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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 SECURITIESx
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-15815
Krupp Insured Plus Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2915281
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617)423-2233
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 8-11.
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
programs of the Federal National Mortgage Association ("FNMA") or
Government National Mortgage Association ("GNMA"), 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. FNMA guarantees the principal
and interest payments for the FNMA MBS and GNMA guarantees the timely
payment of principal and interest for the GNMA MBS. HUD insures the first
mortgage loan underlying the GNMA MBS and any 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 GNMA, FNMA or the Federal
Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC guarantee the
principal and basic interest of these FNMA and FHLMC MBS, respectively.
GNMA guarantees the timely payment of principal and interest of GNMA MBS,
and HUD insures the pooled first 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 stated
termination date of the Partnership.
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, 1997, 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 STOCK-
HOLDER MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1997 was
approximately 6,820. 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 1997 and 1996, the Partnership made special distributions
consisting primarily of principal proceeds from the Pine Hills PIM and
Mandalay PIM prepayments, respectively. The Partnership may make special
distributions in the future if PIMs prepay or a sufficient amount if 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, 1997 and 1996:
1997 1996
Amount Per Unit Amount Per Unit
Distributions:
Limited Partners $ 5,700,093 $ .76 $ 9,000,119 $1.20
General Partners 172,798 181,178
5,872,891 9,181,297
Special Distributions:
Limited Partners 4,575,060 $ .61 16,500,218 $2.20
Total Distributions $10,447,951 $25,681,515
-5-
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.
1997 1996 1995 1994 1993
Total revenues $ 6,078,663 $ 7,216,716 $ 7,097,154 $ 7,688,593 $7,698,364
Net income 4,743,768 5,329,348 5,247,543 5,682,819 5,642,527
Net income allocated to:
Limited Partners 4,601,455 5,169,468 5,090,117 5,512,334 5,473,251
Average Per Unit .61 .69 .68 .73 .73
General Partners 142,313 159,880 157,426 170,485 169,276
Total assets at
December 31 67,795,436 73,273,523 93,784,033 96,561,305 108,566,470
Distributions to:
Limited Partners 5,700,093 9,000,119 9,000,119 9,554,686 9,873,378
Average per Unit .76 1.20 1.20 1.28 1.32
Special 4,575,060 16,500,218 - 7,950,105 4,950,065
Average per Unit .61 2.20 - 1.06 .66
General Partners 172,798 181,178 187,157 192,551 203,481
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.
-6-
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are regular
quarterly distributions of approximately $1.4 million paid to investors.
Funds used for investor distributions come from (i)interest received on the
PIMs, MBS, cash and cash equivalents, (ii) the principal collections
received on the PIMs and MBS and (iii) cash reserves. The portion of the
distribution funded from principal collections and cash reserves causes the
capital resources of the Partnership to continually decrease. As a result
of this decrease, the total cash inflows to the Partnership also will
decrease resulting in periodic downward adjustments to the quarterly
distributions paid to investors.
During the fourth quarter of 1997, the Partnership received a repayment
of the Pine Hills Apartments PIM. The Partnership received the outstanding
principal balance of approximately $4.5 million, Shared Appreciation
Interest of $252,000 and participation income of $290,390. The Partnership
made a special distribution during December 1997 to the investors in the
amount of $.61 per limited partner interest with these proceeds. The
Partnership will continue to pay the current distribution rate for the near
future.
In November 1996, the underlying borrower of the Mandalay Apartments PIM
prepaid the insured mortgage and paid a portion of the accumulated
participation income. Following the prepayment, the Partnership made a
special distribution of $2.20 per Unit to investors.
The General Partners do not expect any other PIMs still held in the
Partnership's portfolio to be repaid during 1998. Two of the properties,
Royal Palm Place and Vista Montana, continue to operate under long-term
restructure programs. The mediocre operating performances of the two
remaining properties, Greentree and La Costa, have not generated sufficient
increases in property values to provide an incentive for the owners to
pursue either a sale or refinancing of those properties. Both Greentree
and La Costa are older properties with physical shortcomings that affect
rental income potential and increase the cost of operations. Consequently,
neither property generates any participation interest to the Partnership
from operating cash flow.
The General Partners periodically review the distribution rate to
determine whether an adjustment to the distribution rate 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 of
cash available for distribution. To the extent quarterly distributions
differ from cash available for distribution, the General Partners may
adjust the distribution rate.
In the event of a sale or refinancing of the remaining PIMs, the
Partnership will distribute the proceeds to investors as a special
distribution and adjust the distribution rate as necessary to reflect the
anticipated cash inflows from the remaining mortgage investments.
For the first five years of the PIMs the borrowers were prohibited from
prepaying the insured mortgage loan. For the second five years, the
borrower can prepay the insured mortgage by incurring a prepayment penalty.
The Partnership has the option to call certain PIMs by accelerating their
maturity if the loans are not prepaid by the end of 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 this decision.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by
the FNMA, GNMA, FHLMC, 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.
FNMA 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 bythe full faithand creditof the U.S.Government.
Operations
The following discussion relates to the operation of the Partnership during
the years ended December 31, 1997, 1996 and 1995.
(Amounts in thousands)
1997 1996 1995
Interest income on PIMs:
Base interest $ 3,137 $ 4,644 $ 4,471
Participation interest income 543 114 -
Interest income on MBS 2,181 2,315 2,473
Other interest income 218 143 153
Partnership expenses (722) (791) (891)
Amortization of prepaid fees
and expenses (613) (1,096) (958)
Net income $ 4,744 $ 5,329 $ 5,248
Net income decreased in 1997 as compared to 1996 due primarily to a
decrease in interest income on PIMs which were somewhat offset by a
decrease in amortization expense. Base interest income on PIMs decreased
in 1997 as compared to 1996 as a result of a reduction in the invested
assets in the Partnership. The reduction in assets was a result of
repayments of the Pine Hills PIM in November of 1997 and the Mandalay
Apartments PIM in November of 1996. Subsequently, special distributions
were made from the Partnership using the payoff proceeds. Interest income
on MBS declined approximately $134,000 due to principal collections
reducing the outstanding MBS portfolio. Interest income on MBS and base
interest income on PIMs will continue to decline as principal collections
reduce the outstanding balance of these investments. As the Partnership
distributes principal collections on MBS and PIMs through quarterly or
special distributions, the invested assets of the Partnership will decline
which should result in a continuing decline in interest income.
Amortization expense decreased in 1997 as compared to 1996 due to the full
amortization of prepaid expenses relating to the Mandalay Apartments PIM
in 1996 exceeded the amortization of prepaid expenses relating to the Pine
Hills PIM prepayment in 1997. Partnership expenses decreased approximately
$69,000 in 1997 versus 1996 mainly as result of lower asset management
fees caused by a declining asset base.
Net income increased slightly in 1996 as compared to 1995 due
primarily to an increase in interest income on PIMs and lower Partnership
expenses which were offset by lower interest income on MBS and an increase
in amortization expense. Base interest income on PIMs increased in 1996
as compared to 1995 as a result of fully amortizing the remaining
unamortized discount on the Mandalay Apartments PIM of approximately
$411,000 upon its prepayment in November 1996, net of a decrease in base
interest income of approximately $100,000 resulting from the prepayment, a
decrease of approximately $83,000 resulting from the modification of the
Royal Palm Apartments PIM, and a decrease resulting from the scheduled
amortization of the underlying mortgages. In 1995, the Royal Palm
Apartments PIM was modified and the interest rate on the FNMA MBS was
reduced from 7.75% to 6.25% per annum. The Partnership saw an increase in
participation interest income of approximately $114,000 in 1996 versus
1995 due to participation interest income received from the prepayment of
the Mandalay
Apartments PIM. In the same period interest income on MBS declined
approximately $158,000 due to principal collections reducing the
outstanding MBS portfolio. Amortization expense increased in 1996 as
compared to 1995 due to fully amortizing the remaining prepaid fees and
expenses related to the Mandalay Apartments PIM. Partnership expenses
decreased approximately $100,000 in 1996 versus 1995 as result of lower
asset management fees caused by a declining asset base and decreases of
approximately $34,000 in expense reimbursements to affiliates and $27,000
in general and administrative expenses.
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 a general partner of The
Krupp Company Limited Partnership-IV, the other General Partner of the
Partnership, is as follows:
Position with
Name and Age The Krupp Corporation
Douglas Krupp (51) Co-Chairman, President and Director
George Krupp (53) Co-Chairman, President and Director
Robert A. Barrows (40) Vice President and Chief Accounting
Officer
Douglas Krupp and George Krupp are Co-Founders of The Berkshire Group.
Established in 1969 as the Krupp Companies and headquartered in Boston,
the Berkshire Group is a privately held real estate-based firm that has
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility management. The Berkshire Group s interests include
ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition,
The Berkshire Group has a majority ownership interest in Harborside
Healthcare (NYSE-HBR), a long-term and subacute care company and a
significant ownership interest in Berkshire Realty Company, Inc. (NYSE-
BRI), a real estate investment trust specializing in apartment
investments.
-10-
Douglas Krupp is graduate of Bryant College. In 1989 he received an
honorary Doctor of Science in Business Administration from this
institution and was elected trustee in 1990. Douglas Krupp is Chairman of
The Berkshire Group, Chairman of the Board and a Director of both
Berkshire Realty Company, Inc. and Harborside Healthcare. Mr. Krupp also
serves as Chairman of the Board and Trustee of both Krupp Government
Income Trust and Krupp Government Income Trust II.
George Krupp received his undergraduate education from the University
of Pennsylvania and Harvard University Extension School 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, management information systems
and loan closing and servicing 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, 1997 no person owned of record or was known by the
General Partners to own beneficially more than 5% of the Partnership's
7,499,999 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:
La Costa Apartments
(10.1) Prospectus for GNMA Pool No. 168416 (PL). [Exhibit 19.1 to
Registrant's Report on Form 10-Q for the quarter ended
March 31, 1987 (File No. 33-2520)].*
(10.2) Shared Income and Appreciation Agreement, dated March 18,
1987 between International Plaza Associates, Ltd., A
Florida limited partnership, and DRG Funding Corporation, a
Delaware corporation. [Exhibit 19.2 to Registrant's Report
on Form 10-Q for the quarter ended March 31, 1987 (File No.
33-2520)].*
(10.3) Multifamily Mortgage, Assignment of Rents and Security
Agreement, dated March 18, 1987 between International Plaza
Associates, Ltd., a Florida limited partnership, and DRG
Funding Corporation, a Delaware corporation. [Exhibit 19.3
to Registrant's Report on Form 10-Q for the quarter ended
March 31, 1987 (File No. 33-2520)].*
(10.4) Assignment of Mortgage, dated March 18, 1987, between DRG
Funding Corporation, a Delaware corporation, (Mortgagee)
and Krupp Insured Plus Limited Partnership, a Massachusetts
limited partnership, (Assignee). [Exhibit 19.4 to
Registrant's Report on Form 10-Q for the quarter ended
March 31, 1987 (File No. 33-2520)].*
Greentree Apartments
(10.5) Prospectus for GNMA Pool No. 238744-(PL). [Exhibit 1 to
Registrant's Report on Form 8-K dated December 10, 1987
(File No. 0-15815)].*
(10.6) Mortgage Note, dated October 22, 1987, between Greentree
Associates, Ltd. and DRG Funding Corporation. [Exhibit 2
to Registrant's Report on Form 8-K dated December 10, 1987
(File No.0-15815)].*
(10.7) Mortgage, dated October 22, 1987, between Greentree
Associates, Ltd. and DRG Funding Corporation. [Exhibit 3
to Registrant's Report on Form 8-K dated December 10, 1987
(File No. 0-15815)].*
(10.8) Shared Income and Appreciation Agreement, dated October 22
1987, between Greentree Associates, Ltd. and DRG Funding
Corporation. [Exhibit 4 to Registrant's Report on Form 8-K
dated December 10, 1987 (File No. 0-15815)].*
(10.9) Assignment of Shared Income and Appreciation Agreement,
dated October 22, 1987, between DRG Funding Corporation and
Krupp Insured Plus Limited Partnership (as "Assignee").
[Exhibit 5 to Registrant's Report on Form 8-K dated
December 10, 1987 (File No. 0-15815)].*
(10.10) Multifamily Mortgage, Assignment of Rents and Security
Agreement, dated October 22, 1987, between Greentree
Associates, Ltd. and DRG Funding Corporation. [Exhibit
6 to Registrant's Report on Form 8-K dated December 10,
1987 (File No. 0-15815)].*
(10.11) Assignment of Mortgage (the Multifamily Mortgage,
Assignment of Rents and Security Agreement), dated
November 23, 1987, between DRG Funding Corporation (as
"Mortgagee") and Krupp Insured Plus Limited Partnership
(as "Assignee"). [Exhibit 7 to Registrant's Report on
Form 8-K dated December 10, 1987 (File No. 0-15815)].*
Vista Montana
(10.12) 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)].*
(10.13) 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)].*
(10.14) 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)].*
(10.15) 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)].*
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(10.16) 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)].*
(10.17) 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)].*
(10.18) 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)].*
(10.19) 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)].*
(10.20) 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)].*
(10.21) 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
(10.22) 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)].*
(10.23) 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)].*
(10.24) 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)].*
(10.25) 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)].*
(10.26) 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, 1997 the
Partnership did not file any reports on Form 8-K.
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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 2nd day of February, 1997.
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 2nd day of
February, 1997.
Signatures Title(s)
/s/ Douglas Krupp Co-Chairman (Principal Executive Officer),
Douglas Krupp President and Director
of The Krupp Corporation,a
General Partner of the
Registrant.
/s/George Krupp Co-Chairman (Principal Executive Officer)
George Krupp and Director of The Krupp Corporation,
a General Partner of the Registrant.
/s/ Robert A. Barrows Vice President and Chief Accounting Officer
Robert A. Barrows of The Krupp Corporation, a General Partner
of the Registrant.
-17-
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, 1997
KRUPP INSURED PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 F-7
Notes to Financial Statements F-8 - F-15
Schedule IV - Mortgage Loans on Real Estate F-16 - F-17
All other schedules are omitted as they are not applicable or not
required, or the information is provided in the financial statements or
the notes thereto.
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Insured Plus Limited Partnership:
We have audited the financial statements and the financial
statement schedule of Krupp Insured Plus Limited Partnership (the
"Partnership") listed in the index on page F-2 of this Form 10-K. These
financial statements and financial statement schedule are the
responsibility of the General Partners of the Partnership. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether these financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by the
General Partners of the Partnership, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements referred to above
present fairly, in all material respects, the financial position of Krupp
Insured Plus Limited Partnership as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 2, 1998, except as to the
information presented in Note I, for
which the date is March 16, 1998
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
Participating Insured Mortgages
("PIMs") (Notes B, C and H) $37,769,835 $ 42,745,790
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, D and H) 25,897,592 27,147,213
Total mortgage investments 63,667,427 69,893,003
Cash and cash equivalents (Notes B and H) 3,100,615 1,757,197
Interest receivable and other assets 534,178 517,476
Prepaid acquisition fees and expenses, net of
accumulated amortization of $522,080 and
$4,196,787, respectively (Note B) 322,172 832,838
Prepaid participation servicing fees, net of
accumulated amortization of $160,008 and
$802,641, respectively (Note B) 171,044 273,009
Total assets $ 67,795,436 $ 73,273,523
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 21,117 $ 18,468
Partners' equity (deficit) (Notes A and E):
Limited Partners 66,774,981 72,448,679
(7,500,099 Limited Partner interests
outstanding)
General Partners (224,493) (194,008)
Unrealized gain on MBS (Note B) 1,223,831 1,000,384
Total Partners' equity 67,774,319 73,255,055
Total liabilities and Partners' equity $ 67,795,436 $ 73,273,523
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Interest income - PIMs
Base interest $3,136,659 $4,644,184 $4,470,937
Participation Income 542,650 114,331 -
Interest income - MBS 2,181,378 2,315,136 2,472,826
Other interest income 217,976 143,065 153,391
Total revenues 6,078,663 7,216,716 7,097,154
Expenses:
Asset management fee to an
affiliate (Note F) 502,332 626,375 665,051
Expense reimbursements to affiliates
(Note F) 76,727 73,323 107,019
Amortization of prepaid expenses and
fees (Note B) 612,631 1,095,679 958,502
General and administrative expenses 143,205 91,991 119,039
Total expenses 1,334,895 1,887,368 1,849,611
Net income (Note G) $4,743,768 $5,329,348 $5,247,543
Allocation of net income (Note E):
Limited Partners $4,601,455 $5,169,468 $5,090,117
Average net income per Limited
Partner interest $ .61 $ .69 $ .68
(7,500,099 Limited Partner
interests outstanding)
General Partners $ 142,313 $ 159,880 $ 157,426
F-6
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
Statements of Income
For the Years Ended December 31, 1997, 1996 and 1995
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at
December 31, 1994$ 96,689,550 $ (142,979) $ - $ 96,546,571
Net income 5,090,117 157,426 - 5,247,543
Quarterly
distributions (9,000,119) (187,157) - (9,187,276)
Unrealized gain on MBS - - 1,162,741 1,162,741
Balance at December
31, 1995 92,779,548 (172,710) 1,162,741 93,769,579
Net income 5,169,468 159,880 - 5,329,348
Quarterly
distributions (9,000,119) (181,178) - (9,181,297)
Special
distributions (16,500,218) - - (16,500,218)
Change in Unrealized gain
on MBS - - (162,357) (162,357)
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
(Note E) (5,700,093) (172,798) - (5,872,891)
Special distributions
(Note E) (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
F-8
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Operating activities:
Net income $ 4,743,768 $ 5,329,348 $ 5,247,543
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 612,631 1,095,679 958,502
Prepayment penalty (252,260) - -
Changes in assets and liabilities:
Decrease (increase) in interest receivable
and other assets (16,702) 354,466 111,188
Increase (decrease) in liabilities 2,649 4,014 (280)
Net cash provided by operating
activities 5,090,086 6,783,507 6,316,953
Investing activities:
Principal collections and prepayments on PIMs
including prepayment penalty of $252,260
in 1997 5,228,215 16,543,345 548,811
Principal collections on MBS 1,473,068 1,717,268 1,784,581
Net cash provided by
investing activities 6,701,283 18,260,613 2,333,392
Financing activities:
Quarterly distributions (5,872,891) (9,181,297) (9,187,276)
Special distributions (4,575,060) (16,500,218) -
Net cash used for financing activities (10,447,951) (25,681,515) (9,187,276)
Net increase (decrease) in cash and cash
equivalents 1,343,418 (637,395) (536,931)
Cash and cash equivalents, beginning
of period 1,757,197 2,394,592 2,931,523
Cash and cash equivalents,
end of period $ 3,100,615 $ 1,757,197 $ 2,394,592
F-10
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 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 7,499,999 Units
for $149,489,830 net of purchase volume discounts of $510,150 as of
January 27, 1987.
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 Special Report on 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.
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 Government National
Mortgage Association ( GNMA ) or Federal National Mortgage
Association ( FNMA ) MBS at amortized cost.
The Federal Housing Administration PIM is carried at amortized
cost unless the General Partner of the Partnership believes there
is an impairment in value, in which case a valuation allowance
would be established in accordance with Financial Accounting
Standards No. 114, Accounting by Creditors for impairment of a
Loan, and Financial Accounting Standard No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures.
Basic interest on PIMs is recognized at the stated rate of the
Department of Housing and Urban Development ("HUD") insured
mortgage (less the servicer's fee) or the stated coupon rate of
the GNMA or FNMA MBS. The Partnership recognizes interest related
to the participation features as earned and when it deems these
amounts as collectible.
Continued
F-13
B.Significant Accounting Policies, Continued
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.
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 repayment 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 GNMA
or FNMA 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, 1997, the Partnership has investments in four PIMs.
The Partnership's PIMs consist of (a) a GNMA or FNMA MBS
representing the securitized first mortgage loan on the underlying
property or a sole participation interest in a first mortgage loan
originated under the FHA lending program on the underlying property
(collectively the "insured mortgages"), and (b) participation
interests in the revenue stream and appreciation of the underlying
property 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
interest on the GNMA and FNMA MBS and HUD insures the FHA mortgage
loan and the mortgage loan underlying the GNMA MBS. The Partnership
may receive interest related to its participation interests in the
underlying property, however, these amounts are neither insured nor
guaranteed.
F-15
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C.PIMs, Continued
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 25%
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, (iii) "Shared Appreciation Interest" which is 25% of
any increase in the value of the underlying property in excess of a
specified base. Payment of participation interest from the
operations of the property is limited to 50% of net revenue or
surplus cash as defined by FNMA 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. However, generally any net proceeds
from a sale or refinancing of the property will be available to satisfy
any accrued but unpaid Shared Income or Minimum Additional Interest.
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.
The borrower may prepay the first mortgage loan subject to a 9%
prepayment penalty in years six through nine, a 1% prepayment
penalty in year ten and no prepayment penalty 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 November of 1997, the borrower of the Pine Hills Apartments PIM
prepaid the insured mortgage. The borrower also paid $290,390 and
$252,260, representing participation interst income and Shared
Appreciation Interest, respectively. The Partnership made a special
distribution of $.61 per Unit to investors from the proceeds of the
repayment.
In November, 1996, the borrower of the Mandalay Apartments PIM
completed a refinancing of the property and prepaid the insured mortgage.
The borrower also paid $379,000 representing a portion of accumulated
participation income. The Partnership made a special distribution of
$2.20 per
F-16
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
Unit to investors from the proceeds of the payoff. In
November 1996, the Partnership fully amortized the remaining
prepaid fees and expenses of the Mandalay Apartments PIM and
retired them from the books.
At December 31, 1997 and 1996 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, 1997 and
1996:
Aggregate Range of Range of
Original Number Interest Maturity Investment Basis at
Issuer Principal of PIMs Rates Dates(a) December 31,
1997 1996
GNMA $20,146,270 2(d) 7.5%-8% 4/22-12/22 $18,434,869 $23,277,507
(b)(c)
FHA 13,814,400 1 7.375% 12/33 13,565,709 13,630,602
(e)
FNMA 6,021,258 1 6.50% 4/06 5,769,257 5,837,681
(f) (g)
$39,981,928 4 $37,769,835 $42,745,790
(a) The range of maturity dates for PIMs issued by GNMA and FHA represent
the stated maturity date of the security or insured mortgage, however,
the Partnership anticipates realizing amounts due under these PIMs
well before these stated maturity dates.
(b) Includes a PIM with a prepayment penalty of 9% in year 6 through 7, 3%
in year 8 and 9, with no penalty thereafter.
(c) On January 1, 1992, the Partnership entered into an agreement which
provided for a reduction in the permanent interest rate on a GNMA PIM
having an original face value of $4,900,000, which reduced the
interest rate from 8.5% to 7% for a period of four years. The
reduction in the permanent interest rate was granted in exchange for a
reduction of the Shared Appreciation Interest Base from $5,700,000 to
$4,900,000.
(d) At December 31, 1996 there were three GNMA PIMs.
(e) 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
($13,565,709 as of December 31, 1997). 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.
(f) 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.
(g) During December 1995, the Partnership agreed to a modification of the
Royal Palm PIM. The Partnership received a reissued Federal National
Mortgage Association ("FNMA") mortgage-backed security ("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 6.25% to 8.775% per annum
through maturity. Also, the Partnership has received its pro-rata
share of a $90,644 principal payment made in December 1995 and its
pro-rata share of a $250,000 principal payment made in January 1997.
The Partnership will also receive its pro-rata share of annual
principal payments totaling $250,000 due each year in January for the
next three years.
F-18
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C.PIMs, Continued
The underlying mortgages of the PIMs are collateralized by multi-
family apartment complexes located in three states. The apartment
complexes range in size from 336 to 377 units.
D. MBS
At December 31, 1997, the Partnership s MBS portfolio had an amortized
cost of $24,673,761 and gross unrealized gains of $1,223,831. At
December 31, 1996, the Partnership's MBS portfolio had an amortized
cost of $26,146,829 and gross unrealized gains of $1,000,384. The MBS
portfolio has maturities ranging from 2004 to 2033.
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 the10%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 1997, 1996 and 1995, the Partnership made quarterly
distributions totaling $.76, $1.20 and $1.28 per Unit, respectively.
The Partnership made special distributions of $.61 and $2.20 per Unit
in 1997 and 1996, respectively.
As of December 31, 1997, the following cumulative partner
contributions and allocations have been made since inception of the
Partnership:
F-19
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
Continued
E. Partners' Equity, Continued
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 (106,136,047) (1,459) (2,502,323) - (108,639,829)
Special
distributions (42,224,975) (563) - - (42,225,538)
Net income 73,551,809 990 2,274,830 - 75,827,629
Unrealized
gains on MBS - - - 1,223,831 1,223,831
Balance at
December 31,
1997 $66,774,013 $ 968 $ (224,493) $1,223,831 $ 67,774,319
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
1997 federal income tax return is as follows:
Net income from statement of operations $ 4,743,768
Less: Book to tax difference for amortization of
prepaid expenses and fees 227,087
Net income for federal income tax purposes $ 4,970,855
Continued
G. Federal Income Taxes, Continued
The allocation of the 1997 net income for federal income tax purposes is as
follows:
Portfolio
Income
Unitholders $4,829,233
Corporate Limited Partner 64
General Partners 141,558
$4,970,855
For the years Ended December 31, 1997, 1996 and 1995 the
average per unit net income to the Unitholders for federal
income tax purposes was $.64, $.71 and $.79, respectively.
The basis of the Partnership s assets for financial
reporting purposes is less than its tax basis by
approximately $442,000 and $438,000 at December 31, 1997 and
1996, respectively. The basis of the Partnership s
liabilities for financial reporting purposes are the same
for its tax basis at December 31, 1997 and 1996,
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.
MBS
The Partnership estimated the fair value of MBS based on
quoted market prices.
PIMs
There is no active trading market for these investments.
Management estimates the fair value of the PIMs using quoted
market prices of MBS having the same stated coupon rate.
Management does not include any participation income 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 gains and losses of
approximately $133,000 and $22,000 at December 31, 1997,
respectively, and unrealized gains and losses of
approximately $474,000 and $652,000 at December 31, 1996.
H. Fair Value Disclosures of Financial Instruments
At December 31, 1997 and 1996, the Partnership estimates fair value of its
financial instruments as follows:
(Rounded to $1,000)
1997 1996
Cash and cash equivalents $ 3,101 $ 1,757
MBS 25,898 27,147
PIMs 37,881 42,568
$66,880 $71,472
I. Subsequent Event
On March 16, 1998, the Partnership received proceeds from the
prepayment of the Greentree Apartments PIM. The Partnership received
the outstanding principal balance of $8,382,336. The Partnership
plans on distributing $1.12 per Limited Partner Interest during
April 1998 from these principal proceeds of this loan.
F-23
KRUPP INSURED PLUS LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Normal Carrying
Interest Monthly Amount at
Rate Maturity Payment Original Current 12/31/97
PIMs (a)(b) (c) Date (d) (e)(f) Face Amount Face Amount (j)
GNMA
La Costa Apts.7.5% 4/15/22 $ 74,500 $11,050,000 $10,035,381 $10,035,381
Greentree Apts.8% 11/15/22 64,600 9,096,270 8,399,488 8,399,488
Hoover, AL
20,146,270 18,434,869 18,434,869
FHA
Vista
Montana Apts. 7.375% 12/1/33 86,000 13,814,400 13,565,709 13,565,709
Val Vista Lakes Az(h)
FNMA
Royal Palm Place
(g) 6.5% 4/1/06 (i) 6,021,258 5,769,257 5,769,257
Kendall, FL (i)
$39,981,928 $37,769,835 $37,769,835
(a) The Participating Insured Mortgages ("PIMs") consist of either a
mortgage- backed security ("MBS") issued and guaranteed by the Federal
National Mortgage Association ("FNMA"), a securitized mortgage loan
insured by the Department of Housing and Urban Development ("HUD")
and issued and guaranteed as to the timely payment of principal and
interest by the Government National Mortgage Association ("GNMA") or
a first mortgage issued by the Federal Housing Authority ("FHA") and
insured by HUD, and a subordinated promissory note and mortgage or shared
income and appreciation agreement with the underlying borrower that
conveys participation interests in the revenue stream and
appreciation of the underlying property above certain base levels.
(b) The GNMA MBS, FNMA MBS and FHA mortgage loans may generally be prepaid
subject to a 9% prepayment penalty in years six through nine, a 1% prepayment
penalty in year ten and no prepayment penalty after year ten.
(c) Represents only the stated interest rate of the GNMA or FNMA MBS or the
stated interest rate of the FHA mortgage loan less the servicing fee.
In addition, the Partnership may receive participation interest, consisting
of (i) Minimum Additional Interest based on a percentage of the unpaid
principal balance of the first mortgage on the property, (ii) Shared Income
Interest based on a percentage of monthly gross income generated by the
underlying property in excess of a specified base amount (but only to the
extent it exceeds the amount of Minimum Additional Interest received
during such month) and (iii) Shared Appreciation Interest based on a
percentage of any increase in the value of the underlying property in
excess of a specified base value. Minimum Additional Interest is at a rate
of .5% per annum calculated on the unpaid principal balance of the first
mortgage note. Shared Income Interest is generally based on 25% of the
monthly gross rental income generated by the underlying property in excess
of a specified base, but only to the extent it exceeds the amount of Minimum
Additional Interest earned during the month.
Shared Appreciation Interest is generally based on 25% of any increase in the
value of the project over the base value.
F-25
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE, Continued
__________
(d) The Partnership's GNMA MBS and FHA mortgage loan have call provisions,
which allow the Partnership to accelerate their respective maturity dates
to as early as ten years from the date of the loan closing.
(e) The normal monthly payment consisting of principal and interest is payable
monthly at level amounts over the term of the GNMA MBS and the FHA direct
mortgages.
(f)The normal monthly payment consisting of principal and interest for FNMA
MBS is payable at level amounts based on a 35-year amortization. All
unpaid principal and accrued interest is due at maturity.
(g)The total PIM on the underlying property is $22,000,000 of which 72.63% or
$15,978,742 is held by Krupp Insured Plus-III Limited Partnership. The
Partnership's share of the principal balance due at maturity for the Royal
Palm PIM is approximately $5,564,000.
(h) On November 30, 1993, the Partnership entered into an agreement with the
underlying borrower for a permanent interest rate reduction from 8.75% 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 sale
($13,565,709 at December 31, 1997). In the event of a refinancing, Shared
Appreciation Income is 25% of the appraised value over the outstanding
indebtedness at refinance. 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.
(i)During December 1995, the Partnership agreed to a modification of the Royal
Palm PIM. The Partnership received a reissued Federal National Mortgage
Association ("FNMA") mortgage-backed security ("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 6.25% to 8.775% per annum through maturity. Also, the
Partnership has received its pro-rata share of a $90,644 principal payment
made in December 1995 and its pro-rata share of a $250,000 principal
payment made in January 1997. The Partnership will also receive its pro-
rata share of annual principal payments totaling $250,000 due each year in
January for the next three years.
(j)The aggregate cost of PIMs for federal income tax purposes is $37,769,835.
A reconciliation of the carrying value of Mortgages for each of the three
years in the period ended December 31, 1997 is as follows:
1997 1996 1995
Balance at beginning of period $42,745,790 $ 59,289,135 $ 59,837,946
Deductions during period:
Prepayment and principal
collections (4,975,955) (16,543,345) (548,811)
Balance at end of period $37,769,835 $ 42,745,790 $ 59,289,135
F-26
F-28