-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TrCY+jGOyjQHyZGEMwRcfbZHKgHM2dRCtSjQEmOu0pd3C8DWhQ0FgoJA1EpwVJ+A FoSnrHudFgt4jbZCdlCjEw== 0000318835-03-000006.txt : 20030401 0000318835-03-000006.hdr.sgml : 20030401 20030331175943 ACCESSION NUMBER: 0000318835-03-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DSI REALTY INCOME FUND XI CENTRAL INDEX KEY: 0000844048 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330324161 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18286 FILM NUMBER: 03632375 BUSINESS ADDRESS: STREET 1: 3701 LONG BEACH BLVD CITY: LONG BEACH STATE: CA ZIP: 90807 BUSINESS PHONE: 2135957711 MAIL ADDRESS: STREET 1: 6700 E. PACIFIC COAST HWY. STREET 2: P.O. BOX 357 CITY: LONG BEACH STATE: CA ZIP: 90801 10-K 1 dsi11k02.txt DSI REALTY INCOME FUND XI SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) / x /Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 [Fee Required] for the fiscal year ended December 31, 2002. or / /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 _____________. Commission File No. 33-26038. DSI REALTY INCOME FUND XI, a California Limited Partnership (Exact name of Registrant as specified in governing instruments) __________California_________________________33-0324161_______ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) 6700 E. Pacific Coast Hwy., Long Beach, California 90803 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code-(562)493-8881 Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units. Indicate by check mark, whether the Registrant (l) 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 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 (Section 229.405 of this chapter) 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/ The Registrant is a limited partnership and there is no voting stock. All units of limited partnership are owned by non-affiliates of the Registrant. All units sold to date were sold at $500.00 per unit. DOCUMENTS INCORPORATED BY REFERENCE Item 8. Registrant's Financial Statements for its fiscal year ended December 31, 2002, incorporated by reference to Form 10-K, Part II. Item 11. Registrant's Financial Statements for its fiscal year ended December 31, 2002, incorporated by reference to Form 10-K, Part III. Item 12. Registration Statement on Form S-11, as amended, previously filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, incorporated by reference to Form 10-K, Part III. Item 13. Registrant's financial statements for its fiscal year ended December 31, 2002, together with report of independent public accountants, incorporated by reference to Form 10-K, Part III. PART I Item l. BUSINESS Registrant (the "Partnership") is a publicly held limited partnership organized under the California Uniform Limited Partnership Act pursuant to Agreement of Limited Partnership (the "Agreement") dated December 7, 1988. The General Partners are DSI Properties, Inc., a California corporation, ROBERT J. CONWAY and JOSEPH W. CONWAY. The General Partners are affiliates of the Selling Agent, Diversified Securities, Inc., a wholly-owned subsidiary of DSI Financial, Inc. The General Partners provide similar services to other partnerships. The Partnerships's public offering was completed on February 12, 1991, with 20,000 Units ($10,000,000) of limited partnership interests having been subscribed for. The General Partners have retained a l% interest in all profits, losses and distributions (subject to certain conditions) without making any capital contributions to the Partnership. The General Partners are not required to make any contributions to capital in the future. The General Partners and the Partnership have obtained a ruling from the Internal Revenue Service, that under present provisions of the Internal Revenue Code, current Treasury Regulations thereunder and the interpretations thereof by the Service and the courts, the Partnership should be treated for federal income tax purposes as a partnership and not as an association, which is taxable as a corporation. Such ruling was based upon certain representations contained in the ruling request. The Partnership is engaged in the business of investing in and operating mini-storage facilities with the primary objectives of generating, for its partners, cash flow, capital appreciation of its properties and obtaining federal income tax deductions in order to shelter a portion of cash distributed from taxation. The Partnership has interests in joint ventures which purchased four mini-storage facilities. See discussion under Item 2 - Properties for further information. The Partnership does not intend to sell additional limited partnership interests in the future. The term of the Partnership is fifty years, however, it is anticipated that all properties will be sold and/or refinanced prior thereto. The Partnership is intended to be self-liquidating and it is not anticipated that proceeds from the sale or refinancing of its operating properties will be reinvested. The Registrant has no full time employees other than on-site managers at each mini-storage facility. However, the Partnership shares the expenses of one or more employees with its various affiliated Limited Partnerships. The general management and supervision of the business and affairs of the Registrant is vested exclusively in the General Partners. Limited Partners have no right to participate in the management or conduct of the Registrant's business and affairs. An independent management company has been retained to provide day-to-day management services with respect to all of the Partnership's investment properties. The average occupancy levels for each of the Partnership's four properties for the years ended December 31, 2002 and December 31, 2001 were as follows: Location of Property Average Occupancy Average Occupancy for the Level for the Year Ended Year Ended Dec. 31, 2002 Dec. 31, 2001 Whittier, CA(1) 91% 92% Bloomingdale, IL(2) 85% 88% Edgewater, NJ(3) 84% 86% Sterling Heights, MI(4) 81% 86% (1) The Partnership owns a 90% interest in this property. (2) The Partnership owns a 90% interest in this property. (3) The Partnership owns an 85% interest in this property. (4) The Partnership owns a 75% interest in this property. The business in which the Partnership is engaged is highly competitive. Each of its mini-storage facilities is located in or near a major urban area, and accordingly, will compete with a significant number of individuals and organizations with respect to both the purchase and sale of its properties and for rentals. Item 2. PROPERTIES Location Size of Net Rentable No. of Completion Parcel Area Rental Date Whittier, CA(1) 3.92 acres 60,249 513 3/90 Bloomingdale, IL(2) 3.542 acres 60,624 571 1/31/91 Edgewater,NJ(2) 4.118 acres 52,940 447 8/21/90 Sterling Heights, MI(4) 3.76 acres 58,198 515 7/17/91 (1) The Partnership owns a 90% interest in this property. (2) The Partnership owns a 90% interest in this property. (3) The Partnership owns an 85% interest in this property. (4) The Partnership owns a 75% interest in this property. Item 3. LEGAL PROCEEDINGS Registrant is not a party to any material pending proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Registrant, a publicly-held limited partnership, had approximately 532 Limited Partners at December 31, 2001. The Registrant completed its public offering of limited partnership Units. There is no public market for the resale of these Units. Average cash distributions of $11.25 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2002 and $12.50 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2001 and $13.75 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2000. It is Registrant's expectations that distributions will continue to be paid in the future. Item 6. SELECTED FINANCIAL DATA DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) - ---------------------------------------------- SELECTED FINANCIAL DATA FIVE YEARS ENDED DECEMBER 31, 2002 - ----------------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- TOTAL REVENUES AND OTHER INCOME $2,334,725 $2,336,174 $2,181,934 $2,108,447 $1,990,616 TOTAL EXPENSES 1,453,731 1,303,980 1,262,117 1,238,034 1,108,711 MINORITY INTEREST IN INCOME OF REAL ESTATE JOINT VENTURE (190,054) (204,104) (194,204) (186,102) (179,154) --------- --------- --------- --------- --------- NET INCOME $ 690,940 $ 828,090 $ 725,613 $ 684,311 $ 702,751 ========= ========= ========= ========= ========= TOTAL ASSETS $5,091,587 $5,293,797 $5,485,221 $5,841,106 $6,152,614 ========== ========== ========== ========== ========== CASH FLOWS FROM: OPERATING $1,262,126 $1,335,572 $1,287,282 $1,202,051 $1,212,360 INVESTING (17,459) (32,468) (18,864) - (53,786) FINANCING (1,099,145) (1,214,205) (1,305,315) (1,196,203) (1,265,013) NET INCOME PER LIMITED PARTNERSHIP UNIT $ 34.20 $ 40.99 $ 35.92 $ 33.87 $ 34.79 ======== ========= ======== ======== ======== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ 45.00 $ 50.00 $ 55.00 $ 50.00 $ 55.00 ======== ======== ======== ======== ======== Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Partnership holds a 90% interest in a joint venture that owns an operating mini-storage facility in Whittier, California, an 85% interest in an operating mini-storage facility in Edgewater Park, New Jersey, a 90% interest in an oper- ating mini-storage facility in Bloomingdale, Illinois and a 75% interest in an operating facility in Sterling Heights, Michigan. Occupancy levels for the Partnership's four mini-storage facilities at December 31, 2002, were: Whittier 95%, Edgewater Park 86%, Bloomingdale 81% and Sterling Heights 77%. RESULTS OF OPERATIONS 2002 COMPARED TO 2001 Total revenues increased from $2,333,037 in 2001 to $2,333,960 in 2002, total expenses increased from $1,303,980 to $1,512,731, other income decreased from $3,137 to $765 and minority interest in real estate joint ventures decreased from $204,104 to $190,054. As a result, net income decreased from $828,090 to $631,940. Rental revenues remained constant as higher unit rental rates was offset by lower occupancy rates. Occupancy levels for the Partnership's four mini-storage facilities averaged 85.5% for the year ended December 31, 2002, compared to 88.1% for the year ended December 31, 2001. Operating expenses increased approximately $74,700 (12.1%) primarily as a result of increases in yellow pages advertising, repairs and maintenance, real estate tax, salaries and wages and workers compensation insurance expenses. General and admini- stative expenses increased approximately $107,600 (79.9%) primarily as a result of increases in legal and professional, equipment and computer lease and New Jersey Partner annual processing fee expenses, partially offset by a decrease in travel expense. On July 3, 2002, the New Jersey legislature en- acted the New Jersey Business Tax Reform Act effective retroactively to January 1, 2002. The Act institutes a $150 per Partner annual processing fee plus a tax of 6.37% on the apportioned New Jersey net income allocated to non- resident Partners. Incentive management fees, which are based on distributions paid to limited partners, decreased as result of the decrease in distributions to limited partners. Property management fees, which are computed as a per- centage of rental revenues, remained relatively constant. 2001 COMPARED TO 2000 Total revenues increased from $2,174,004 in 2000 to $2,333,037 in 2001, total expenses increased from $1,262,117 to $1,303,980, other income decreased from $7,930 to $3,137 and minority in real estate joint ventures increased from $194,204 to $204,104. As a result, net income increased from $725,613 to $828,090. The approximate $159,000 (7.3%) increase in rental revenues can be attributed to higher occupancy and unit rental rates. Occupancy levels for the Partnership's four mini-storage facilities averaged 88.1% for the year ended December 31, 2001, compared to 86.0% for the year ended December 31, 2000. Operating expenses increased approximately $46,800 (8.2%) primarily as a re- sult of increases in yellow pages advertising costs, repairs and maintenance, salaries and wages and security alarm service expenses, partially offset by a decrease in workers compensation insurance expense. General and administrative expenses increased approximately $20,400 (17.9%) primarily as a result of in- creases in legal and professional, office supplies and travel expenses. In- centive management fees, which are based on distributions paid to limited partners, decreased as a result of the decrease in distributions to limited partners. Property management fees, which are computed as a percentage of rental revenues, increased as a result of the increase in rental revenue. LIQUIDITY AND CAPITAL RESOURCES Net cas porvided by operating activities decreased approximately $73,400 (5.5%) in 2002 compared to 2001 primarily as a result of the decrease in net income, partially offset by changes in other assets and liabilities. Net cash provided by operating activities increased approximately $48,300 (3.8%) in 2001 compared to 2000 primarily as a result of the increase in net income. Cash used in financing activities consisted of cash distributions to partners in 2002, 2001, and 2000. Additionally, cash distributions were paid to the minority interests in the real estate joint ventures in 2002, 2001, and 2000. In December 2002, 2001 and 2000, the General Partners declared and paid a special distribution equal to 1%, 2%, and 3%, respectively of capital contributed by the limited partners. Cash used in investing activities, as set forth in the statement of cash flows, consists of acquisitions of equipment for the Partnership's mini storage facilities in 2002, 2001 and 2000. The Partnership has no material commitments for capital expenditures. On April 5, 2002, the General Partners received a copy of a hostile tender offer from MacKenzie Patterson, Inc. and associated corporations and limited partnerships to purchase all of the Units in the Partnership. This offer was also filed with the Securities and Exchange Commission on the same date. The General Partners have determined that the hostile tender offer was not in the best interests of the Limted Partners, that the tender offer was grossly in- adequate given the performance history of the Partnership and the inherent value of the Units, and recommended that the Limited Partners reject the hostile tender offer and not tender their Units pursuant thereto. The offer was subsequently increased and extended to June 30, 2002 and again to July 22, 2002. The General Partners' initial determination regarding the offer has not changed. Prior to the expiration date of the offer, Limited Partners tendered 30 Units representing (0.15%) of the outstanding Units in the Partnership. The General Partners plan to continue their policy of funding the continuing improvement and maintenance of the Partnership properties with cash generated from operations. The Partnership anticipates that cash flows generated from operations of the Partnership's rental real estate operations will be sufficient to cover operating expenses and distributions for the next twelve months and beyond. The General Partners are not aware of any environmental problems which could have a material adverse effect upon the financial position of the Partnership. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for the years ended December 31, 2002 and 2001 was as follows: 2002 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Total revenues $629,233 $562,263 $585,847 $556,627 Income before minority interest in joint venture 297,014 230,217 154,174 199,589 Net income 297,014 230,217 11,720 151,989 Net income per limited partnership unit $ 14.70 $ 11.40 $ 0.58 $ 7.52 Weighted average number of limited partnership units outstanding 20,000 20,000 20,000 20,000 2001 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Total revenues $587,421 $582,203 $575,643 $587,770 Income before minority interest in joint venture 285,688 243,446 240,127 262,933 Net income 285,688 243,446 93,723 205,233 Net income per limited partnership unit $ 14.14 $ 12.05 $ 4.64 $ 10.16 Weighted average number of limited partnership units outstanding 20,000 20,000 20,000 20,000 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Attached hereto as Exhibit l is the information required to be set forth as item 8, Part II hereof. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER The General Partners of Registrant are the same as when the Partnership was formed, i.e., DSI Properties, Inc., a California corporation, Robert J. Conway and Joseph W. Conway, brothers. As of December 31, 2002, Messrs. Robert J. Conway and Joseph W. Conway, each of whom own approximately 48.4% of the issued and outstanding capital stock of DSI Financial, Inc., a California corporation, together with Mr. Joseph W. Stok, currently comprise the entire Board of Directors of DSI Properties, Inc. Mr. Robert J. Conway is 69 years of age and is a licensed California real estate broker, and since 1965 has been President and a member of the Board of Directors of Diversified Securities, Inc., and since 1973 President, Chief Financial Officer and a member of the Board of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Science Degree from Marquette University with majors in Corporate Finance and Real Estate. Mr. Joseph W. Conway is age 73 and has been Executive Vice President, Treasurer and a member of the Board of Directors of Diversified Securities, Inc. since 1965 and since 1973 the Vice President, Treasurer and member of the Board of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Arts Degree from Loras College with a major in Accounting. Mr. Joseph W. Stok is age 79 and has been a member of the Board of Directors of DSI Properties, Inc. since 1994, a Vice President of Diversified Securities, Inc. since 1973, and an Account Executive with Diversified Securities, Inc. since 1967. Item 11. MANAGEMENT REMUNERATION AND TRANSITIONS The information required to be furnished in Item 11 of Part III is contained in Registrant's Financial Statements for its fiscal year ended December 31, 2001, which together with the report of its independent auditors, Deloitte & Touche LLP, is attached hereto as Exhibit 1 and incorporated herein by this reference. In addition to such information: (a) No annuity, pension or retirement benefits are proposed to be paid by the Registrant to any of the General Partners or to any officer or director of the corporate General Partner; (b) No standard or other agreement exists by which directors of the Registrant are compensated; (c) The Registrant has no plan, nor does the Registrant presently propose a plan, which will result in any remuneration being paid to any officer or director upon termination of employment. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of the December 31, 2002, no person of record owns more than 5% of the limited partnership units of the Registrant, nor was any person known by the Registrant to own of record and beneficially, or beneficially only, more than 5% thereof. The balance of the information required to be furnished in Item 12 of Part III is contained in the Registrant's Registration Statement on Form S-11, previously filed pursuant to the Securities Act of 1933, as amended, and which is incorporated herein by this reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be furnished in Item 13 of Part III is contained in the Registrant's Financial Statements and Financial Statement Schedule for it fiscal year ended December 31, 2002, attached hereto as Exhibit l and incorporated herein by this reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(l) Attached hereto and incorporated herein by this reference as Exhibit l are Registrant's Financial Statements for its fiscal year ended December 31, 2002, together with the reports of its independent auditors, Deloitte, & Touche LLP. (a)(2) Attached hereto and incorporated herein by this reference as Exhibit 2 is Registrant's Letter to Limited Partners regarding the Annual Report for its fiscal year ended December 31, 2002. (b) There have been no 8K's filed during the last quarter of the period covered by this Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DSI REALTY INCOME FUND XI by: DSI Properties, Inc., a California corporation, as General Partner By_______________________________ Dated: March 31, 2003 ROBERT J. CONWAY (President, Chief Executive Officer, Chief Financial Officer and Director) By_______________________________ Dated: March 31, 2003 JOSEPH W. CONWAY (Executive Vice President and Director) Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated. DSI REALTY INCOME FUND XI by: DSI Properties, Inc., a California corporation, as General Partner By_______________________________ Dated: March 31, 2003 ROBERT J. CONWAY (President, Chief Executive Officer, Chief Financial Officer and Director) By______________________________ Dated: March 31, 2003 JOSEPH W. CONWAY (Executive Vice President and Director) DSI REALTY INCOME FUND XI CROSS REFERENCE SHEET FORM 1O-K ITEMS TO ANNUAL REPORT PART I, Item 3. There are no legal proceedings pending or threatened. PART I, Item 4. Not applicable. PART II, Item 5. Not applicable. PART II, Item 6. The information required is contained in Registrant's Financial Statements for its fiscal year ended December 31, 2002, attached as Exhibit l to Form 10-K. PART II, Item 8. See Exhibit l to Form 10-K filed herewith. PART II, Item 9. Not applicable. EXHIBIT l DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) SELECTED FINANCIAL DATA FIVE YEARS ENDED DECEMBER 31, 2002 - ----------------------------------------------------------------------------- 2002 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Total revenues $629,233 $562,263 $585,847 $556,627 Income before minority interest in joint venture 297,014 230,217 154,174 199,589 Net income 297,014 230,217 11,720 151,989 Net income per limited partnership unit $ 14.70 $ 11.40 $ 0.58 $ 7.52 Weighted average number of limited partnership units outstanding 20,000 20,000 20,000 20,000 2001 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Total revenues $587,421 $582,203 $575,643 $587,770 Income before minority interest in joint venture 285,688 243,446 240,127 262,933 Net income 285,688 243,446 93,723 205,233 Net income per limited partnership unit $ 14.14 $ 12.05 $ 4.64 $ 10.16 Weighted average number of limited partnership units outstanding 20,000 20,000 20,000 20,000 The following are reconciliations between the operating results and partners' equity per the financial statements and the Partnership's income tax return for the year ended December 31, 2002. Net Partners' Income Equity Per financial statements $ 690,940 $ 4,740,105 Excess book depreciation 143,456 1,439,363 Deferred rental revenues 68,995 New Jersey filing fee (59,000) (59,000) Accrued distributions to partners 202,020 Accrued incentive management fee 443,214 Acquisition costs capitalized for tax purposes 1,033,227 ----------- ----------- Per Partnership income tax return $ 775,396 $ 7,867,924 =========== =========== DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Page Independent Auditors' Report F-1 FINANCIAL STATEMENTS: Consolidated Balance Sheets at December 31, 2002 and 2001 F-2 Consolidated Statements of Income for the Three Years Ended December 31, 2002 F-3 Consolidated Statements of Changes in Partners' Equity(Deficit) for the Three Years Ended December 31, 2002 F-4 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2002 F-5 Notes to Consolidated Financial Statements F-6 SUPPLEMENTAL SCHEDULE: Schedule III - Real Estate and Accumulated Depreciation F-10 SCHEDULES OMITTED: Financial statements and schedules not listed above are omitted because of the absence of conditions under which they are required or because the information is included in the financial statements named above, or in the notes thereto. CONTROLS AND PROCEDURES Within 90 days prior to the date of this report, the Partnership evaluated the effectiveness of its disclosure controls and procedures. This evalu- ation was performed by the Partnership's Controller with the assistance of the Partnership's President and the Chief Executive Officer. These dis- closure controls and procedures are designed to ensure that the information required to be disclosed by the Partnership in its periodic reports filed with the Securities and Exchange Commission (the "Commission") is recorded, processed, summarized and reported, within the time periods specified by the certifying officers on a timely basis. Based on this evaluation, the Partnership concluded that its disclosure controls and procedures were effective. There have been no significant changes in the Partnerhip's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation. INDEPENDENT AUDITORS' REPORT Partners DSI Realty Income Fund XI: We have audited the accompanying balance sheets of DSI Realty Income Fund XI, a California Real Estate Limited Partnership (the "Partnership") as of December 31, 2002 and 2001, and the related statements of income, changes in partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements are the responsi- bility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits 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 financial statements and financial statement schedule 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 manage- ment, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of DSI Realty Income Fund XI at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. Deloitte & Touche February 3, 2003 DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------- ASSETS 2002 2001 CASH AND CASH EQUIVALENTS $ 597,284 $ 451,762 PROPERTY, net (Note 3) 4,454,466 4,790,794 OTHER ASSETS 39,837 51,241 ----------- ----------- TOTAL $ 5,091,587 $ 5,293,797 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) LIABILITIES: Distribution due partners (Note 4) $ 202,020 $ 202,020 Property management fees payable (Note 1) 10,570 11,579 Other liabilities 138,892 121,942 ----------- ---------- Total liabilities 351,482 335,541 ----------- ---------- PARTNERS' EQUITY (DEFICIT)(Note 4): General partners (42,266) (40,084) Limited partners (20,000 limited partnership units outstanding at December 31, 2002 and 2001) 4,782,371 4,998,340 ------------ ----------- Total partners' equity 4,740,105 4,958,256 ------------ ----------- TOTAL $ 5,091,587 $ 5,293,797 ============ =========== See accompanying notes to consolidated financial statements. DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) CONSOLIDATED STATEMENTS OF INCOME THREE YEARS ENDED DECEMBER 31, 2002 - -------------------------------------------------------------------------------- 2002 2001 2000 REVENUES: Rental $2,333,960 $2,333,037 $2,174,004 ---------- ---------- ---------- EXPENSES: Depreciation 353,787 318,792 343,802 Operating 694,329 619,662 572,837 General and administrative 183,184 134,634 114,253 General partners' incentive management fee (Note 4) 81,819 90,910 100,001 Property management fees 140,612 139,982 131,224 ---------- ---------- ---------- Total expenses 1,453,731 1,303,980 1,262,117 ---------- ---------- ---------- OPERATING INCOME 880,229 1,029,057 911,887 OTHER INCOME - Interest income 765 3,137 7,930 INCOME BEFORE MINORITY INTERESTS IN INCOME OF REAL ESTATE JOINT VENTURES 880,994 1,032,194 919,817 MINORITY INTERESTS IN INCOME OF REAL ESTATE JOINT VENTURES (190,054) (204,104) (194,204) ---------- ---------- ---------- NET INCOME $ 690,940 $ 828,090 $ 725,613 ========== ========== ========== AGGREGATE NET INCOME ALLOCATED TO (Note 4): General partners 6,909 8,281 7,256 Limited partners $ 690,031 $ 819,809 $ 718,357 ---------- ---------- ---------- TOTAL $ 690,940 $ 828,090 $ 725,613 ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT (Notes 2 and 4) $ 34.20 $ 40.99 $ 35.92 ========== ========== ========== See accompanying notes to financial statements. DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) THREE YEARS ENDED DECEMBER 31, 2002 - -------------------------------------------------------------------------------- General Limited Partners Partners Total BALANCE, JANUARY 1, 2000 $(34,409) $ 5,560,174 $ 5,525,765 Net income 7,256 718,357 725,613 Distributions (11,111) (1,100,000) (1,111,111) -------- ----------- ----------- BALANCE, DECEMBER 31, 2000 $(38,264) $ 5,178,531 $ 5,140,267 Net income 8,281 819,809 828,090 Distributions (10,101) (1,000,000) (1,010,101) -------- ----------- ----------- BALANCE, DECEMBER 31, 2001 $(40,084) $ 4,998,340 $ 4,958,256 Net income 6,909 684,031 690,940 Distributions (9,091) (900,000) (909,091) -------- ----------- ----------- BALANCE, DECEMBER 31, 2002 $(42,266) $ 4,782,371 $ 4,740,105 ======== =========== =========== See accompanying notes to consolidated financial statements. DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS THREE YEARS ENDED DECEMBER 31, 2002 - -------------------------------------------------------------------------------- 2002 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 690,940 $ 828,090 $ 725,613 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 353,787 318,792 343,802 Minority interests in income of real estate joint ventures 190,054 204,104 194,204 Changes in assets and liabilities: Other assets 11,404 (6,001) (5,950) Property management fees payable (1,009) 560 632 Customer deposits and other liabilities 16,950 (9,973) 28,981 ---------- ----------- ---------- Net cash provided by operating activities 1,262,126 1,335,572 1,287,282 CASH FLOWS FROM INVESTING ACTIVITIES - Additions to property (17,459) (32,468) (18,864) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Distributions to partners (909,091) (1,010,101) (1,111,111) Distributions paid to minority inter- ests in real estate joint ventures (190,054) (204,104) (194,204) ----------- ----------- ---------- Net cash used in financing activities (1,099,145) (1,214,205) (1,305,315) ----------- ----------- ---------- NET INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS 145,522 88,899 (36,897) CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 451,762 362,863 399,760 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 597,284 $ 451,762 $ 362,863 =========== =========== =========== See accompanying notes to financial statements. DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 2002 1. GENERAL DSI Realty Income Fund XI, a California Limited Partnership (the "Partnership"), has three general partners (DSI Properties, Inc., Robert J. Conway and Joseph W. Conway) and limited partners owning 20,000 limited partnership units as of December 31, 2002, which were purchased for $500 a unit. The general partners have made no capital contribution to the Partnership and are not required to make any capital contribution in the future. The Partnership has a maximum life of 50 years and was formed on December 7, 1986 under the California Uniform Limited Partner- ship Act for the primary purpose of acquiring and operating real estate. The Partnership has entered into four joint venture arrangements with affiliates of Dahn Corporation ("Dahn"). The Partnership and its joint venture partners have acquired four mini-storage properties located in Whittier, California; Edgewater, New Jersey; Bloomingdale, Illinois; and Sterling Heights, Michigan. The properties were acquired from Dahn. Under the terms of the property purchase agreements, the Partnership and its joint venture partners (Whittier Mini, Bloomingdale Mini, Edgewater Mini, and Sterling Heights Mini, each a California Limited Partnership and an affiliate of Dahn, and hereinafter referred to as the "Joint Venture Partners") own an undivided interest in the mini-storage facilities as follows: Joint Venture Mini-Storage Property Partnership Partner Whittier, CA 90% 10% Bloomingdale, IL 90% 10% Edgewater, NJ 85% 15% Sterling Heights, MI 75% 25% The Joint Venture Partners have made no cash contributions to any of the joint ventures. Rather, each Joint Venture Partner's interest in each respective mini-storage property was obtained in consideration of a reduction in the purchase price of the property by Dahn. The Partnership has control over the business and operations of the mini-storage facilities. Pursuant to the terms of each joint venture agreement, annual profits (before depreciation) of each joint venture will be allocated to the Joint Venture Partners on the basis of actual distributions received, while annual losses (before depreciation) are to be allocated in pro- portion to the ownership percentages as specified above. Cash distri- butions are to be made to each Joint Venture Partner based upon each Joint Venture Partner's ownership percentage. However, the Joint Venture Partners have subordinated their rights to any distributions to the Partnership's receipt of an annual, noncumulative, 8% return (7.75% for the Whittier Mini) from the operation of the joint ventures. Requirements under the subordination agreement were met during 2002, 2001 and 2000. A minority interest in real estate joint venture is recorded to the extent of any distributions due to the Joint Venture Partners. The Joint Venture Partners are also entitled to receive a percentage, based upon a pre-determined formula, of the net proceeds from the sale of the properties. The Partnership is required by the agreements to pay Dahn a management fee equal to 6% of gross revenue from operations, defined as the entire amount of all receipts from the renting or leasing of storage compartments and sale of locks. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principals of Consolidation - The accompanying consolidated finacial statements include the accounts of the Partnership and its joint venture investments. All significant intercompany balances and transactions have been eliminated. Cash and Cash Equivalents - The Partnership classifies its short-term investments purchased with an original maturity of three months or less as cash equivalents. Property and Depreciation - Property is recorded at cost and consists primarily of mini-storage facilities. Depreciation is provided for using the straight-line method over an estimated useful life of 20 years. Building improvements are depreciated over a five-year period. Income Taxes - No provision has been made for income taxes in the accompanying consolidated financial statements. The taxable income or loss of the Partnership is allocated to each partner in accordance with the terms of the Agreement of Limited Partnership. Each partner's tax status, in turn, determines the appropriate income tax for its allocated share of the Partnership taxable income or loss. The net difference between the basis of the Partnership's asset and liabilities for federal income tax purposes and as reported for financial statement purposes is $3,127,819. On February 27, 2003, New Jersey adopted new regulations effective retro- actively to January 1, 2002 that impose a filing fee of $150 per each New Jersey resident partner and a filing fee of $150 multiplied by the corpor- ate allocation factor of the Partnership for each non-resident partner. As a result, the Partnership recorded $21,000 in partnership filing fees during the year ended December 31, 2002, which is included in general and administrative expenses. Revenues - Rental revenue is recognized using the accrual method based on contractual amounts provided for in the lease agreements, which approximates recognition on a straight-line basis. The term of the lease agreements is usually less than one year. Net Income per Limited Partnership Unit - Net income per limited partnership unit is computed by dividing net income allocated to the limited partners by the weighted average number of limited partnership units outstanding during each period. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Partnership's management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impairment of Long-Lived Assets - The Partnership regularly reviews long- lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the asset, the Partnership would recognize an impair- ment. No impairment losses were required in 2002, 2001 or 2000. Fair Value of Financial Instruments - The Partnership's financial instruments consist primarily of cash, receivables, accounts payable and accrued liabilities. The carrying values of all financial instruments are representative of their fair values due to their short-term maturities. Concentrations of Credit Risk - Financial instruments that potentially subject the Partnership to concentrations of credit risk consist primarily of cash equivalents and rent receivables. The Partnership places its cash equivalents with high credit quality institutions. Impact of Recent Accounting Pronouncement - In December 2002, the Partner- ship adopted the following pronouncements: Statement of Financial Account- ing Standards ("SFAS") No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, and SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The adoption of these pronouncements did not have a material impact on the Partnership's financial position or results of operations. The Part- nership believes the adoption of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, will not have a material impact on the consolidated financial statements. 3. PROPERTY The total cost of property and accumulated depreciation is as follows as of December 31: 2002 2001 Land $ 1,894,250 $ 1,894,250 Buildings 6,550,726 6,533,267 ----------- ----------- Total 8,444,976 8,427,517 Less accumulated depreciation 3,990,510 3,636,723 ----------- ---------- Property, net $ 4,454,466 $ 4,790,794 =========== =========== 4. ALLOCATION OF PROFITS AND LOSSES Under the Agreement of Limited Partnership, the general partners are to be allocated 1% of the net profits or losses from operations and the limited partners are to be allocated the balance of the net profits or losses from operations in proportion to their limited partnership interests. The general partners are also entitled to receive a percent- age, based on a predetermined formula, of any cash distribution from the sale, other disposition, or refinancing of a real estate project. In addition, the general partners are entitled to receive an incentive management fee for supervising the operations of the Partnership. The fee is equal to 9% per annum of the Partnership distributions made from cash available for distribution calculated as cash generated from operations less capital expenditures. 5. BUSINESS SEGMENT INFORMATION The following disclosure about segment reporting of the Partnership is made in accordance with the requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Partnership operates under a single segment; storage facility operations, under which the Partnership rents its storage facilities to its customers on a need basis and charges rent on a predetermined rate. DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) REAL ESTATE AND ACCUMULATED DEPRECIATION - --------------------------------------------------------------------------------
Costs Capitalized Initial Cost to Subsequent to Gross Amount at Which Carried Partnership Acquisition at Close of Period ------------------- ----------------- ----------------------------- Buildings Buildings Date and Improve- Carrying and Accum. of Date Description Encumbrances Land Improvements ments Costs Land Improvements Total Deprec. Const. Acq. Life MINI-U-STORAGE Whittier, CA None $845,000 $1,969,083 $11,719 $845,000 $1,980,802 $2,825,802 $1262,836 04/90 03/90 20 Yrs Edgewater, NJ None 191,250 2,358,780 44,706 191,250 2,403,486 2,594,736 1474,454 06/89 09/90 20 Yrs Bloomingdale, IL None 442,000 1,579,879 71,517 442,000 1,651,396 2,093,396 963,640 07/88 01/91 20 Yrs Sterling Heights, MI None 416,000 467,979 47,063 416,000 515,042 931,042 289,580 06/77 07/91 20 Yrs -------- ---------- ------- -------- ---------- ---------- ---------- $1,894,250 $6,375,721 $175,005 $1,894,250 $6,550,726 $ 8,444,976*$3,990,510 ========== ========== ======== ========== ========== =========== ==========
Real Estate Accumulated at Cost Depreciation Balance at January 1, 2000 $ 8,376,185 $2,974,129 Additions 18,864 343,802 ----------- ---------- Balance at December 31, 2000 $ 8,395,049 $3,317,931 Additions 32,468 318,792 ----------- ---------- Balance at December 31, 2001 $ 8,427,517 $3,636,723 Additions 17,459 353,787 ----------- ---------- Balance at December 31, 2002 $ 8,444,976 $3,990,510 =========== ========== EXHIBIT 2 March 28, 2003 ANNUAL REPORT TO LIMITED PARTNERS OF DSI REALTY INCOME FUND XI Dear Limited Partner: This report contains the Partnership's balance sheets as of December 31, 2002 and 2001, and the related statements of income, changes in partners' equity and cash flows for each of the three years in the period ended December 31, 2002 accompanied by an independent auditors' report. The Partnership owns an interest in four mini-storage. Partnership's properties were each purchased for all cash and funded solely from subscriptions for limited partnership interests without the use of mortgage financing. Your attention is directed to the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations for the General Partners' discussion and analysis of the financial statements and operations of the Partnership. Average occupancy levels for each of the Partnership's four properties for the years ended December 31, 2002 and December 31, 2001 were as follows: Location of Property Average Occupancy Average Occupancy Levels for the Levels for the Year Ended Year Ended Dec. 31, 2002 Dec. 31, 2001 Whittier, CA(1) 91% 92% Bloomingdale, IL(2) 85% 88% Edgewater, NJ(3) 84% 86% Sterling Heights, MI(4) 81% 86% (1) The Partnership owns a 90% interest in this property. (2) The Partnership owns a 90% interest in this property (3) The Partnership owns an 85% interest in this property (4) The Partnership owns a 75% interest in this property We will keep you informed of the activities of DSI Realty Income Fund XI as they develop. If you have any questions, please contact us at your convenience at (562) 493-3022. If you would like a copy of the Partnership's Annual Report on Form 10-K for the year ended December 31, 2002, which was filed with the Securities and Exchange Commission (which report includes the enclosed Financial Statements), we will forward a copy of the report to you upon written request. Very truly yours, DSI REALTY INCOME FUND XI By: DSI Properties, Inc. By_______________________________ ROBERT J. CONWAY, President CERTIFICATIONS I, Robert J. Conway, certify that: 1. I have reviewed this annual report on Form 10-K of DSI Realty Income Fund XI; 2. Based on my knowledge, this annual 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 cover- ed by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its con- solidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effec- tiveness of the disclosure controls and procedures based on our evalu- ation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to re- cord, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal controls; and 6. The registrnat's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls sub- sequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 3, 2003 Robert J. Conway Chief Executive Officer CERTIFICATIONS I, Richard P. Conway, certify that: 1. I have reviewed this annual report on Form 10-K of DSI Realty Income Fund XI; 2. Based on my knowledge, this annual 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 cover- ed by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its con- solidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effec- tiveness of the disclosure controls and procedures based on our evalu- ation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to re- cord, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal controls; and 6. The registrnat's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls sub- sequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 3, 2003 Richard P. Conway Vice President 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 DSI Realty Income Fund XI (the "Partnership") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert J. Conway, Chief Executive Officer of the Partnership, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 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 result of operations of the Partnership. Robert J. Conway Chief Executive Officer February 3, 2003 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 DSI Realty Income Fund XI (the "Partnership") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard P. Conway, Chief Executive Officer of the Partnership, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 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 result of operations of the Partnership. Richard P. Conway Vice President February 3, 2003 -----END PRIVACY-ENHANCED MESSAGE-----