-----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, FocO5x7kIeYlKiQTdmyXIxqamssxsz/F4in6vuv+Ut8c0Y3YQiYgZTqdI9cODA2K gCrlomOM29zQzHD9guAkiw== 0000318835-08-000024.txt : 20080227 0000318835-08-000024.hdr.sgml : 20080227 20080226191310 ACCESSION NUMBER: 0000318835-08-000024 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20080227 DATE AS OF CHANGE: 20080226 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-18286 FILM NUMBER: 08644253 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/A 1 xi-exa.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 For the fiscal year ended December 31, 2006, or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 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: Units of Limited Partnership Interests (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X] 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] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [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, 2006, incorporated by reference to Form 10-K, Part II. Item 11. Registrant's Financial Statements for its fiscal year ended December 31, 2006, 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, 2006, 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, 2006 and 2005 were as follows: Location of Property Average Occupancy Average Occupancy for the Level for the Year Ended Year Ended Dec. 31, 2006 Dec. 31, 2005 Whittier, CA(1) 89% 89% Bloomingdale, IL(2) 85% 86% Edgewater, NJ(3) 79% 84% Sterling Heights, MI(4) 75% 78% (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 1a. RISK FACTORS Some Potential Losses Are Not Covered By Insurance. We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our Properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, types of losses, such as lease and other contract claims and acts of war that generally are not insured. We cannot be assured that we will be able to renew insurance coverage upon expiration of our policies in an adequate amount or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and mold or, if offered, these types of insurance may be prohibitively expensive. Should uninsured loss or a loss in excess from insured limits occur, we could lose all or a portion of the capital we have invested in a Property, as well as the anticipated future revenue from the Property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the Property. We cannot be assured that material losses in excess of insurance proceeds will not occur in the future. If any of our Properties were to experience catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the Property. Such events could adversely affect our cash flow and ability to make distributions to shareholders. Because real estate is illiquid, we may not be able to sell Properties when appropriate. Real estate investments generally, mini-storage facilities like those that we own, in particular, often cannot be sold quickly. Consequently, we may not be able to sell Properties when appropriate. This could adversely affect our cash flow and ability to make distributions. Our operating costs might rise, which might reduce our profitability and have an adverse affect on our cash flow and our ability to make distributions to shareholders. We might face higher operating expenses as a result of rising costs generally, and in particular as a result of increased costs following a terrorist attack or other catastrophic event. For example, it might cost more in the future for security, property/casualty and liability insurance, and property mainten- ance. As noted above, when our insurance policies expire, the cost of premiums for comparable coverage might be significantly higher after such an event when it is time to renew our coverage, which could then increase our operating expenses and reduce or profitability and our cash flow. Because of rising costs in general, we might experience increases in our property maintenance costs, such as for cleaning and electricity. If operating expenses increase dramatically, the availability of other comparable mini-storage facilities in our specific geographic markets might limit our ability to increase rents, which could reduce our profitability (if operating expenses increase without a corresponding increase in revenues) and limit our ability to make distributions. We face significant competition. We compete with numerous other owners of mini-storage facilities for tenants. Some of these competitors have significantly greater financial resources than we do. Such competition may reduce our ability to attract and keep and retain tenants, and may increase vacancies, which increases may lower rental rates. In addition, some of our competitors may be willing, because their properties may have vacancy rates higher than those for our properties, to make space available at lower prices than the space in our properties. We cannot be assured that this competition will not adversely affect our cash flow and ability to make distributions. Our ability to make distributions is subject to various risks. We have been paying quarterly distributions since inception. Our ability to make distributions in the future will depend upon: - Financial performance of our Property; - The absence of significant expenditures relating to environmental and regulator matters; and - Our ability to attract and maintain tenants. Certain of these matters are beyond our control and any significant difference between our expectations and actual results could have a material adverse affect on our cash flow and our ability to make distributions. Changes in the law may adversely affect our cash flow. The Properties are subject to various regulatory requirements, such as those relating to the environment, fire and safety. Our failure to comply with these requirements could result in the imposition of fines and damage awards. Additionally, the cost to comply with any new or different regulation could adversely affect our cash flow and our ability to make distributions. While we believe that the Properties are currently in material compliance with all such requirements, we cannot be assured that these requirements will not change our that newly imposed requirements will not require significant unanticipated expenditures. Should we incur long-term indebtedness, it will subject us to additional risks. Like other real estate companies, should we incur indebtedness on our proper- ties, we will be subject to risks normally associated with debt financing, such as the insufficiency of cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness. If such debt cannot be paid, refinanced or extended at maturity, in addition to our failure to repay our debt, we may not be able to make distributions at expected levels or at all. Furthermore, an increase in interest expense could adversely affect our cash flow and ability to make distributions to Limited Partners. If we should not meet our debt service obligations, any Properties securing such indebtedness could be foreclosed on, which would have a material adverse affect on our cash flow and ability to make distributions and, depending on the number of Properties foreclosed on, could threaten our continued viability. Our organizational documents do not contain any limitation on our ability to incur debt secured by our Properties. Accordingly, we could place financing on our Properties almost without restriction. If we were to take such action, the debt service could adversely affect our cash flow and ability to make dis- tributions and would include the risk of default on such indebtedness. There are no plans to incur any long-term indebtedness on any of the Partnership's Properties. Environmental problems at the Properties are possible and may be costly. Federal, state and local laws, ordinances and regulations may require a current or previous owner or operator of real estate to investigate and clean up hazard- ous or toxic substances or releases at such property. The owner or operator may be forced to pay for property damage and for investigation and clean up costs incurred by others in connection with environmental contamination. Such laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of contaminates. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamin- ation emanating from that site. These costs may be substantial and the presence of such substances may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Environmental laws that govern the presence, maintenance and removal of asbestos require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, notifying and train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. Such laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers. To the best of our knowledge, asbestos was not used in the construction of any of the Properties. Tenants of the Partnership's mini-storage facilities are prohibited from storing hazardous or toxic substances or from even bringing hazardous or toxic substances onto the property. To the best knowledge of the General Partners, there are no instances of storage or release of hazardous or toxic substances at any of the Partnership's Properties. However, there can be no guaranty that one or more tenants did not actually store such materials or cause releases at any of the Partnership's Properties. If these conditions should occur, we may need to undertake a target remediation program which could become costly and could necessitate the temporary location of some or all of the Properties' tenants or require rehabilitation of the affected property. Americans With Disabilities Act compliance can be costly. Under the Americans With Disabilities Act of 1990 ("ADA"), all public accom- modations and commercial facilities, must meet certain Federal requirements related to access and use by disabled persons. Compliance with the ADA re- quirements could involve removal of structural barriers from certain disabled persons' entrances, which could adversely affect our financial condition, and results of operations. Other Federal, state or local laws may require modifi- cations to or restrict further renovations of our Properties with respect to such accesses. Although we believe that our Properties are currently in material compliance with present requirements, non-compliance with the ADA or similar or related laws or regulations could result in the United States govern- ment imposing fines or private litigants being awarded damages against us. In addition, we do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures. Such costs may adversely affect our cash flow and ability to make distributions. Partnership's status as a limited partnership is dependent on compliance with Federal income tax requirements. Failure of the Partnership to be treated as a limited partnership would have serious adverse consequences to holders of our Units. If the IRS were to successfully challenge the tax status of the Partnership for Federal income tax purposes, the Partnership would be treatable as a corporation. In such event, the imposition of a corporate tax on the Partnership would reduce the amount of cash available for distribution from such Partnership to the Limited Partners. We do not anticipate such a challenge. We are dependent upon our key personnel whose continued service is not guar- anteed. We are dependent upon our independent property manager for experience in managing mini-storage facilities. While we believe we could find replace- ments for these key personnel, loss of their services could adversely affect our operations. Item 1b. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES Registrant owns a fee interest in four mini-storage facilities, none of which are subject to long-term indebtedness. The following table sets forth information regarding properties owned by the Partnership. 2006 2005 Location Size of Net Rentable No. of Completion Avg. Rent Parcel Area Rental Units Date Per. Sq. Ft. Whittier, CA(1) 3.92 acres 60,249 513 3/90 14.71 14.31 Bloomingdale, IL(2) 3.542 acres 60,624 571 1/31/91 9.10 7.80 Edgewater,NJ(2) 4.118 acres 52,940 447 8/21/90 11.06 11.08 Sterling Heights, MI(4) 3.76 acres 58,198 515 7/17/91 7.75 8.22 (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 524 Limited Partners at December 31, 2006. 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, 2006 and $10.62 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2005 and $14.37 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2004. 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 FOR THE FIVE YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------- 2006 2005 2004 2003 2002 ---- ---- ---- ---- ---- TOTAL REVENUES AND OTHER INCOME $2,500,107 $2,399,809 $2,269,596 $2,335,866 $2,334,725 TOTAL EXPENSES 1,583,308 1,633,391 1,438,441 1,444,226 1,453,731 MINORITY INTEREST IN INCOME OF REAL ESTATE JOINT VENTURE (175,650) (180,154) (188,904) (204,804) (190,054) --------- --------- --------- --------- --------- NET INCOME $ 741,149 $ 586,264 $ 642,251 $ 686,836 $ 690,940 ========= ========= ========= ========= ========= TOTAL ASSETS $3,845,928 $4,031,099 $4,292,224 $4,676,176 $5,091,587 ========== ========== ========== ========== ========== CASH FLOWS FROM (USED IN): OPERATING $1,173,269 $1,181,906 $1,184,400 $1,254,113 $1,262,126 INVESTING (21,835) (9,680) (16,112) - (17,459) FINANCING (1,115,510) (1,067,724) (1,360,518) (1,323,888) (1,099,145) NET INCOME PER LIMITED PARTNERSHIP UNIT $ 36.69 $ 29.02 $ 31.79 $ 34.00 $ 34.20 ======== ======== ======== ======== ======== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ 45.00 $ 42.50 $ 57.50 $ 55.39 $ 45.00 ======== ======== ======== ======== ======== Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies- 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. 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, 2006, were: Whittier 89%, Edgewater Park 84%, Bloomingdale 86% and Sterling Heights 78%. RESULTS OF OPERATIONS 2006 COMPARED TO 2005 Total revenues increased from $2,399,478 in 2005 to $2,448,474 in 2006, total expenses decreased from $1,633,391 to $1,583,308, other income increased from $331 to $51,633 and minority interest in real estate joint ventures decreased from $180,154 to $175,650. As a result, net income increased from $586,264 to $741,149. The increase in rental revenues can be attributed to higher unit rental rates. Occupancy levels for the Partnership's four mini-storage facil- ities averaged 81.8% for the year ended December 31, 2006, compared to 84.2% for the year ended December 31, 2005. Other income includes a gain on property damage in the amount of $51,301. This amount represents the difference between insurance proceeds received versus the net book value of the facilities' office and part of the managers' apartment destroyed due to a traffic accident. Operating expenses remained constant primarily as a result of decreases in advertising and purchase of locks and packing materials expenses offset by increases in repairs and maintenance and real estate tax expenses. General and administrative expenses decreased approximately $16,600 (7.2%) primarily as a result of decreases in legal and professional and office supplies and printing expenses. Incentive management fees, which are based on distributions paid to limited partners, increased as a result of the increase in distri- butions 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. 2005 COMPARED TO 2004 Total revenues increased from $2,269,266 in 2004 to $2,399,478 in 2005, total expenses increased from $1,438,441 to $1,633,391, other income increased from $330 to $331 and minority interest in real estate joint ventures decreased from $188,904 to $180,154. As a result, net income decreased from $642,251 to $586,264. The approximate $130,200 (5.7%) increase in rental revenues can be attributed primarily to higher occupancy and unit rental rates. Occupancy levels for the Partnership's four mini-storage facilities averaged 84.2% for the year ended December 31, 2005, compared to 83.0% for the year ended December 31, 2004. Operating expenses increased approximately $125,800 (19.4%) primarily as a result of increases in advertising, repairs and maintenance, purchase of locks and packing materials, real estate tax, salaries and wages and truck insurance and maintenance expenses. General and administrative expenses increased approximately $38,000 (19.7%) primarily as a result of in- creases in legal and professional, equipment and computer lease and office supplies and printing expenses. Incentive 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 revenue, increased as a result of the in- crease in rental revenue. Operating expenses consists mainly of expenses such as yellow pages and other advertising, utilities, repairs and maintenance, real estate taxes, salaries and wages and their related expenses. General and administrative expenses consist mainly of expenses such as legal and professional, office supplies accounting services and computer expenses. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities decreased approximately $8,600 (0.7%) in 2006 compared to 2005 primarily as a result of the decrease in net income before depreciation and minority interest in real estate joint ventures, partially offset by an increase in customer deposits and other liabilities. Net cash provided by operating activities decreased approximately $2,500 (0.2%) in 2005 compared to 2004, primarily as a result of the decrease in net income. 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 2006, 2005 and 2004. The Partnership has no material commit- ments for capital expenditures. Cash used in financing activities consisted of cash distributions to partners and the minority interest in the real estate joint ventures in 2006, 2005 and 2004, as well as payments on capital lease obligations starting in 2004. In December 2006, 2005 and 2004, the General Partners declared and paid a special distribution equal to 1.0%, 0.5%, and 3.5%, respectively. 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. LONG-TERM LIABILITIES, CONTRACTUAL OBLIGATIONS, AND OFF-BALANCE SHEET ARRANGEMENTS Long-Term Liabilities and Contractual Obligations. The following table summar- izes our long-term liabilities, material obligations and commitments to make future payments under certain contracts, including long-term debt obligations, purchase commitments and operating leases. Payments due by period Less More than 1 1-3 3-5 than 5 Contractual Obligations Total year years years years Long-Term Debt - - - - - Capital (Finance) Lease 101,000 58,500 42,500 - - Purchase Obligations - - - - - Other Long-Term Liablities - - - - - Reflected on the Registrant's Balance Sheet under the GAAP of the primary financial Statements QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for the years ended December 31, 2006 and 2005 was as follows: 2006 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Total revenues $595,706 $606,671 $618,190 $627,907 Income before minority interest in joint venture 212,834 176,877 193,630 333,458 Net income 212,834 176,877 70,426 281,012 Net income per limited partnership unit $ 10.54 $ 8.76 $ 3.49 $ 13.91 Weighted average number of limited partnership units outstanding 20,000 20,000 20,000 20,000 2005 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Total revenues $580,855 $604,656 $606,234 $607,733 Income before minority interest in joint venture 212,387 185,367 244,547 124,117 Net income 212,387 185,367 107,893 80,617 Net income per limited partnership unit $ 10.51 $ 9.18 $ 5.34 $ 3.99 Weighted average number of limited partnership units outstanding 20,000 20,000 20,000 20,000 Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. 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. See the financial statements. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9a. CONTROLS AND PROCEDURES The Partnership evaluated the effectiveness of its disclosure controls and procedures. This evaluation was performed by the Partnership's Controller with the assistance of the Partnership's President and the Chief Executive Officer. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Parnership 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 Commission's rules and forms, and that the information is communicated to 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 Partnership's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation. Item 9b. OTHER INFORMATION 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, 2006, 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 73 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 78 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 84 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, 2006, 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 The following table sets forth certain information regarding the beneficial ownership of the Fund's limited partnership units as of December 31, 2006 of (i) each person known to beneficially own more than 5% of the Fund's limited partnership units(2), (ii) each director or director nominee of the Fund, (iii) each executive officer of the Fund for whom information is given in the Summary Compensation Table in this proxy statement, and (iv) all directors and executive officers of the Fund. TITLE OF NAME OF NUMBER OF LP UNITS PERCENT CLASS BENEFICIAL OWNER BENEFICIALLY HELD(1) OF CLASS - -------- ----------------- -------------------- -------- Limited Partnership Interest Robert J. Conway 326 - Direct 1.63 Limited Partnership Interest Joseph W. Conway 183 - Direct * * Less than one percent of the Fund's limited partnership's units. (1) Unless otherwise indicated, the address for each listed director or officer is c/o 6700 E. Pacific Coast Hwy. #150. As used in this table, "beneficial ownership" means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. For purposes of this table, a person is deemed to be the beneficial owner of units acquired before the date of this filing. (2) As of December 31, 2006, no person of record owned more than 5% of the limited partnership units of Registrant, nor was any person known by Registrant to own of record and beneficiary, 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 Registrant's Registration State- ment on Form S-11, previously filed pursuant to the Securities Act of 1933, as amended, and which is incorporated herein by this reference. The only change to the information contained in said Registration State- ment on Form S-11 is the fact that Messrs. Benes and Blakley have retired and Messrs. Robert J. Conway and Joseph W. Conway equity interest in DSI Financial, Inc., parent of DSI Properties, Inc., has increased. Please see information contained in Item 10 hereinabove. 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, 2006, attached hereto as Exhibit l and incorporated herein by this reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees The aggregate fees for professional services rendered by Deloitte & Touche LLP for the audit of the Partnership's annual financial statements and for re- view of the financial statements included in the Partnership's Quarterly Reports on Form 10-Q for 2006 were $31,240 and for 2005 were $29,640. Tax Fees The aggregate fees for professional services rendered by Deloitte Tax LLP for tax compliance, tax advice and tax planning for 2006 were $18,550 and 2005 were $15,250. Most of the fees related to preparation of the Partner- ship's tax returns. PART IV Item 15. 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, 2006, 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, 2006. (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 /s/ ROBERT J. CONWAY By_______________________________ Dated: March 30, 2007 ROBERT J. CONWAY (President, Chief Executive Officer, Chief Financial Officer and Director) /s/ JOSEPH W. CONWAY By_______________________________ Dated: March 30, 2007 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 /s/ ROBERT J. CONWAY By_______________________________ Dated: March 30, 2007 ROBERT J. CONWAY (President, Chief Executive Officer, Chief Financial Officer and Director) /s/ JOSEPH W. CONWAY By______________________________ Dated: March 30, 2007 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, 2006, 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 FOR THE FIVE YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------------------- 2006 2005 2004 2003 2002 ---- ---- ---- ---- ---- TOTAL REVENUES AND OTHER INCOME $2,500,107 $2,399,809 $2,269,596 $2,335,866 $2,334,725 TOTAL EXPENSES 1,583,308 1,633,391 1,438,441 1,444,226 1,453,731 MINORITY INTEREST IN INCOME OF REAL ESTATE JOINT VENTURE (175,650) (180,154) (188,904) (204,804) (190,054) --------- --------- --------- --------- --------- NET INCOME $ 741,149 $ 586,264 $ 642,251 $ 686,836 $ 690,940 ========= ========= ========= ========= ========= TOTAL ASSETS $3,845,928 $4,031,099 $4,292,224 $4,676,176 $5,091,587 ========== ========== ========== ========== ========== CASH FLOWS FROM (USED IN): OPERATING $1,173,269 $1,181,906 $1,184,400 $1,254,113 $1,262,126 INVESTING (21,835) (9,680) (16,112) - (17,459) FINANCING (1,115,510) (1,067,724) (1,360,518) (1,323,888) (1,099,145) NET INCOME PER LIMITED PARTNERSHIP UNIT $ 36.69 $ 29.02 $ 31.79 $ 34.00 $ 34.20 ======== ======== ======== ======== ======== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ 45.00 $ 42.50 $ 57.50 $ 55.39 $ 45.00 ======== ======== ======== ======== ======== 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, 2006: Net Partners' Income Equity Per financial statements $ 725,753 $ 3,386,912 Excess book depreciation 145,953 2,049,347 State taxes (12,980) Accrued incentive management fee 443,214 Property acquisition costs 1,033,227 Deferred rental revenues (9,177) 59,818 Accrued expenses (13,400) 17,600 Fixed asset adjustment (82,069) (143,735) Excess book distributions 186,479 Tax expense adjustment 15,396 Bad debt allowance 25,564 25,564 Miscellaneous expense (2,865) (2,863) Real estate taxes 11,257 11,257 ----------- ----------- Per Partnership income tax return $ 816,412 $ 7,053,840 =========== =========== Net taxable income per limited partnership unit $ 25.43 =========== DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Page PAGE FINANCIAL STATEMENTS: Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of December 31, 2006 and 2005 F-2 Consolidated Statements of Income for Each of the Three Years Ended December 31, 2006 F-3 Consolidated Statements of Changes in Partners' Equity(Deficit) for Each of the Three Years Ended December 31, 2006 F-4 Consolidated Statements of Cash Flows for Each of the Three Years Ended December 31, 2006 F-5 Notes to Consolidated Financial Statements as of December 31, 2006 and 2005, and for Each of the Three Years Ended December 31, 2006 F-6 SUPPLEMENTAL SCHEDULE: Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2006 F-10 NOTE: 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. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners of DSI Realty Income Fund XI: We have audited the accompanying consolidated balance sheets of DSI Realty Income Fund XI, a California Real Estate Limited Partnership and subsidiary (the "Partnership") as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the supplemental schedule listed in the Index at Item 15. These financial statements and the supplemental schedule are the respons- ibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, 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 consoldiated financial statements present fairly, in all material respects, the financial position of the partnership at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplemental 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. /s/ Deloitte & Touche LLP _______________________________________ Deloitte & Touche Los Angeles, California March 30, 2007 DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2006 AND 2005 - ------------------------------------------------------------------------------- ASSETS 2006 2005 CASH AND CASH EQUIVALENTS $ 475,705 $ 439,781 PROPERTY, net (Note 3) 3,248,480 3,535,858 OTHER ASSETS 121,743 55,460 ----------- ----------- TOTAL $ 3,845,928 $ 4,031,099 =========== =========== LIABILITIES AND PARTNERS' EQUITY LIABILITIES: Distribution due partners (Note 4) $ 202,020 $ 202,020 Property management fees payable (Note 6) 12,224 12,694 Customer Deposits and other liabilities 189,825 175,815 Capital lease obligations (Notes 3 and 6) 93,630 124,398 ----------- ---------- Total liabilities 497,699 514,927 ----------- ---------- PARTNERS' EQUITY (DEFICIT)(Note 4): General partners (56,185) (54,505) Limited partners (20,000 limited partnership units outstanding at December 31, 2006 and 2005) 3,404,414 3,570,677 ------------ ----------- Total partners' equity 3,348,229 3,516,172 ------------ ----------- TOTAL $ 3,845,928 $ 4,031,099 ============ =========== See 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, 2006 - -------------------------------------------------------------------------------- 2006 2005 2004 REVENUES: Rental $2,448,474 $2,399,478 $2,269,266 ---------- ---------- ---------- EXPENSES: Depreciation 360,514 398,597 355,397 Operating 776,703 775,400 649,620 Interest 5,232 7,016 - General and administrative 214,513 231,134 193,171 General partners' incentive management fee (Note 4) 81,819 77,273 104,546 Property management fee (Note 6) 144,527 143,971 135,707 ---------- ---------- ---------- Total expenses 1,583,308 1,633,391 1,438,441 ---------- ---------- ---------- OPERATING INCOME 865,166 766,087 830,825 ---------- ---------- ---------- OTHER INCOME - Interest income 332 331 330 Gain on property damage 51,301 - - ---------- ---------- ---------- Total other income 51,633 331 330 ---------- ---------- ---------- INCOME BEFORE MINORITY INTERESTS IN INCOME OF REAL ESTATE JOINT VENTURES 916,799 766,418 831,155 MINORITY INTERESTS IN INCOME OF REAL ESTATE JOINT VENTURES (175,650) (180,154) (188,904) ---------- ---------- ---------- NET INCOME $ 741,149 $ 586,264 $ 642,251 ========== ========== ========== AGGREGATE NET INCOME ALLOCATED TO (Note 4): General partners $ 7,411 $ 5,863 $ 6,423 Limited partners 733,738 580,401 635,828 ---------- ---------- ---------- TOTAL $ 741,149 $ 586,264 $ 642,251 ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT (Notes 2 and 4) $ 36.39 $ 29.02 $ 31.79 ========== ========== ========== See notes to consolidated 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, 2006 - -------------------------------------------------------------------------------- General Limited Partners Partners Total BALANCE, JANUARY 1, 2004 $(46,589) $4,354,446 $4,307,857 Net income 6,423 635,828 642,251 Distributions (11,616) (1,149,998) (1,161,614) -------- ---------- ----------- BALANCE, DECEMBER 31, 2004 (51,782) 3,840,276 3,788,494 Net income 5,863 580,401 586,264 Distributions (8,586) (850,000) (858,586) -------- ---------- ----------- BALANCE, DECEMBER 31, 2005 (54,505) 3,570,677 3,516,172 Net income 7,411 733,738 741,149 Distributions (9,091) (900,001) (909,092) -------- ---------- ----------- BALANCE, DECEMBER 31, 2006 $(56,185) $3,404,414 $ 3,348,229 ======== =========== =========== See 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, 2006 - -------------------------------------------------------------------------------- 2006 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 741,149 $ 586,264 $ 642,251 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 360,514 398,597 355,397 Minority interests in income of real estate joint ventures 175,650 180,154 188,904 Gain on property damage (51,301) - - Changes in assets and liabilities: Other assets (66,283) (7,471) Property management fees payable (470) 1,779 (442) Customer deposits and other liabilities 14,010 15,112 5,761 ---------- ----------- ---------- Net cash provided by operating activities 1,173,269 1,181,906 1,184,400 ---------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property (78,626) (9,680) (16,112) Insurance proceeds from property damage 56,791 - - ----------- ----------- ----------- Net cash used in investing activities (21,835) (9,680) (16,112) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (909,092) (858,586) (1,161,614) Distributions paid to minority inter- ests in real estate joint ventures (175,650) (180,154) (188,904) Captial lease obligations (30,768) (28,984) (10,000) ----------- ----------- ---------- Net cash used in financing activities (1,115,510) (1,067,724) (1,360,518) ----------- ----------- ---------- NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 35,924 104,502 (192,230) CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 439,781 335,279 527,509 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 475,705 $ 439,781 $ 335,279 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid for interest $ 5,232 $ 7,016 $ - =========== =========== =========== NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of trucks utilizing capital leases $ - $ 23,290 $ 140,092 =========== =========== =========== Distribution due partners included in partners' equity $ 202,020 $ 202,020 $ 202,020 =========== =========== =========== See notes to consolidated financial statements. DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006 AND 2005, AND FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2006 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, 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 Partnership 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 (see Note 6). 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 2006, 2005 and 2004. 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. 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. Property under capital leases is amortized over the lesser of the lives of the re- spective leases or the estimated useful lives of the assets. 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 for the year ended December 31, 2006 is $90,659. 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 $29,224 and $20,697 in partnership filing fees during the years ended December 31, 2006 and 2005, respectively which are 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 loss to the extent that the carrying value exceeded the fair value of the property. No impairment losses were required in 2006, 2005 or 2004. Fair Value of Financial Instruments - For all financial instruments, including cash and cash equivalents, other assets, distributions due partners, incentive management fee payable to general partners, property management fee payable, customer deposits and other liabilities, carrying values approximate fair values becuase of the short maturity of those instruments. The carrying values of the capital lease obligations approx- mates fair value because the terms of the instrument are similar to terms available to the Partnership for similar types of leasing agreements. 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 and cash equivalents with high credit quality institutions. Recent Accounting Pronouncement - In September 2006, the financial Account- ing Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands dis- closures about fair value measurements. The Partnership is required to adopt SFAS No. 157 for fiscal year 2008 and does not expect its adoption to have a material effect on the Partnership's results of operations or financial condition. 3. PROPERTY The total cost of property and accumulated depreciation is as follows as of December 31, 2006 and 2005, is as follows: 2006 2005 Land $ 1,894,250 $ 1,894,250 Buildings and improvements 6,622,462 6,576,518 Rental trucks under capital leases 163,382 163,382 ----------- ----------- Total 8,680,094 8,634,150 Less accumulated depreciation 5,431,614 5,098,292 ----------- ---------- Property - net $ 3,248,480 $ 3,535,858 =========== =========== Depreciation expense of $40,620 and $40,620 was recorded on the rental trucks under capital leases in 2006 and 2005, respectively. The Partnership leases certain vehicles under agreements that meet the criteria for classification as capital leases which expire in 2009. Future minimum lease payments under these capital leases at December 31, 2006, are summarized as follows: 2007 $58,500 2008 42,000 2009 500 ------- Total future minimum payment obligations 101,000 Less interest portion 7,370 ------- Present value of net minimum lease payments $ 93,630 ======== 4. ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNERS' INCENTIVE MANAGEMENT FEE 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. 6. RELATED-PARTY TRANSACTIONS The Partnership has entered into management agreements with Dahn to operate their mini-storage facilities. The management agreement provides for a management fee equal to 6% of gross revenue from operations, which is defined as the entire amount of all receipts from the renting or leasing of storage compartments and sale of locks. The management is renewable annually. Dahn earned management fees equal to $144,527, $143,971, and $135,707 for the years ended December 31, 2006, 2005, and 2004, respec- tively. Amounts payable to Dahn at December 31, 2006 and 2005, were $12,224 and $12,694, respectively. In 2004, the Partnership entered into truck and van lease agreements with KMD Trucks, LLC ("KMD"). The president of Dahn, Brian Dahn, is also a member of KMD. The truck and van lease are 48-month leases with monthly payments in the amount of $750 and $500, respectively (seeNote 3). DSI REALTY INCOME FUND XI (A California Real Estate Limited Partnership) SCHEDULE III 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 $18,852 $845,000 $1,987,935 $2,832,935 $1,664,784 04/90 03/90 20 Yrs Edgewater, NJ None 191,250 2,400,712 49,206 191,250 2,449,918 2,641,168 1,947,022 06/89 09/90 20 Yrs Bloomingdale, IL None 442,000 1,579,879 76,982 442,000 1,656,861 2,098,861 1,323,830 07/88 01/91 20 Yrs Sterling Heights, MI None 416,000 467,979 59,769 416,000 527,748 943,748 414,738 06/77 07/91 20 Yrs -------- ---------- ------- -------- ---------- ---------- ---------- $1,894,250 $6,417,653 $204,809 $1,894,250 $6,622,462 $ 8,516,712 $5,350,374 ========== ========== ======== ========== ========== =========== ==========
Real Estate Accumulated at Cost Depreciation Balance at January 1, 2004 $ 8,444,976 $4,344,298 Additions 16,112 355,397 ----------- ---------- Balance at December 31, 2004 8,461,088 4,699,695 Additions 9,680 357,977 ----------- ---------- Balance at December 31, 2005 8,470,768 5,057,672 Disposals (32,682) (27,192) Additions 78,626 319,894 ----------- ---------- Balance at December 31, 2006 $ 8,516,712 $5,350,374 =========== ========== EXHIBIT 2 March 30, 2007 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, 2006 and 2005, and the related statements of income, changes in partners' equity (deficit) and cash flows for each of the three years ended December 31, 2006 accompanied by a report of independent registered public accounting firm. 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, 2006 and 2005 were as follows: Location of Property Average Occupancy Average Occupancy Levels for the Levels for the Year Ended Year Ended Dec. 31, 2006 Dec. 31, 2005 Whittier, CA(1) 89% 89% Bloomingdale, IL(2) 85% 86% Edgewater, NJ(3) 79% 84% Sterling Heights, MI(4) 75% 78% (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, 2006, 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. /s/ ROBERT J. CONWAY 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 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 report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our super- vision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to re- cord, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal control over financial reporting. Date: March 30, 2007 /s/ ROBERT J. CONWAY _________________________________ 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 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 report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our super- vision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to re- cord, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal control over financial reporting. Date: March 30, 2007 /s/ RICHARD P. CONWAY __________________________________ Richard P. Conway Vice President EXHIBIT 3 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, 2006 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. /s/ ROBERT J. CONWAY _______________________________ Robert J. Conway Chief Executive Officer March 30, 2007 EXHIBIT 4 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, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard P. Conway, Vice President of the Corporate General Partner, 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. /s/ RICHARD P. CONWAY _______________________________ Richard P. Conway Vice President March 30, 2007 -----END PRIVACY-ENHANCED MESSAGE-----