material overall change in the loss from 1996 to 1997, there
was an increase in rental income partially offset by an increase in
interest and maintenance expense. Rental income increased due to an
increase in the average occupancy (88% to 90%) and an increase in the
average rental rates while interest expense increased due to an
increase in the principal balance upon which interest is accrued. See
Item 2.c, above. Maintenance expense increased due to deferred
maintenance performed at the property.
Item7A. 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 Regulations S-K.
Independent Auditor's Report
To the Partners of
Diversified Historic Investors
We have audited the accompanying consolidated balance sheet of
Diversified Historic Investors (a Pennsylvania Limited Partnership)
and subsidiaries as of December 31, 1998 and 1997 and the related
statements of operations, changes in partners' equity and cash flows
for the years ended December 31, 1998, 1997 and 1996. These
consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion
on these consolidated 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 consolidated 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 as of December 31, 1998 and 1997,
and the results of operations and cash flows for the years ended
December 31, 1998, 1997 and 1996, 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 24 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, L.L.C.
Philadelphia, Pennsylvania
February 3, 1999
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated financial statements: Page
Consolidated Balance Sheets at December 31, 1998 and 1997 13
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996 14
Consolidated Statements of Changes in Partners' Equity
for the Years Ended December 31, 1998, 1997, and 1996 15
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996 16
Notes to consolidated financial statements 17-23
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 25
Notes to Schedule XI 26
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
(a limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
Assets
1998 1997
Rental properties at cost:
Land $ 310,833 $ 310,833
Buildings and improvements 5,721,049 5,721,048
Furniture and fixtures 139,377 128,329
--------- ---------
6,171,259 6,160,210
Less - accumulated depreciation (3,290,172) (3,056,549)
--------- ---------
2,881,087 3,103,661
Cash and cash equivalents 12,884 710
Restricted cash 73,440 68,887
Accounts receivable 16,782 12,469
Other assets (net of accumulated
amortization of $30,510) 0 0
--------- ---------
Total $2,984,193 $3,185,727
========= =========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 5,879,538 $ 5,877,215
Accounts payable:
Trade 507,524 373,122
Related parties 399,548 362,739
Interest payable 1,573,798 1,230,141
Tenant security deposits 43,998 37,948
Other liabilities 14,343 2,537
--------- ---------
Total liabilities 8,418,749 7,883,702
--------- ---------
Partners' equity (5,434,556) (4,697,975)
--------- ---------
Total $2,984,193 $3,185,727
========= =========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Rental income $ 486,864 $ 420,903 $ 480,731
Other income 0 0 166,277
Interest income 1,569 620 623
--------- --------- ---------
Total revenues 488,433 421,523 647,631
--------- --------- ---------
Costs and expenses:
Rental operations 285,652 289,820 395,732
General and administrative 69,840 69,830 80,048
Interest 635,899 638,892 1,283,218
Depreciation and amortization 233,623 233,656 308,684
--------- --------- ---------
Total costs and expenses 1,225,014 1,232,198 2,067,682
--------- --------- ---------
Loss before extraordinary item (736,581) (810,675) (1,420,051)
Extraordinary gain on extinguishment of debt 0 0 1,292,617
--------- --------- ---------
Net loss ($ 736,581) ($ 810,675) ($ 127,434)
========= ========= =========
Net loss per limited partnership unit:
Loss before extraordinary item ($ 62.81) ($ 69.13) ($ 121.09)
Extraordinary item 0 0 110.23
--------- --------- ---------
($ 62.81) ($ 69.13) ($ 10.86)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
Diversified
Historic Limited
Advisors (1) Partners (2) Total
Percentage participation in profit or loss 1% 99% 100%
Balance at December 31, 1995 ($129,464) ($3,630,402) ($3,759,866)
Net loss (1,274) (126,160) (127,434)
------- --------- ---------
Balance at December 31, 1996 (130,738) (3,756,562) (3,887,300)
Net loss (8,107) (802,568) (810,675)
------- --------- ---------
Balance at December 31, 1997 (138,845) (4,559,130) (4,697,975)
Net loss (7,366) (729,215) (736,581)
------- --------- ---------
Balance at December 31, 1998 ($146,211) ($5,288,345) ($5,434,556)
======= ========= =========
(1) General Partner.
(2) 11,609.6 limited partnership units outstanding at December 31,
1998, 1997, and 1996.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net loss ($736,581) ($810,675) ($ 127,436)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Extraordinary gain on extinguishment of debt, net 0 0 (1,292,617)
Depreciation and amortization 233,623 233,656 308,684
Changes in assets and liabilities,
net of disposals due to foreclosure:
Increase in restricted cash (4,553) (824) (27,241)
(Increase) decrease in accounts receivable (4,313) 46,113 34,677
Increase (decrease) in accounts payable
- trade 134,402 108,151 (226,953)
Increase in accounts payable - related
parties 36,809 39,099 229,100
Decrease in accounts payable-taxes 0 0 (174,514)
Increase (decrease) in interest payable 343,657 355,834 (246,991)
Increase (decrease) in tenant security
deposits 6,050 (2,281) 1,291
Increase (decrease) in other liabilities 11,806 (434) (16,710)
------- ------- ---------
Net cash provided by (used in) operating 20,900 (31,361) (1,538,710)
activities: ------- ------- ---------
Cash flows from investing activities:
Capital expenditures (11,049) (14,587) (41,353)
------- ------- ---------
Net cash used in investing activities: (11,049) (14,587) (41,353)
Cash flows from financing activities: ------- ------- ---------
Borrowings under debt obligations 2,323 42,641 1,579,509
------- ------- ---------
Net cash provided by financing activities: 2,323 42,641 1,579,509
------- ------- ---------
Increase (decrease) in cash and cash equivalents12,174 (3,307) (554)
Cash and cash equivalents at beginning of year 710 4,017 4,571
------- ------- ---------
Cash and cash equivalents at end of year $ 12,884 $ 710 $ 4,017
======= ======= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $292,242 $238,058 $ 179,626
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Net assets transferred for liability reduction*:
Net assets transferred $0 $0 $2,341,111
Liability reduction 0 0 3,627,488
* As a result of foreclosures on properties owned by the Partnership.
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Diversified Historic Investors (the "Partnership") was formed in March
1984, with Diversified Historic Advisors as the General 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 mortgage financing and 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 therefore 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
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 those years.
2. 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.
3. Costs of Issuance
Costs incurred in connection with the offering and sale of limited
partnership units were charged against partners' equity as incurred.
4. Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with
a maturity of less than three months to be cash equivalents.
5. Net Loss Per Limited Partnership Unit
The net loss per limited partnership unit is based on the weighted
average number of limited partnership units outstanding during the
period (11,609.6 in 1998, 1997, and 1996).
6. Income Taxes
Income taxes or credits resulting from earnings or losses are payable
by or accrue to the benefits of the partners; accordingly, no
provision has been made for income taxes in these financial
statements.
7. Restricted Cash
Restricted cash includes amounts held for tenant security deposits and
real estate tax reserves.
8. Revenue Recognition
Revenues are recognized when rental payments are due on a straight-
line basis. Rental payments received in advance are deferred until
earned.
9. 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 property has significant balloon payments due
within the foreseeable future for 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 to, 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 of each year.
10. Other Income
Other income is comprised of a write-off of accounts payable in 1996
due to a recalculation and subsequent forgiveness of a portion of the
administrative fees charged by BCMI to the Partnership.
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 - GOING CONCERN
In recent years the Partnership has realized significant losses,
including the foreclosure of five properties and a portion of a sixth
property, due to the properties' inability to generate sufficient cash
flow to pay their operating expenses and debt service. The
Partnership has first mortgages in place on each of its remaining
properties that are basically "cash-flow" mortgages, requiring all
available cash after payment of operating expenses to be paid to the
first mortgage holder. Therefore it is unlikely that any cash will be
available to the Partnership to pay its general and administrative
expenses, to pay debt service on the past-due subordinate mortgage
with respect to the Third Quarter or to pay any debt service on the
two accrual mortgages with respect to Wistar Alley.
It is the Partnership's intention to continue to hold the properties
until they can no longer meet debt service requirements (or with
respect to Third Quarter and Wistar Alley, the lender seeks payment on
the past due mortgage) and the properties are foreclosed, or the
market value of the properties increases to a point where they can be
sold at a price which is sufficient to repay the underlying
indebtedness.
Since the lenders have agreed either to forebear from taking any
foreclosure action as long as cash flow payments are made, to accrue
all debt service in lieu of payment, or have (in the case of Third
Quarter) not moved to declare a default for a substantial period of
time after the mortgage due date, the Partnership believes it is
appropriate to continue presenting the financial statements on a going
concern basis.
NOTE D - 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 refinancing will be distributed
to the limited partners equal to their Original Capital Contribution
plus an amount equal to 6% of their Original Capital Contribution per
annum on a cumulative basis less the sum of all prior distributions
and, thereafter, after receipts by certain affiliates of the General
partner of their subordinated real estate commissions, the limited
partners will receive 85% of cash from sales or refinancings.
Net income or loss from operations of the Partnership is allocated 10%
to the General Partner and 99% to the Limited Partners.
NOTE E - ACQUISITIONS
The Partnership acquired six properties and two general or limited
partnership interests during the period November 1984 to December
1986, as discussed below.
In November 1984, the Partnership purchased 20 residential apartments
located in Philadelphia, Pennsylvania for a cash capital contribution
of $4,056,475. The lender on eleven of the apartments foreclosed in
December 1996.
Also in November 1984, the Partnership purchased a building located in
Philadelphia, Pennsylvania, consisting of 17 units and 1,000 square
feet of commercial space, for a cash capital contribution of
$1,725,000.
In December 1984, the Partnership purchased two adjoining buildings
located in Philadelphia, Pennsylvania, consisting of 18 residential
units and 4,500 square feet of commercial space, for a cash
contribution of $405,000.
In December 1984, the Partnership purchased a four-story building
located in Philadelphia, Pennsylvania, consisting of 22,200 square
feet of commercial space, for a cash capital contribution of $465,000.
The lender on the property foreclosed in 1992.
Also in December 1984, the Partnership acquired a building located in
Philadelphia, Pennsylvania, consisting of 14 residential units, for a
cash capital contribution of $160,000. The lender on the property
foreclosed in 1993.
In February 1985, the Partnership was admitted, with a 99% general
partner interest, to a Pennsylvania general partnership which owned 21
residential units located in East Greenwich, Rhode Island, for a cash
capital contribution of $3,600,000. The lender on the property
foreclosed in 1993.
In June 1985, the Partnership was admitted, with a 99.5% general
partner interest, to a Pennsylvania general partnership which owned a
building consisting of 50 residential units located in Reading,
Pennsylvania, for a cash capital contribution of $2,650,000. The
lender on the property foreclosed in 1995.
In December 1986, the Partnership acquired a building located in
Savannah, Georgia, consisting of 13 apartments and 7,820 square feet
of commercial space, for a cash capital contribution of $812,916. The
lender on the property foreclosed in 1993.
NOTE F- DEBT OBLIGATIONS
Debt obligations are as follows:
December 31,
1998 1997
------ ------
Mortgage loans, interest accrues at 12%, interest $2,637,188 $2,634,865
only payable monthly to the extent of net operating
income; principal due 2015; collateralized by the
related rental properties
Mortgage loan, interest accrues at 12%, interest only 1,213,303 1,213,303
payable monthly to the extent of net operating income
with a minimum of $6,833; principal due October 31, 2003;
collateralized by the related rental property
Mortgage loan, interest at 15%, payable in equal monthly 138,444 138,444
installments of $1,770 (including interest); due in 1992;
collateralized by the related rental property (A)
Mortgage loan, interest accrues at 2 1/2% over the Federal1,413,800 1,413,800
Home Bank Board Cost of Funds Index with a maximum of
14 1/2% and a minimum of 8 1/2%; therefore 8 1/2% at December 31,
1998 and 1997, interest only payable monthly to the
extent of net operating income with a minimum of $9,000;
principal due October 31, 2003; collateralized by the
related rental property
Notes payable, interest at 11%; payable monthly, based 380,114 380,114
on the lesser of 75% of cash flow from the operation of
the properties or certain stated amounts; principal and
all accrued interest is due at the earlier of sale of
the related properties or 2009; collateralized by the
related rental property (B)
Notes payable, interest at prime plus 1 1/2% (9.25% and
10.00% at December 31, 1998 and 1997, respectively);
principal and interest due upon sale of the related
property; collateralized by the related rental
property (C) 96,689 96,689
--------- ---------
$5,879,538 $5,877,215
========= =========
(A) In 1991, the Partnership stopped making scheduled mortgage
payments. No notice of default has yet been received from the
lender. The interest in arrears amounts to $155,750 at
December 31, 1998 which includes $20,767 for each of 1998, 1997
and 1996.
(B) Interest is no longer being accrued on these notes, since the
first mortgage is a cash flow mortgage and is not being
serviced to the extent of total interest due. The interest in
arrears amounts to $313,594 at December 31, 1998 which includes
$41,813 for each of 1998, 1997 and 1996.
(C) This note represents amounts owed to developers pursuant to
negative cash flow guarantees. Interest is no longer being
accrued on the remaining note, since the first mortgage is a
cash flow mortgage and is not being serviced to the extent of
total interest due. The interest in arrears amounts to $66,500
at December 31, 1998 which includes $9,488, $9,613 and $9,526
for 1998, 1997 and 1996, respectively.
Approximate maturities of the mortgage loan obligations at December
31, 1998, for each of the succeeding five years are as follows:
1999 $ 615,237
2000 0
2001 0
2002 0
2003 2,627,103
Thereafter 2,637,198
---------
$5,879,538
=========
NOTE G - TRANSACTIONS WITH RELATED PARTIES
On June 30, 1992 Diversified Historic Properties, Inc., co-partner of
the Partnership's general partner, assigned to D, LTD (its parent) a
note receivable from the Partnership in the amount of $127,418 which
bears interest at 10% with the entire principal and accrued interest
due on June 30, 1997. On October 8, 1993 D, LTD obtained a judgment
in the amount of $156,873 on this note in Common Pleas Court for
Philadelphia County, Pennsylvania. The judgment accrues interest at
15%. Interest accrued was $6,713 during both 1997 and 1998. Payments
on the judgment are to be made from available cash flow and before any
distribution can be made to the Partnership's limited partners. The
balance of the note at December 31, 1998 is $72,118.
NOTE H - EXTRAORDINARY GAINS/ LOSSES
Due to insufficient cash flow at Smythe Stores, the Partnership ceased
making debt service payments in 1988. In 1990, the lender was placed
in receivership by the Resolution Trust Corporation ("RTC"). The
entities which purchased the mortgages from the RTC each filed
complaints for foreclosure due to non-payment; foreclosure proceedings
on nine units were filed in the Court of Common Pleas, Philadelphia
County in the matters of Bruin Holdings, Inc. ("Bruin") v, Diversified
Historic Investors and foreclosure proceedings on eleven units were
filed in the Court of Common Pleas, Philadelphia County in the matters
of EMC Mortgage Corporation ("EMC") v. Diversified Historic Investors.
In March 1996, the Bruin cases were settled and the nine mortgages
were sold. The new payment terms require monthly payments of interest
in an amount equal to net operating income. In December 1996, the
eleven units associated with the EMC cases were foreclosed by the
lender. The Partnership recognized an extraordinary gain of
$1,292,617 during 1996 for the difference between the book value of
the property (which approximated fair value) and the extinguished
debt.
NOTE I - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting ("book")
purposes and for income tax ("tax") purposes. Reconciliations of net
loss and partners' equity follow:
For the Years Ended December 31,
1998 1997 1996
------ ------ ------
Net loss - book ($ 736,581) ($ 810,675) ($ 127,434)
Excess of book over tax depreciation 8,169 11,092 88,563
Extraordinary gain on foreclosure 0 0 (920,733)
--------- --------- ---------
Net loss - tax ($ 728,412) ($ 799,583) ($ 959,604)
========= ========= =========
Partners' equity - book ($5,434,556) ($4,697,975) ($3,887,300)
Costs of issuance 1,393,762 1,393,762 1,393,762
Cumulative tax (under) over book loss (718,311) (726,480) (737,572)
--------- --------- ---------
Partners' equity - tax ($4,759,105) ($4,030,693) ($3,231,110)
========= ========= =========
SUPPLEMENTAL INFORMATION
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
Cost
Capitalized
Initial Cost to Partnership (b) Subsequent to
Acquisition
Buildings
and Date of Date
Description (a) Encumbrances Land Improvements ImprovementsConstr. Acquired
(g) (a)(d)
9 condominium (h)
apartment units in ($106,626)
Philadelphia, PA $2,637,188 $16,833 $1,944,427 14,569 1984 12/28/94
17 apartment units
and 1,000 square
feet of
commercial space
Philadelphia, PA 1,351,747 120,000 1,744,097 45,408 1984 11/14/84
18 apartment units
and 5,188 square
feet of
commercial space (h)
in Philadelphia, (45,079) 1984-
PA 1,890,603 174,000 2,188,961 17,843 1985 12/14/84
--------- ------- --------- -------
TOTAL $5,879,538$310,833 $5,877,485 ($73,885)
========= ======= ========= ======
Gross Amount at which Carried at
December 31, 1998
Buildings
and Accumulated
Description Land Improvements Total (c) (e) Depreciation
(e)(f)
9 condominium
apartment units in
Philadelphia, PA $16,833 $1,861,638 $1,878,471 $1,055,855
17 apartment units
and 1,000 square
feet of
commercial space
Philadelphia, PA 120,000 1,798,722 1,918,722 1,007,863
18 apartment units
and 4,500 square
feet of
commercial space
in Philadelphia, PA 174,000 2,200,066 2,374,066 1,226,454
------- --------- --------- ---------
TOTAL $310,833 $5,860,426 $6,171,259 $3,290,172
======= ========= ========= =========
DIVERSIFIED HISTORIC INVESTORS
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1998
(A) All properties are certified historic structures as defined in
the Internal Revenue Code, or are eligible for designation as
such. The "date of construction" refers to the period in which
such 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, 1998,
for Federal income tax purposes is approximately $5,890,261.
However, the depreciable basis of buildings and improvements is
reduced for Federal income tax purposes by the investment tax
credit and the historic rehabilitation credit obtained.
(D) Development /rehabilitation was completed during 1986.
(E) Reconciliation of real estate:
1998 1997 1996
------ ------ ------
Balance at beginning of year $ 6,160,210 $ 6,145,623 $ 8,376,591
Additions during the year:
Improvements 11,049 14,587 41,353
--------- --------- ---------
6,171,259 6,160,210 8,417,944
Deductions during the year:
Retirements 0 0 (2,272,321)
--------- --------- ---------
Balance at end of year $ 6,171,259 $ 6,160,210 $ 6,145,623
========= ========= =========
Reconciliation of accumulated depreciation:
1998 1997 1996
------ ------ ------
Balance at beginning of year $ 3,056,549 $ 2,822,893 $ 3,614,119
Depreciation expense for the year 233,623 233,656 308,684
Retirements 0 0 (1,099,910)
--------- --------- ---------
Balance at end of year $ 3,290,172 $ 3,056,549 $ 2,822,893
========= ========= =========
(F) See Note B to the financial statements for depreciation method
and lives.
(G) See Note F to the financial statements for further information.
(H) In connection with the purchase of certain of the properties,
the sellers agreed to reimburse the Partnership for cash flow
deficits, as defined, of these properties. Such reimbursements
were treated as a reduction of amounts allocated to the
buildings and improvements account.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is
Diversified Historic Advisors (DHA), a Pennsylvania general
partnership. The partners of DHA are as follows:
Name Age Position Term of Office Period Served
SWDHA, Inc. -- Partner in DHA Partner in DHA Since May 1997
EPK, Inc. -- Partner in DHA Partner in DHA Since May 1997
For further description of Diversified, see paragraph
e. of this Item. There is no arrangement or understanding between
either person names 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 an separate property management and
partnership administration firm engaged by the Registrant.
d. Family Relationships. There is no family
relationship between or among the executive officers and/or any person
nominated or chosen by Registrant to become an executive officer.
e. Business Experience. DHA is a general partnership
formed in March 1984. The General Partner is responsible for the
management and control of the Registrant's affairs and has general
responsibility and authority in conducting its operations.
On May 13, 1997, SWDHA, Inc. replaced Gerald Katzoff and
EPK, Inc. replaced Diversified Historic Properties, Inc. ("DHP") as
partners of DHA. 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. EPK, Inc. is an affiliate of Diversified.
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 41) was appointed on May 13, 1997 as
Vice President and Secretary of EPK, Inc. Ms. Zanghi previously
served as Secretary and Treasurer of DHP since June 14, 1993 and as a
Director and Secretary/Treasurer of D, LTD. She was associated with
DHP 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 33) 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 since January
27, 1993.
Item 11. Executive Compensation
a. Cash Compensation - During 1998, Registrant has
paid no cash compensation to DHA, 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
1998, or is proposed to be paid or distributed in the future, to DHA,
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 1998 to DHA, 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, DHA is entitled to 10% of Registrant's
distributable cash from operations in each year. There was no such
share allocable to DHA for fiscal years 1996 through 1998.
a. Certain Business Relationships - Registrant has no
directors.
b. Indebtedness of Management - No executive officer
or significant 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, 1998
and 1997.
b. Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996.
c. Consolidated Statements of Changes in Partners'
Equity for the Years Ended December 31, 1998, 1997
and 1996.
d. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996.
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 Document
3 Registrant's Amended and Restated
Certificate of Limited Partnership and
Agreement of Limited Partnership,
previously filed as part of Amendment
No. 2 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, 1998.
(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, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIVERSIFIED HISTORIC INVESTORS
Date: April 26, 1999 By: Diversified Historic Advisors, General Partner
--------------
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
-----------------------
SPENCER WERTHEIMER
President and Treasurer
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 the Registrant and in the capacities and on the
dates indicated.
Signature Capacity Date
DIVERSIFIED HISTORIC ADVISORS General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer April 26, 1999
------------------------- --------------
SPENCER WERTHEIMER
President and Treasurer
By: /s/ Michele F. Rudoi April 26, 1999
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MICHELE F. RUDOI,
Assistant Secretary