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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-15815
Krupp Insured Plus Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2915281
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act: Units of
Depositary Receipts representing Units of Limited Partner Interests.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates:
Not applicable.
Documents incorporated by reference: See Part IV Item 14.
The exhibit index is located on pages 9-10.
PART I
This Form 10-K contains forward-looking statements within the meaning of
section 27a of the Securities Act of 1933 and Section 21e of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward looking statements as a result of a number of
factors, including those identified herein.
ITEM 1. BUSINESS
On December 20, 1985, The Krupp Corporation and The Krupp Company Limited
Partnership-IV (the "General Partners") formed Krupp Insured Plus Limited
Partnership (the "Partnership"), a Massachusetts Limited Partnership. The
Partnership raised approximately $149 million through a public offering of
limited partner interests evidenced by units of depositary receipts
("Units") and used the net proceeds primarily to acquire participating
insured mortgages ("PIMs") and mortgage backed securities ("MBS"). The
Partnership considers itself to be engaged in the industry segment of
investment in mortgages.
The Partnership's investments in PIMs consist of a securitized multi-family
first mortgage loan or a sole participation interest in a Department of
Housing and Urban Development ("HUD") multi-family insured first mortgage
loan, and participation interests in the current revenue stream of the
mortgaged property and any increase in the mortgaged property's value above
certain specified base levels. The Partnership provided the funds for the
first mortgage loan made to the borrower by acquiring either a securitized
first mortgage loan ("MBS"), originated under the lending program of Fannie
Mae or a sole participation interest in a first mortgage loan originated
under the Federal Housing Administration ("FHA") lending program
(collectively the "insured mortgages"). The Partnership receives the
participation interests in the mortgaged property as additional
consideration for providing the funds for the first mortgage loan and
accepting a below market interest rate on the insured mortgage. The
borrower conveyed the participation interests to the Partnership through
either a subordinated promissory note and mortgage or a shared income and
appreciation agreement. Fannie Mae guarantees the principal and interest
payments for the Fannie Mae. HUD insures the first mortgage loan originated
under the FHA lending program. The participation interests conveyed to the
Partnership by the borrower are neither insured nor guaranteed.
The Partnership also acquired MBS backed by single-family or multi-family
mortgage loans issued or originated by the Government National Mortgage
Association ("GNMA"), FHA, Fannie Mae or the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae and FHLMC guarantee the principal and
interest of these Fannie Mae and FHLMC MBS, respectively. GNMA guarantees
the timely payment of principal and interest on its MBS and HUD insures the
FHA mortgage loans and the pooled mortgage loans underlying the GNMA MBS.
Although the Partnership will terminate no later than December 31, 2025 the
Partnership anticipates realizing the value of the PIMs through repayment
well before this date. Therefore, dissolution of the Partnership should
occur significantly prior to December 31, 2025.
The Partnership's investments are not subject to seasonal fluctuations.
However, the realization of the participation features of the PIMs are
subject to similar risks associated with equity real estate investments,
including: reliance on the owner's operating skills, ability to maintain
occupancy levels, control operating expenses, maintain the property and
provide adequate insurance coverage; adverse changes in general economic
conditions, adverse local conditions, and changes in governmental
regulations, real estate zoning laws, or tax laws; and other circumstances
over which the Partnership may have little or no control.
The requirements for compliance with federal, state and local regulations
to date have not adversely effected the Partnership's operations and the
Partnership does not presently anticipate adverse effects in the future.
As of December 31, 1999, there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership is
a party or to which any of its investments is the subject.
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
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1999 was
approximately 6,000. One of the objectives of the Partnership is to provide
quarterly distributions of cash flow generated by its investments in
mortgages. The Partnership presently anticipates that future operations
will continue to generate cash available for distribution. Adjustments may
be made to the distribution rate in the future due to the realization and
payout of the existing mortgages.
During January 2000, the Partnership made a special distribution of $1.30
per Limited Partner interest from the principal proceeds from the LaCosta
PIM. During 1998, the Partnership made a special distribution consisting
primarily of principal proceeds from the Greentree PIM. The Partnership may
make special distributions in the future if PIMs prepay or a sufficient
amount of cash is available from MBS and PIM principal collections.
The Partnership made the following distributions, in quarterly
installments, and special distributions, to its Partners during the two
years ended December 31, 1999 and 1998:
1999 1998
Amount Per Unit Amount Per Unit
Distributions:
Limited Partners $ 5,700,076 $.76 $ 5,700,075 $ .76
General Partners 112,626 - 137,665 -
5,812,702 5,837,740
Special Distributions:
Limited Partners - - 8,400,111 $1.12
Total Distributions $ 5,812,702 $ 14,237,851
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the
Partnership's financial position and operating results. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements
and Supplementary Data, which are included in Item 7 and Item 8, (Appendix
A) of this report, respectively.
1999 1998 1997 1996 1995
Total revenues $ 4,215,833 $ 4,823,813 $ 6,078,663 $ 7,216,716 $ 7,097,154
Net income 3,610,232 4,171,014 4,743,768 5,329,348 5,247,543
Net income allocated to:
Limited Partners 3,501,925 4,045,884 4,601,455 5,169,468 5,090,117
Average Per Unit .47 . 54 . 61 . 69 . 68
General Partners 108,307 125,130 142,313 159,880 157,426
Total assets at
December 31 54,564,577 57,367,612 67,795,436 73,273,523 93,784,033
Distributions to:
Limited Partners 5,700,076 5,700,075 5,700,093 9,000,119 9,000,119
Average per Unit .76 .76 .76 1.20 1.20
Special - 8,400,111 4,575,060 16,500,218 -
Average per Unit - 1.12 .61 2.20 -
General Partners 112,626 137,665 172,798 181,178 187,157
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Management's expectations regarding the future financial performance and
future events. These forward-looking statements involve significant risk
and uncertainties, including those described herein. Actual results may
differ materially from those anticipated by such forward-looking
statements.
Impact of the Year 2000 Issue
Starting in 1997 the General Partners conducted an assessment of the
Partnership's core internal and external computer information systems to
understand the nature and extent of work required to make its systems Year
2000 ready. The Year 2000 readiness issue was concerned with the inability
of computerized information systems to accurately calculate, store or use a
date after 1999. The General Partners believed that a system failure or
miscalculation could cause disruptions of operations.
As a result of this concern, the General Partners, along with certain
affiliates, upgraded their computer systems including their hardware and
software so they would be Year 2000 ready. In addition, the General
Partners surveyed the Partnership's material third-party service providers
and significant vendors and received assurances that they were Year 2000
ready. The General Partners also developed contingency plans for all of
their "mission-critical functions" to insure business continuity. As a
result of these efforts and the efforts of third parties, the Year 2000 did
not result in any disruption of activities to the Partnership.
Liquidity and Capital Resources
At December 31, 1999 the Partnership had liquidity consisting of cash and
cash equivalents of approximately $13.0 million as well as the cash flow
provided by its investments in the PIMs and MBS. The Partnership
anticipates that these sources will be adequate to provide the Partnership
with sufficient liquidity to meet its obligations as well as to provide
distributions to its investors.
In December 1999, the Partnership received a prepayment in the amount of
$9,746,923 representing the outstanding principal balance due on the La
Costa PIM. The Borrower defaulted on the first mortgage loan underlying the
PIM in June of 1999. The Partnership continued to receive its full
principal and interest payments until the default was resolved, because
GNMA guaranteed those payments to the Partnership. The Partnership did not
receive any participation interest as a result of this default. On January
11, 2000, the Partnership paid a special distribution to the investors of
$1.30 per Limited Partner interest.
The most significant demand on the Partnership's liquidity is quarterly
distributions paid to investors of approximately $1.4 million each quarter.
The Partnership currently has a distribution rate of $.76 per unit per
year, paid in quarterly installments of $.19 per unit. Funds for the
quarterly distributions come from the monthly principal and interest
payments received on the PIMs and MBS, the principal prepayments of the
PIMs and MBS, interest earned on the Partnership's cash and cash
equivalents, and cash reserves. The portion of distributions attributable
to the principal collected in those payments reduces the capital resources
of the Partnership. As the capital resources of the Partnership decrease,
the total cash flows to the Partnership also will decrease and over time
will result in periodic adjustments to the distributions paid to investors.
The General Partners periodically review the distribution rate to determine
whether an adjustment is necessary based on projected future cash flows. In
general, the General Partners try to set a distribution rate that provides
for level quarterly distributions. Based on current projections, the
General Partners believe the Partnership will need to adjust the current
distribution rate beginning with the distribution payable in May 2000. The
General Partners will determine the new rate during the first quarter of
the year 2000.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's investments in the PIMs also may
provide additional income through a participation interest in the
underlying properties. However, this payment is neither guaranteed nor
insured and depends on the successful operations of the underlying
properties.
In July of 1997 the borrower on the Greentree PIM defaulted on the first
mortgage obligation, but the Partnership continued to receive its full
principal and basic interest payments because GNMA guaranteed those
payments. In March 1998, GNMA exercised its right to prepay the GNMA MBS
due to the continuing default of the underlying first mortgage loan. The
Partnership received proceeds from the prepayment of the GNMA MBS in the
amount of $8,382,336. On April 16, 1998, the Partnership made a special
distribution to the investors from the capital proceeds of $1.12 per
Limited Partner interest. Subsequent to the payoff of the GNMA MBS, the
General Partners negotiated a settlement with the borrower to release the
Subordinated Promissory Note, and $250,000 was received in July 1998.
The General Partners do not expect any of the other PIMs still held in the
Partnership's portfolio to pay off during 2000. Royal Palm Place and Vista
Montana operate under long-term restructure programs. As an ongoing result
of the Partnership's 1995 agreement to modify the payment terms of the
Royal Palm Place PIM, the Partnership received basic interest-only payments
on the Fannie Mae MBS at the rate of 7.375% per annum during 1999.
Thereafter, the interest rate will range from 7.875% to 8.775% per annum
through the maturity of the first mortgage loan in 2006. The Partnership
also received its share of the scheduled $250,000 principal payment in
January 1999. Although occupancy at Royal Palm averaged in the low 90%
range through 1999, it faces significant competition from neighboring
properties that have changed ownership and benefited from new capital
investment in exterior and interior renovations. The Partnership agreed in
1993 to permanently reduce the interest rate on the Vista Montana first
mortgage loan to 7.375% per annum.
The Partnership has the option to call certain PIMs by accelerating the
maturity date of the loans if they are not prepaid by the tenth year after
permanent funding. The Partnership will determine the merits of exercising
the call option for each PIM as economic conditions warrant. Such factors
as the condition of the asset, local market conditions, interest rates and
available financing will have an impact on these decisions.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by
Fannie Mae, GNMA, FHLMC or HUD and therefore the certainty of their cash
flows and the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and
is wholly-owned by the twelve Federal Home Loan Banks. These obligations
are not guaranteed by the U.S. Government or the Federal Home Loan Bank
Board. GNMA guarantees the full and timely payment of principal and basic
interest on the securities it issues, which represents interest in pooled
mortgages insured by HUD. Obligations insured by HUD, an agency of the U.S.
Government, are backed by the full faith and credit of the U.S. Government.
The Partnership includes in cash and cash equivalents approximately $12.5
million of commercial paper, which is issued by entities with a credit
rating equal to one of the top two rating categories of a nationally
recognized statistical rating organization.
Interest Rate Risk
The Partnerships's primary market risk exposure is to interest rate risk,
which can be defined as the exposure of the Partnership's net income,
comprehensive income or financial condition to adverse movements in
interest rates. At December 31, 1999, the Trust's PIMs, PIMIs and MBS
comprise the majority of the Partnerhsip's assets. As such decreases in
interest rates may accelerate the prepayment of the Partnership's
investments. The Partnership does not utilize any derivatives or other
instruments to manage this risk as the Partnership plans to hold all of its
investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as
well as distribution requirements of the Partnership, when setting regular
dividend distribution policy. For MBS, the fund forecasts prepayments based
on trends in similar securities as reported by statistical reporting
entities such as Bloomberg. For PIMs and PIMIs, the Partnership
incorporates prepayment assumptions into planning as individual properties
notify the Partnership of the intent to prepay or as they mature.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. The expected maturity
date is contractual maturity adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands)
2000 2001 2002 2003 2004 Thereafter Total Fair
Value
Interest-sensitive assets:
MBS $ 628 $ 528 $ 451 $ 391 $ 346 $ 19,266 $ 21,610 $ 22,244
Weighted
Average interest rate 8.60% 8.6 8.60% 8.60% 8.60% 8.60% 8.60%
PIMs 157 96 103 111 120 18,446 19,033 18,624
Weighted
Average interest rate 7.52% 7.67% 7.79% 7.79% 7.80% 7.72% 7.72%
Total Interest-
sensitive assets $ 785 $ 624 $ 554 $ 502 $ 466 $ 37,712 $ 40,643 $ 40,868
Results of Operations
The following discussion relates to the operation of the Partnership during
the years ended December 31, 1999, 1998 and 1997.
(Amounts in thousands)
1999 1998 1997
Interest income on PIMs:
Basic interest $ 2,085 $ 2,257 $ 3,137
Participation income - 250 543
Interest income on MBS 1,900 2,048 2,181
Other interest income 231 268 218
Partnership expenses (505) (551) (722)
Amortization of prepaid fees
and expenses (101) (101) (613)
Net income $ 3,610 $ 4,171 $ 4,744
Net income decreased in 1999 as compared to 1998 and 1998 as compared to
1997 due primarily to decreases in interest income on PIMs and MBS.
Basic interest on PIMs decreased in 1999 as compared to 1998 and 1998 as
compared to 1997, primarily as a result of repayments of the Greentree PIM
in March 1998 and the Pine Hills PIM in November 1997. Participation income
on PIMs in 1998 was a result of the Greentree payoff while the 1997 income
was a result of the Pine Hills payoff. Interest income on MBS declined when
comparing 1999 to 1998 and 1998 to 1997, respectively, due to principal
collections reducing the outstanding MBS portfolio. Interest income on MBS
and basic interest on PIMs will continue to decline as principal
collections reduce the outstanding balance of these investments.
Amortization expense decreased in 1998 as compared to 1997 as all the
prepaid fees and expenses associated with all the remaining PIMs, except
Vista Montana, became fully amortized in 1997. Partnership expenses
decreased in 1999 as compared to 1998 and in 1998 versus 1997. The decrease
from 1998 to 1999 was primarily due to lower asset management fees caused
by a declining asset base. The decrease from 1997 to 1998 was primarily due
to lower asset management fees of approximately $95,000 because of a
declining asset base and lower expense reimbursements of approximately of
$49,000 because the Partnership received a rebate for expense
reimbursements related to 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to
the directors and executive officers of The Krupp Corporation, which is a
General Partner of the Partnership and is the general partner of The Krupp
Company Limited Partnership-IV, the other General Partner of the
Partnership, is as follows:
Name and Age Position with The Krupp Corporation
Douglas Krupp (53) Co-Chairman, President and Director
George Krupp (55) Co-Chairman, President and Director
Robert A. Barrows (42) Vice President and Chief Accounting Officer
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive
Officer of The Berkshire Group, an integrated real estate financial
services firm engaged in real estate acquisitions, property management,
investment sponsorship, venture capital investing, mortgage banking and
financial management, and ownership of three operating companies through
private equity investments. Mr. Krupp has held the position of Co-Chairman
since The Berkshire Group was established as The Krupp Companies in 1969
and he has served as the Chief Executive Officer since 1992. Mr. Krupp
serves as a member of the Board of Trustees at Brigham & Women's Hospital.
He is a graduate of Bryant College where he received an honorary Doctor of
Science in Business Administration in 1989 and was elected trustee in 1990.
George Krupp (age 55) is the Co-Founder and Co-Chairman of The Berkshire
Group, an integrated real estate financial services firm engaged in real
estate acquisitions, property management, investment sponsorship, venture
capital investing, mortgage banking and financial management, and ownership
of three operating companies through private equity investments. Mr. Krupp
has held the position of Co-Chairman since The Berkshire Group was
established as The Krupp Companies in 1969. Mr. Krupp has been an
instructor of history at the New Jewish High School in Waltham,
Massachusetts since September of 1997. Mr. Krupp attended the University of
Pennsylvania and Harvard University and holds a Master's Degree in History
from Brown University.
Robert A. Barrows is Senior Vice President and Chief Financial Officer of
Berkshire Mortgage Finance. Mr. Barrows has held several positions within
The Berkshire Group since joining the company in 1983 and is currently
responsible for accounting, financial reporting, treasury and management
information systems for Berkshire Mortgage Finance. Prior to joining The
Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in
Boston. He received a B.S. degree from Boston College and is a Certified
Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1999 no person owned of record or was known by the
General Partners to own beneficially more than 5% of the Partnership's
7,500,099 outstanding Units. The only interests held by management or its
affiliates consist of its General Partner and Corporate Limited Partner
Interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in Note F to the
Partnership's financial statements presented in Appendix A to this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements and
Schedule included under Item 8, Appendix A, on page F-2 of this
report.
2. Financial Statement Schedule - see Index to Financial Statements
and Schedule included under Item 8, Appendix A, on page F-2 of
this report. All other schedules are omitted as they are not
applicable, not required or the information is provided in the
Financial Statements or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601 of
Regulation S-K:
(4) Instruments defining the rights of security holders including
indentures:
(4.1)Amended Agreement of Limited Partnership dated as of June 27,
1986 [Exhibit A to Prospectus included in Amendment No. 1 of
Registrant's Registration Statement on Form S-11 dated July 2,
1986 (File No. 33-2520)].*
(4.2)Subscription Agreement whereby a subscriber agrees to purchase
Units and adopts the provisions of the Amended Agreement of
Limited Partnership [Exhibit D to Prospectus included in
Amendment No. 1 of Registrant's Registration Statement on Form
S-11 dated July 2, 1986 (File No. 33-2520)].*
(4.3)Eighth Amendment and Restatement of Certificate of Limited
Partnership filed with the Massachusetts Secretary of State on
February 6, 1987 [Exhibit 4.3 to Registrant's Report on Form 10-K
for the year ended December 31, 1986 (File No. 33-2520)].*
(10) Material Contracts:
Vista Montana
(10.1) Subordinated Promissory Note, dated March 31, 1988, between VM
Associates Limited Partnership, an Arizona Limited Partnership
and GMAC Mortgage Corporation of PA. [Exhibit 19.7 to
Registrant's Report on Form 10-Q for the Quarter Ended March 31,
1988 (File No. 0-15815)].*
(10.2) Subordinated Multi-family Deed of Trust, dated March 31, 1988,
between VM Associates Limited Partnership, an Arizona Limited
Partnership, and GMAC Mortgage Corporation of PA [Exhibit 19.8 to
Registrant's Report on Form 10-Q for the Quarter Ended March 31,
1988 (File No. 0-15815)].*
(10.3) Assignment of Subordinated Deed of Trust, dated March 31, 1988,
between GMAC Mortgage Corporation of PA, and Krupp Insured
Plus-II Limited Partnership, a Massachusetts Limited Partnership.
[Exhibit 19.9 to Registrant's Report on Form 10-Q for the Quarter
Ended March 31, 1988 (File No. 0-15815)].*
(10.4) Assignment of Closing Documents, dated July 12, 1988 by and
between Krupp Insured Plus-II Limited Partnership ("KIP-II"), a
Massachusetts limited partnership, and Krupp Insured Plus Limited
Partnership ("KIP-I"), a Massachusetts limited partnership.
[Exhibit 19.10 to Registrant's Report on Form 10-Q for the
Quarter Ended June 30, 1988 (File No. 0-15815)].*
(10.5) Deed of Trust, dated March 31, 1988 between VM Associates
Limited Partnership, an Arizona limited partnership and
Transamerica Title Insurance Company, a California corporation.
[Exhibit 19.11 to Registrant's Report on Form 10-Q for the
Quarter Ended September 30, 1988 (File No. 0-15815)].*
(10.6) Deed of Trust Note, dated March 31, 1988, between VM Associates
Limited Partnership, an Arizona limited partnership and GMAC
Mortgage Corporation of PA, a Pennsylvania corporation. [Exhibit
19.12 to Registrant's Report on Form 10-Q for the Quarter Ended
September 30, 1988 (File No. 0-15815)].*
(10.7) Assignment of Mortgage and Collateral Documents, dated March
31, 1988 by and between Krupp Insured Plus-II Limited
Partnership, a Massachusetts limited partnership and GMAC
Mortgage Corporation of PA, a Pennsylvania corporation. [Exhibit
19.13 to Registrant's Report on Form 10-Q for the Quarter Ended
September 30, 1988 (File No. 0-15815)].*
(10.8) Servicing Agreement, dated March 31, 1988 by and between Krupp
Insured Plus-II Limited Partnership, a Massachusetts limited
partnership and GMAC Mortgage Corporation of PA, a Pennsylvania
corporation. [Exhibit 19.14 to Registrant's Report on Form 10-Q
for the Quarter Ended September 30, 1988 (File No. 0-15815)].*
(10.9) Modification to the First mortgage loan and subordinated
Promissory Note, dated June 7, 1993, by and between Krupp Insured
Plus-II Limited Partnership and V.M. Associates Limited
Partnership. [Exhibit 10.28 to Registrant's Report on Form 10-K
for the Year Ended December 31, 1994 (File No. 0-15815)].*
(10.10) Assignment of interest from Krupp Insured Plus Limited
Partnership II to Krupp Insured Plus Limited Partnership, dated
February 6, 1995. [Exhibit 10.29 to Registrant's Report on Form
10-K for the Year Ended December 31, 1994 (File No. 0-15815)].*
Royal Palm Place
(10.11) Supplement to Prospectus for FNMA Pool No. MB-109057. [Exhibit
10.30 to Registrant's Report on Form 10-K for the year ended
December 31, 1995(File No. 0-15815)].*
(10.12) Subordinated Multifamily Mortgage dated March 20, 1991 between
Royal Palm Place, Ltd., a Florida limited partnership (the
"Mortgagor") and Krupp Insured Plus-III Limited Partnership (the
"Mortgagee"). [Exhibit 19.2 to Registrant's Report on Form 10-Q
for the Quarter Ended June 30, 1991 (File No. 0-15815)].*
(10.13) Amended and Restated Subordinated Promissory Note dated
December 1, 1995 between Royal Palm Place, Ltd., a Florida
limited partnership (the "Mortgagor") and Krupp Insured Plus-III
Limited Partnership (the "Holder") [Exhibit 10.32 to Registrant's
Report on Form 10-K for the year ended December 31, 1995(File
No.0-15815)].*
(10.14) Modification Agreement dated March 20, 1991 by and between
Royal Palm Place, Ltd., a Florida limited partnership and Krupp
Insured Plus-III Limited Partnership. [Exhibit 19.4 to
Registrant's Report on Form 10-Q for the Quarter Ended June 30,
1991 (File No. 0-15815)].*
(10.15) Participation Agreement dated March 20, 1991 between Krupp
Insured Plus-III Limited Partnership and Krupp Insured Plus
Limited Partnership. [Exhibit 19.1 to Registrant's Report on Form
10-Q for the Quarter Ended September 30, 1991 (File No.
0-15815)].*
* Incorporated by reference.
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1999 the
Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
9th day of March, 2000.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
By: The Krupp Corporation,
a General Partner
By: /s/ Douglas Krupp
Douglas Krupp, Co-Chairman
(Principal Executive Officer) and Director of The
Krupp Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 9th day of March, 2000.
Signatures Title(s)
/s/ Douglas Krupp Co-Chairman (Principal Executive Officer), President
Douglas Krupp and Director of The Krupp Corporation,
a General Partner of the Registrant.
/s/ George Krupp Co-Chairman (Principal Executive Officer)and Director
George Krupp of The Krupp Corporation,
a General Partner of the Registrant
/s/ Robert A. Barrows Vice President and Chief Accounting Officer of
Robert A. Barrows The Krupp Corporation,
a General Partner of the Registrant.
APPENDIX A
KRUPP INSURED PLUS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1999
KRUPP INSURED PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 1999 and 1998 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8 - F-14
All schedules are omitted as they are not applicable or not required, or
the information is provided in the financial statements or the notes
thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Insured Plus Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements
of income and comprehensive income, of partner's equity and of cash flows
present fairly, in all material respects, the financial position of Krupp
Insured Plus Limited Partnership (the "Partnership") at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
auditing principles generally accepted in the United States. These
financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 17, 2000
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
Participating Insured Mortgages
("PIMs") (Notes B, C and H) $ 19,032,999 $ 29,074,105
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, D and H) 21,918,397 23,880,438
Total mortgage investments 40,951,396 52,954,543
Cash and cash equivalents (Notes B, C and H) 13,002,087 3,653,130
Interest receivable and other assets 319,994 367,780
Prepaid acquisition fees and expenses, net of
accumulated amortization of $657,985 and
$590,032, respectively (Note B) 186,267 254,220
Prepaid participation servicing fees, net of
accumulated amortization of $226,219 and
$193,113, respectively (Note B) 104,833 137,939
Total assets $ 54,564,577 $ 57,367,612
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 19,550 $ 20,198
Partners' equity (deficit) (Notes A, C and E):
Limited Partners 54,522,528 56,720,679
(7,500,099 Limited Partner interests
outstanding)
General Partners (241,347) (237,028)
Accumulated Comprehensive Income (Note B) 263,846 863,763
Total Partners' equity 54,545,027 57,347,414
Total liabilities and Partners' equity $ 54,564,577 $ 57,367,612
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME & COMPREHENSIVE INCOME
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Revenues:
Interest income - PIMs
Basic interest $ 2,085,273 $ 2,257,069 $ 3,136,659
Participation interest - 250,000 542,650
Interest income - MBS 1,899,734 2,048,263 2,181,378
Other interest income 230,826 268,481 217,976
Total revenues 4,215,833 4,823,813 6,078,663
Expenses:
Asset management fee to an affiliate (Note F) 376,755 407,132 502,332
Expense reimbursements to affiliates (Note F) 42,279 27,413 76,727
Amortization of prepaid fees and expenses (Note B) 101,059 101,057 612,631
General and administrative expenses 85,508 117,197 143,205
Total expenses 605,601 652,799 1,334,895
Net income (Note G) 3,610,232 4,171,014 4,743,768
Other Comprehensive Income:
Net change in unrealized gain on MBS (599,917) (360,068) 223,447
Total Comprehensive Income $ 3,010,315 $ 3,810,946 $ 4,967,215
Allocation of net income (Notes E and G):
Limited Partners $ 3,501,925 $ 4,045,884 $ 4,601,455
Average net income per Limited Partner Interest $ .47 $ .54 $ .61
(7,500,099 Limited Partner interests outstanding)
General Partners $ 108,307 $ 125,130 $ 142,313
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
Balance at December 31, 1996 $72,448,679 $(194,008) $1,000,384 $73,255,055
Net income 4,601,455 142,313 - 4,743,768
Quarterly distributions (5,700,093) (172,798) - (5,872,891)
Special distributions (4,575,060) - - (4,575,060)
Change in unrealized gain
on MBS - - 223,447 223,447
Balance at December 31,1997 66,774,981 (224,493) 1,223,831 67,774,319
Net income 4,045,884 125,130 - 4,171,014
Quarterly distributions (5,700,075) (137,665) - (5,837,740)
Special distribution (8,400,111) - - (8,400,111)
Change in unrealized gain
on MBS - - (360,068) (360,068)
Balance at December 31,1998 56,720,679 (237,028) 863,763 57,347,414
Net income 3,501,925 108,307 - 3,610,232
Quarterly distributions (5,700,076) (112,626) - (5,812,702)
Change in unrealized gain
on MBS - - (599,917) (599,917)
Balance at December 31, 1999 $ 54,522,528 $(241,347) $ 263,846 $54,545,027
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Operating activities:
Net income $ 3,610,232 $ 4,171,014 $ 4,743,768
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 101,059 101,057 612,631
Shared Appreciation Interest and prepayment premium - (250,000) (252,260)
Premium Amortization 6,630 - -
Changes in assets and liabilities:
Decrease (increase) in interest receivable
and other assets 47,786 166,398 (16,702)
Increase (decrease) in liabilities (648) (919) 2,649
Net cash provided by operating activities 3,765,059 4,187,550 5,090,086
Investing activities:
Principal collections and prepayments on PIMs
including prepayment premium of $250,000
in 1998 and Shared Appreciation Income
of $252,260 in 1997. 10,041,106 8,945,730 5,228,215
Principal collections on MBS 1,355,494 1,657,086 1,473,068
Net cash provided by investing activities 11,396,600 10,602,816 6,701,283
Financing activities:
Quarterly distributions (5,812,702) (5,837,740) (5,872,891)
Special distributions - (8,400,111) (4,575,060)
Net cash used for financing activities (5,812,702) (14,237,851) (10,447,951)
Net increase in cash and cash equivalents 9,348,957 552,515 1,343,418
Cash and cash equivalents, beginning of period 3,653,130 3,100,615 1,757,197
Cash and cash equivalents, end of period $ 13,002,087 $ 3,653,130 $ 3,100,615
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Insured Plus Limited Partnership (the "Partnership") is a
Massachusetts Limited Partnership. The Partnership was organized for the
purpose of investing in multi-family loans and mortgage-backed securities.
The General Partners of the Partnership are The Krupp Corporation and The
Krupp Company Limited Partnership-IV and the Corporate Limited Partner is
Krupp Depositary Corporation. The Partnership terminates on December 31,
2025, unless terminated earlier upon the occurrence of certain events as
set forth in the Partnership Agreement.
The Partnership commenced the public offering of Units on July 7, 1986 and
completed its public offering having sold 7,499,099 Units for $149,489,830
net of purchase volume discounts of $510,150 as of January 27, 1987. In
addition, Krupp Depositary owns 100 Units.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes which differ in certain respects from those used for
federal income tax purposes (Note G):
MBS
The Partnership, in accordance with Financial Accounting Standards Board's
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115), classifies its MBS portfolio as available-for-sale.
As such the Partnership carries its MBS at fair market value and reflects
any unrealized gains (losses) as a separate component of Partners' Equity.
The Partnership amortizes purchase premiums or discounts over the life of
the underlying mortgages using the effective interest method.
Effective January 1, 1998, the Partnership adopted Statement of Financial
Accounting Standards No. 130, 'Reporting Comprehensive Income' (FAS 130).
FAS 130 established standards for reporting and displaying comprehensive
income and its components. FAS 130 requires comprehensive income and its
components, as recognized under accounting standards, to be displayed in a
financial statement with the same prominence as other financial statements,
if material. Accordingly, unrealized gains (losses) on the Partnership's
available-for sale securities have been included in other comprehensive
income.
The Federal Housing Administration (FHA) insured mortgage is carried at
amortized cost. The Partnership holds this loan at amortized cost since it
is fully insured by the FHA.
PIMs
The Partnership accounts for its MBS portion of a PIM in accordance with
FAS 115 under the classification of held to maturity. The Partnership
carries the Fannie Mae MBS at amortized cost. The insured mortgage portion
of the Federal Housing Administration PIM (FHA PIM) is carried at amortized
cost since they are fully insured by the FHA.
Basic interest on PIMs is recognized at the stated rate of the Federal
Housing Administration insured mortgage (less the servicer's fee) or the
stated coupon rate of the Fannie Mae MBS. The Partnership recognizes
interest related to the participation features as earned and when it deems
these amounts are collectible. The Partnership holds a participating
mortgage loan insured by the Federal Housing Administration and carries it
at amortized cost.
Cash and Cash Equivalents
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The Partnership invests its cash primarily in commercial paper
and money market funds with a commercial bank and has not experienced any
loss to date on its invested cash.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
B. Significant Accounting Policies, Continued
Prepaid Fees and Expenses
Prepaid fees and expenses represent prepaid acquisition fees and expenses
and prepaid participation servicing fees paid for the acquisition and
servicing of PIMs. The Partnership amortizes the prepaid acquisition fees
and expenses using a method that approximates the effective interest method
over a period of ten to twelve years, which represents the actual maturity
or anticipated repayment of the underlying mortgage.
The Partnership amortizes the prepaid participation servicing fees using a
method that approximates the effective interest method over a ten year
period beginning from the acquisition of the Fannie Mae MBS or final
endorsement of the FHA loan.
Income Taxes
The Partnership is not liable for federal or state income taxes because
Partnership income is allocated to the partners for income tax purposes. If
the Partnership's tax returns are examined by the Internal Revenue Service
or state taxing authority and such an examination results in a change in
Partnership taxable income, such change will be reported to the partners.
Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
contingent assets and liabilities and revenues and expenses during the
period. Actual results could differ from those estimates.
C. PIMs
At December 31, 1999, and 1998 the Partnership had investments in two PIMs
and three PIMs, respectively. The Partnership's PIMs consist of a Fannie
Mae MBS representing the securitized first mortgage loan on the underlying
property and a sole participation interest in a first mortgage loan
originated under the FHA lending program on the underlying property
(collectively the "insured mortgages"), and participation interests in the
revenue stream and appreciation of the underlying properties above
specified base levels. The borrower conveys these participation features to
the Partnership generally through a subordinated promissory note and
mortgage (the "Agreement").
The Partnership receives guaranteed monthly payments of principal and basic
interest on the Fannie Mae MBS and HUD insures the FHA mortgage loan. The
Partnership may receive income related to its participation interests in
the underlying property, however, these amounts are neither insured nor
guaranteed.
Generally, the participation features consist of the following: (i)
"Minimum Additional Interest" which is at the rate of .5% per annum
calculated on the unpaid principal balance of the first mortgage on the
underlying property, (ii) "Shared Income Interest" which is 30% of the
monthly gross rental income generated by the underlying property in excess
of a specified base, but only to the extent that it exceeds the amount of
Minimum Additional Interest earned during such month or 25% of
distributable surplus cash, (iii) "Shared Appreciation Interest" which is
30% of any increase in the value of the underlying property in excess of a
specified base to 25% of the net sales proceeds.
Payment of participation interest from the operations of the property is
limited to 50% of net revenue or surplus cash as defined by Fannie Mae or
HUD, respectively. The aggregate amount of Minimum Additional Interest,
Shared Income Interest and Shared Appreciation Interest payable by the
underlying borrower on the maturity date generally cannot exceed 50% of any
increase in value of the property.
Shared Appreciation Interest is payable when one of the following occurs:
(1) the sale of the underlying property to an unrelated third party on a
date which is later than five years from the date of the Agreement, (2) the
maturity date or accelerated maturity date of the Agreement, or (3)
prepayment of amounts due under the Agreement and the insured mortgage.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
The borrower may prepay the first mortgage loan subject to a 9% prepayment
premium in years six through nine, a 1% prepayment premium in year ten and
no prepayment premium thereafter.
Under the Agreement, the Partnership, upon giving twelve months written
notice, can accelerate the maturity date of the Agreement to a date not
earlier than ten years from the date of the Agreement for (a) the payment
of all participation interest due under the Agreement as of the accelerated
maturity date, or (b) the payment of all participation interest due under
the Agreement plus all amounts due on the first mortgage note on the
property.
In December 1999, the Partnership received a prepayment in the amount of
$9,746,923 representing the outstanding principal balance due on the La
Costa PIM. The Borrower defaulted on the first mortgage loan underlying the
PIM in June of 1999. The Partnership continued to receive its full
principal and interest payments until the GNMA mortgagee exercised its
right to prepay the GNMA MBS due to the continuing default of the
underlying first mortgage loan. The Partnership did not receive any
participation interest as a result of this default. On January 11, 2000,
the Partnership paid a special distribution to the investors of $1.30 per
Limited Partner interest.
In July of 1997 the borrower on the Greentree PIM defaulted on the first
mortgage obligation, but the Partnership continued to receive its full
principal and basic interest payments because GNMA guaranteed those
payments. In March 1998, GNMA exercised its right to prepay the GNMA MBS
due to the continuing default of the underlying first mortgage loan. The
Partnership received proceeds from the prepayment of the GNMA MBS in the
amount of $8,382,336. On April 16, 1998, the Partnership made a special
distribution to the investors from the capital proceeds of $1.12 per
Limited Partner interest. Subsequent to the payoff of the GNMA MBS, the
General Partners negotiated a settlement with the borrower to release the
Subordinated Promissory Note, and $250,000 was received in July 1998.
At December 31, 1999 and 1998 there were no loans within the Partnership's
portfolio that were delinquent as to principal or interest.
The Partnership's PIMs consist of the following at December 31, 1999 and
1998:
Original Interest Maturity Monthly Investment Basis at
PIMs Face Amount Rates (a) Dates Payment December 31,
1999 1998
GNMA
La Costa $ 11,050,000 - - - $ - $ 9,890,213
Apts.
Miami Fl.
FHA
Vista Montana 13,814,400 7.375% 12/1/33 86,000 13,400,589 13,483,058
Apts. (b)
Val Vista Lakes, Az.
Fannie Mae
Royal Palm Place 6,021,258 7.875% 4/1/06 - 5,632,410 5,700,834
Kendall, Fl. (c) (d)
$19,835,658 $ 19,032,999 $ 29,074,105
(e)
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
(a) Represents only the stated interest rate of the FNMA MBS or the
stated interest rate of the FHA mortgage loan less the servicing
fee. In addition, the Partnership may receive participation
income, consisting of (i) Minimum Additional Interest, (ii)
Shared Income Interest and (iii) Shared Appreciation Interest.
(b) On November 30, 1993, the Partnership entered into an agreement
with the underlying borrower of the FHA PIM for a permanent
interest rate reduction from 8.875% per annum to 7.375% per
annum, retroactive to January 1, 1992. In exchange for the
interest rate reduction, the Partnership received an increase in
Shared Appreciation Income from 25% in excess of the base amount
of $15,410,000 to 25% of the net sales proceeds over the
outstanding indebtedness at the time of sale. In the event of a
refinancing, Shared Appreciation Income is 25% of the appraised
value over the outstanding indebtedness at the time of
refinancing. In addition, Shared Income Interest increased from
25% of rental income in excess of the base amount of $175,000 to
25% of all distributable surplus cash.
(c) The total PIM on the underlying property is $22,000,000 of which
73% or $15,978,742 is held by Krupp Insured Plus III Limited
Partnership, an affiliate of the Partnership.
(d) During December 1995, the Partnership agreed to a modification of
the Royal Palm PIM. The Partnership received a reissued Fannie
Mae MBS and increased its participation percentage in income and
appreciation from 25% to 30%. The Partnership will receive
interest only payments on the FNMA MBS at interest rates ranging
from 7.875% to 8.775% per annum through maturity. The Partnership
will receive its pro-rata share of the annual principal payment
totaling $250,000 due in January 2000.
(e) The aggregate cost of PIMs for federal income tax purposes is
$19,032,999.
A reconciliation of the carrying value of Mortgages for each of the three
years in the period ended December 31, 1999 is as follows:
1999 1998 1997
Balance at beginning of period $ 29,074,105 $ 37,769,835 $ 42,745,790
Deductions during period:
Prepayment and principal collections (10,041,106) (8,695,730) (4,975,955)
Balance at end of period $ 19,032,999 $ 29,074,105 $ 37,769,835
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in two states. The apartment complexes range in
size from 352 to 377 units.
D. MBS
At December 31, 1999, the Partnership's MBS portfolio had an amortized cost
of $12,541,035 and gross unrealized gains and losses of $265,822 and $1,976
respectively. At December 31, 1998, the Partnership's MBS portfolio had an
amortized cost of $13,861,966 and gross unrealized gains of $863,763. The
portfolio has maturities ranging from 2006 to 2032. At December 31, 1999
and 1998, the Partnership's insured mortgage had an amortized cost of
$9,113,516, and $9,154,709, respectively.
Unrealized
Maturity Date Fair Value Gain/(Loss)
2001 - 2005 $ - $ -
2006 - 2010 967,190 42,870
2011 - 2032 21,276,651 546,420
Total $ 22,243,841 $ 589,290
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
E. Partners' Equity
Profits and losses from Partnership operations and Distributable Cash Flow
are allocated 97% to the Unitholders and Corporate Limited Partner (the
"Limited Partners") and 3% to the General Partners.
Upon the occurrence of a capital transaction, as defined in the Partnership
Agreement, net cash proceeds will be distributed first, to the Limited
Partners until they have received a return of their total invested capital,
second, to the General Partners until they have received a return of their
total invested capital, third, 99% to the Limited Partners and 1% to the
General Partners until the Limited Partners receive an amount equal to any
deficiency in the 10% cumulative return on their invested capital that
exists through fiscal years prior to the date of the capital transaction,
fourth, to the class of General Partners until they have received an amount
equal to 4% of all amounts of cash distributed under all capital
transactions and fifth, 96% to the Limited Partners and 4% to the General
Partners.
Profits arising from a capital transaction will be allocated in the same
manner as related cash distributions. Losses from a capital transaction
will be allocated 97% to the Limited Partners and 3% to the General
Partners.
During 1999, 1998 and 1997, the Partnership made quarterly distributions
totaling $.76 per Unit annually. The Partnership made special distributions
of $1.12, and $.61 per Unit in 1998, and 1997 respectively.
As of December 31, 1999, the following cumulative partner contributions and
allocations have been made since inception of the Partnership:
Corporate
Limited General Unrealized
Unitholders Partner Partners gain on MBS Total
Capital $149,489,830 $ 2,000 $ 3,000 $ - $149,494,830
contributions
Syndication (7,906,604) - - - (7,906,604)
Costs
Quarterly
distributions (117,536,046) (1,611) (2,752,614) (120,290,271)
Special
Distributions (50,624,974) (675) - - (50,625,649)
Net income 81,099,517 1,091 2,508,267 83,608,875
Unrealized
gains on MBS - - - 263,846 263,846
Balance at
December 31, 1999 $ 54,521,723 $ 805 $ (241,347) $ 263,846 $ 54,545,027
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General Partners receive
an Asset Management Fee equal to .75% per annum of the value of the
Partnership's total invested assets payable quarterly. The General Partners
may also receive an incentive management fee in an amount equal to .3% per
annum on the Partnership's Total Invested Assets providing the Unitholders
receive a specified non-cumulative annual return on their Invested Capital.
Total fees payable to the General Partners for asset management and
incentive management fees shall not exceed 10% of distributable cash flow
over the life of the Partnership.
Additionally, the Partnership reimburses affiliates of the General Partners
for certain expenses incurred in connection with maintaining the books and
records of the Partnership and the preparation and mailing of financial
reports, tax information and other communications to investors.
G. Federal Income Taxes
The reconciliation of the net income reported in the accompanying statement
of income with the net income reported in the Partnership's 1999 federal
income tax return is as follows:
Net income from statement of operations $3,610,232
Less: Book to tax difference for amortization of
prepaid expenses and fees (552,989)
Net income for federal income tax purposes $3,057,243
The allocation of the 1999 net income for federal income tax purposes is as
follows:
Portfolio
Income
Unitholders $ 2,965,486
Corporate Limited Partner 40
General Partners 91,717
$ 3,057,243
For the years ended December 31, 1999, 1998 and 1997 the average per unit
net income to the Unitholders for federal income tax purposes was $.40,
$.48, and $.64, respectively.
The basis of the Partnership's assets for financial reporting purposes is
less than its tax basis by approximately $343,000 and $290,000 at December
31, 1999 and 1998, respectively. The basis of the Partnership's liabilities
for financial reporting purposes are the same for its tax basis at December
31, 1999 and 1998, respectively.
H. Fair Value Disclosures of Financial Instruments
The Partnership used the following methods and assumptions to estimate the
fair value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
H. Fair Value Disclosures of Financial Instruments, continued
MBS
The Partnership estimated the fair value of MBS based on quoted market
prices while it estimates the fair value of insured mortgages based on
quoted prices of MBS with similar interest rates. Based on the estimated
fair value determined using these methods and assumptions, the
Partnership's investments in MBS had gross unrealized gains and losses of
approximately $591,000 and $2,000 at December 31, 1999 and $864,000 and $0
at December 31, 1998.
PIMs
There is no active trading market for these investments, so management
estimates the fair value of the PIMs using quoted market prices of MBS
having a similar interest rate. Management does not include any
participation interest in the Partnership's estimated fair value arising
from the properties, because Management does not believe it can predict the
time of realization of the feature with any certainty. Based on the
estimated fair value determined using these methods and assumptions, the
Partnership's investments in PIMs had gross unrealized losses of
approximately $409,000 at December 31, 1999, and unrealized gains of
approximately $680,000 at December 31, 1998.
At December 31, 1999 and 1998, the Partnership estimates fair the value of
its financial instruments as follows:
(Rounded to $1,000)
1999 1998
Fair Carrying Fair Carrying
Value Value Value Value
Cash and cash equivalents $ 13,002 $ 13,002 $ 3,653 $ 3,653
MBS and insured mortgages 22,244 21,918 23,880 23,880
PIMs 18,624 19,033 29,754 29,074
$ 53,870 $ 53,953 $57,287 $56,607
Unaudited Distributable Cash Flow and Net Cash Proceeds from
Capital Transactions
Shown below is the calculation of Distributable Cash Flow and Net Cash
Proceeds from Capital Transactions, as defined by Section 17 of the
Partnership Agreement, and the source of cash distributions for the year
ended December 31, 1999 and the period from inception through December 31,
1999. The General Partners provide certain of the information below to meet
requirements of the Partnership Agreement and because they believe that it
is an appropriate supplemental measure of operating performance. However,
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
should not be considered by the reader as a substitute to net income as an
indicator of the Partnership's operating performance or to cash flows as a
measure of liquidity.
(Amounts in thousands, except per Unit amounts)
Year Inception
Ended Through
12/31/99 12/31/99
Distributable Cash Flow:
Income for tax purposes $ 3,057 $ 84,216
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid fees and expenses 654 7,671
Shared appreciation income - (502)
Amortization of MBS premiums 7 291
Acquisition expenses paid from offering proceeds
charged to operations - 1,098
Gain on sale of MBS - (114)
Total Distributable Cash Flow ("DCF") $ 3,718 $ 92,660
Limited Partners Share of DCF $ 3,607 $ 89,880
Limited Partners Share of DCF per Unit $ .48 $ 11.98 (c)
General Partners Share of DCF $ 111 $ 2,780
Net Proceeds from Capital Transactions:
Insurance claim proceeds, prepayment proceeds and PIM
principal collections including shared appreciation
income $ 10,041 $ 87,189
Principal collections on MBS 1,355 44,989
Insurance claim proceeds and principal collections on
PIMs and MBS reinvested in PIMs and MBS - (40,775)
Gain on sale of MBS - 114
Total Net Proceeds from Capital Transactions $ 11,396 $ 91,517
Cash available for distribution
(DCF plus Net Proceeds from Capital Transactions) $ 15,114 $184,177
Distributions: (includes special distributions)
Limited Partners $ 15,450 (a) $179,338 (b)
Limited Partners Average per Unit $ 2.06 (a) $ 23.91 (b)(c)
General Partners $ 111 (a) $ 2,780 (b)
Total Distributions $ 15,561 $ 182,118
(a) Represents all distributions paid in 1999 except the February
1999 distribution and includes the special distribution paid in
January 2000 and an estimate of the distribution to be paid in
February 2000.
(b) Includes the special distribution paid in January 2000 and an
estimate of the distribution to be paid in February 2000.
(c) Limited Partners average per Unit return of capital as of
February 2000 is $11.93 [$23.91 - $11.98]. Return of capital
represents that portion of distributions which is not funded from
DCF such as proceeds from the sale of assets and substantially
all of the principal collections received from MBS and PIMs.