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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
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.)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 523-0066
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 Fannie Mae 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. Fannie Mae guarantees the principal
and interest payments for the Famnie Mae 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, 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 and
HUD guarantee the timely payment of principal and interest of GNMA MBS or the
HUD first mortgage loan, 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, 1998, 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, 1998 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 1998 and 1997, the Partnership made special distributions consisting
primarily of principal proceeds from the Greentree PIM and Pine Hills PIM
prepayments, respectively. 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, 1998 and 1997:
1998 1997
Amount Per Unit Amount Per Unit
Distributions:
Limited Partners $5,700,075 $.76 $ 5,700,093 $ .76
General Partners 137,665 - 172,798 -
5,837,740 5,872,891
Special Distributions:
Limited Partners 8,400,111 $1.12 4,575,060 $ .61
Total Distributions $14,237,851 $10,447,951
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.
1998 1997 1996 1995 1994
Total revenues $ 4,823,813 $ 6,078,663 $ 7,216,716 $ 7,097,154 $ 7,688,593
Net income 4,171,014 4,743,768 5,329,348 5,247,543 5,682,819
Net income allocated to:
Limited Partners 4,045,884 4,601,455 5,169,468 5,090,117 5,512,334
Average Per Unit .54 .61 .69 .68 .73
General Partners 125,130 142,313 159,880 157,426 170,485
Total assets at
December 31 57,367,612 67,795,436 73,273,523 93,784,033 96,561,305
Distributions to:
Limited Partners 5,700,075 5,700,093 9,000,119 9,000,119 9,554,686
Average per Unit .76 .76 1.20 1.20 1.28
Special 8,400,111 4,575,060 16,500,218 - 7,950,105
Average per Unit 1.12 .61 2.20 - 1.06
General Partners 137,665 172,798 181,178 187,157 192,551
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.
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the further necessary steps to understand the nature and extent of the
work required to make its systems Year 2000 ready in those situations in which
it is required to do so. The Year 2000 readiness issue concerns the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
General Partners of the Partnership incurred hardware costs as well as
consulting and other expenses related to the infrastructure and facilities
enhancements necessary to complete the upgrade and prepare for the Year 2000.
There are no other significant internal systems or software that the Partnership
is using at the present time.
The General Partners of the Partnership are in the process of evaluating the
potential adverse impact that could result from the failure of material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors to be Year 2000 ready. The
Trust is in the process of surveying these third party providers and assessing
their readiness with year 2000. To date, the Partnership is not aware of any
problems that would materially impact its results of operations, liquidity or
capital resources. However, the Partnership has not yet obtained all written
assurances that these providers would be Year 2000, ready.
The Partnership currently does not have a contingency plan in the event of a
particular provider or system not being Year 2000 ready. Such plan will be
developed if it becomes clear that a provider is not going to achieve its
scheduled readiness objectives by June 30, 1999. The inability of one of these
providers to complete its Year 2000 resolution process could impact the
Partnership. In addition, the Partnership is also subject to external forces
that might generally affect industry and commerce, such as utility and
transportation company Year 2000 readiness failures and related service
interruptions. To date, the Partnership has not incurred any cost associated
with being Year 2000 ready. All costs have been incurred by the General Partners
and it is estimated that any future Year 2000 readiness costs will be borne by
the General Partners.
Liquidity and Capital Resources
At December 31, 1998 the Partnership has liquidity sources consisting of cash
and cash equivalents of approximately $3.7 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.
The most significant demand on the Partnership's liquidity is distributions paid
to investors, approximately $1.5 million each quarter. The Partnership currently
has a distribution rate of $.76 per unit, paid in quarterly installments of $.19
per unit. Funds for the investor 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. Based on current
projections, the General Partners believe the Partnership can maintain the
current distribution rate for the foreseeable future. In general, the General
Partners try to set a distribution rate that provides for level quarterly
distributions.
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.
The borrower on the Greentree PIM defaulted on its first mortgage obligation
during the second half of 1997. During the default, the Partnership continued to
receive the full principal and basic interest payments due on the PIM because
GNMA guaranteed those payments. In March 1998, the GNMA mortgagee exercised its
right to prepay the GNMA security because of the continuing default of the first
mortgage, and the Partnership received the proceeds of the prepayment in the
amount of $8,382,336. In April 1998, the Partnership made a special distribution
to the investors from those capital proceeds of $1.12 per unit. 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 1999. 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 will receive basic interest-only payments on the
Fannie Mae MBS at the rate of 7.0% per annum during 1999. Thereafter, the
interest rate will range from 7.5% to 8.775% per annum through the maturity of
the first mortgage loan in 2006. The Partnership also received its scheduled
$250,000 principal payment in January 1999.
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.
Operations
The following discussion relates to the operation of the Partnership during
the years ended December 31, 1998, 1997 and 1996.
(Amounts in thousands)
1998 1997 1996
Interest income on PIMs:
Basic interest $ 2,257 $ 3,137 $ 4,644
Participation income 250 543 114
Interest income on MBS 2,048 2,181 2,315
Other interest income 268 218 143
Partnership expenses (551) (722) (791)
Amortization of prepaid fees
and expenses (101) (613) (1,096)
Net income $ 4,171 $ 4,744 $ 5,329
Net income decreased in 1998 as compared to 1997 and 1997 as compared to 1996
due primarily to a decrease in interest income on PIMs and MBS which were
somewhat offset by a decrease in Partnership and amortization expenses.
Basic interest on PIMs decreased in 1998 as compared to 1997 and 1997 as
compared to 1996, as a result of repayments of the Greentree PIM in March 1998,
the Pine Hills PIM in November of 1997 and the Manadalay Apartments PIM in
November 1996. Interest income on MBS declined approximately $133,000 and
$134,000 when comparing 1998 to 1997 and 1997 to 1996, 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. As the
Partnership distributes principal collections on PIMs and MBS through quarterly
or special distributions, the invested assets of the Partnership will decline
which will result in a continuing decline in basic interest income and interest
income on MBS.
Amortization expense decreased as all the prepaid expenses and fees
associated with all the remaining PIMs, except Vista Montana have been fully
amortized. The Partnership fully amortized the prepaid expenses relating to the
Greentree PIM in 1998, the Pine Hills PIM in 1997 and Mandalay Apartments PIM
in 1996. Partnership expenses decreased approximately $171,000 in 1998 as
compared to 1997 and $69,000 in 1997 versus 1996. The decrease from 1997 to
1998 was primarily due to lower asset management fees of approximately of
$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. The decrease from 1996 to 1997 was primarily
due to a result of lower asset management fees caused by a declining asset
base.
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 (52) Co-Chairman, President and Director
George Krupp (54) Co-Chairman, President and Director
Robert A. Barrows (41) 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 acquisition and property management, mortgage
banking and financial management. The Berkshire Group's interests include
ownership of a mortgage company specializing in commercial mortgage financing
with a portfolio of approximately $6.0 billion. In addition, The Berkshire Group
has a significant ownership interest in Berkshire Realty Company, Inc.
(NYSE-BRI), a real estate investment trust specializing in apartment
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 Chairman of the Board
and Director of Berkshire Realty Company, Inc. (NYSE-BRI) and he is also 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. Mr. Krupp also serves as
Chairman of the Board and Trustee of Krupp Government Income Trust and Krupp
Government Income Trust II.
George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group,
an integrated real estate financial services firm engaged in real estate
acquisition, mortgage banking, investment sponsorship, venture capital investing
and financial management. 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, 1998 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:
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)].*
Vista Montana
(10.5) 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)].*
(10.6) 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)].*
(10.7) 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)].*
(10.8) 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)].*
(10.9) 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)].*
(10.10) 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)].*
(10.11) 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)].*
(10.12) 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)].*
(10.13) 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)].*
(10.14) 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
(10.15) 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)].*
(10.16) 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)].*
(10.17) 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)].*
(10.18) 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)].*
(10.19) 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, 1998 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 5th day of
February, 1999.
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 5th day of February, 1999.
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.
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, 1998
KRUPP INSURED PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 1998 and 1997 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1998, 1997 and 1996 F-6
Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996 F-7
Notes to Financial Statements F-8 - F-15
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 Financial Statements listed in the index of
Page F-2 of this 10K present fairly, in all material respects, the financial
position of Krupp Insured Plus Limited Partnership (the "Partnership") at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company'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 generally accepted auditing
standards 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 the opinion express above.
PricewaterhouseCoopers L.L.P.
Boston, Massachusetts
February __, 1999
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
Participating Insured Mortgages
("PIMs") (Notes B, C and H) $ 29,074,105 $ 37,769,835
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, D and H) 23,880,438 25,897,592
Total mortgage investments 52,954,543 63,667,427
Cash and cash equivalents (Notes B and H) 3,653,130 3,100,615
Interest receivable and other assets 367,780 534,178
Prepaid acquisition fees and expenses, net of
accumulated amortization of $590,032 and
$522,080, respectively (Note B) 254,220 322,172
Prepaid participation servicing fees, net of
accumulated amortization of $193,113 and
$160,008, respectively (Note B) 137,939 171,044
Total assets $ 57,367,612 $ 67,795,436
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 20,198 $ 21,117
Partners' equity (deficit) (Notes A and E):
Limited Partners 56,720,679 66,774,981
(7,500,099 Limited Partner interests
outstanding)
General Partners (237,028) (224,493)
Accumulated Comprehensive Income (Note B) 863,763 1,223,831
Total Partners' equity 57,347,414 67,774,319
Total liabilities and Partners' equity $ 57,367,612 $ 67,795,436
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, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Interest income - PIMs
Basic interest $2,257,069 $3,136,659 $4,644,184
Participation Income 250,000 542,650 114,331
Interest income - MBS 2,048,263 2,181,378 2,315,136
Other interest income 268,481 217,976 143,065
Total revenues 4,823,813 6,078,663 7,216,716
Expenses:
Asset management fee to an
affiliate (Note F) 407,132 502,332 626,375
Expense reimbursements to affiliates
(Note F) 27,413 76,727 73,323
Amortization of prepaid expenses and
fees (Note B) 101,057 612,631 1,095,679
General and administrative expenses 117,197 143,205 91,991
Total expenses 652,799 1,334,895 1,887,368
Net income (Note G) 4,171,014 4,743,768 5,329,348
Other Comprehensive Income:
Net change in unrealized gain/(loss)
on MBS (360,068) 223,447 (162,357)
Total Comprehensive Income $ 3,810,946 $4,967,215 $5,166,991
Allocation of net income (Notes E and 6):
Limited Partners $ 4,045,884 $4,601,455 $5,169,468
Average net income per Limited
Partner interest $ .54 $ .61 $ .69
(7,500,099 Limited Partner
interests outstanding)
General Partners $ 125,130 $ 142,313 $ 159,880
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, 1998, 1997 and 1996
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
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 loss
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 (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(Note E) (5,700,075) (137,665) - (5,837,740)
Special distribution (Note E) (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
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, 1998, 1997 and 1996
1998 1997 1996
Operating activities:
Net income $ 4,171,014 $ 4,743,768 $ 5,329,348
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 101,057 612,631 1,095,679
Prepayment penalty/shared appreciation interest (250,000) (252,260) -
Changes in assets and liabilities:
Decrease (increase) in interest receivable
and other assets 166,398 (16,702) 354,466
Increase (decrease) in liabilities (919) 2,649 4,014
Net cash provided by operating activities 4,187,550 5,090,086 6,783,507
Investing activities:
Principal collections and prepayments on PIMs
including prepayment penalty of $250,000
in 1998 and shared appreciation interest
of $252,260 in 1997. 8,945,730 5,228,215 16,543,345
Principal collections on MBS 1,657,086 1,473,068 1,717,268
Net cash provided by investing activities 10,602,816 6,701,283 18,260,613
Financing activities:
Quarterly distributions (5,837,740) (5,872,891) (9,181,297)
Special distribution (8,400,111) (4,575,060) (16,500,218)
Net cash used for financing activities (14,237,851) (10,447,951) (25,681,515)
Net increase (decrease) in cash and cash
equivalents 552,515 1,343,418 (637,395)
Cash and cash equivalents, beginning
of period 3,100,615 1,757,197 2,394,592
Cash and cash equivalents, end of period $ 3,653,130 $ 3,100,615 $ 1,757,197
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 commercial and 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 7,499,999 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" (AFAS 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 adpoted , Statement of
Financial Accounting Standards No. 130, 'Reporting Comprehensive Income'
(FAS 130), was issued establishing standards for reporting and
displaying comprehensive income and its components effective January 1,
1998. 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 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,
AAccounting by Creditors for impairment of a Loan,@ and Financial
Accounting Standard No. 118, AAccounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures.@
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 (AGNMA@) or Fannie
Mae MBS at amortized cost.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
B. Significant Accounting Policies, Continued
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
Fannie Mae MBS. The Partnership recognizes interest related to the
participation features as earned and when it deems these amounts as
collectible.
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 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 GNMA or 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, 1998, the Partnership has investments in three PIMs. The
Partnership's PIMs consist of a GNMA and 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").
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
The Partnership receives guaranteed monthly payments of principal and
basic interest on the GNMA and Fannie Mae MBS and HUD insures the FHA
mortgage loan and the mortgage loan underlying the GNMA MBS. 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 25% to 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 surplush cash, (iii) "Shared Appreciation Interest"
which is 25% to 30% of any increase in the value of the underlying
property in excess of a specified base or 25% of the net sales proceeds.
Payment of participation income 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. 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 income due under the Agreement as of the
accelerated maturity date, or (b) the payment of all participation
income due under the Agreement plus all amounts due on the first
mortgage note on the property.
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, in 1997 GNMA mortgagee 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.
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
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, Continued
participation interest income and Shared Appreciation Interest,
respectively. The Partnership made a special distribution of $.61 per
Unit to investors from the proceeds of the repayment.
At December 31, 1998 and 1997 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, 1998 and
1997:
Original Interest Maturity Monthly Investment Basis at
PIMs Face Amount Rates (a) Dates Payment December 31,
1998 1997
GNMA
La Costa $11,050,000 7.5% 4/15/22 $ 74,500 $ 9,890,213 $ 10,035,381
Apts.
Miami Fl.
Greentree 9,096,270 8.0% 11/15/22 64,600 - 8,399,488
Apts.
Hoover, Al.
FHA
Vista Montana 13,814,400 7.375% 12/1/33 86,000 13,483,058 13,565,709
Apts. (b)
Val Vista Lakes, Az.
Fannie Mae
Royal Palm Place 6,021,258 7.0% 4/1/06 - 5,700,834 5,769,257
Kendall, Fl. (c) (d)
$39,981,928 $29,074,105 $37,769,835
(e)
(a) 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 income,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.
(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
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, Continued
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.
(d) 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. The Partnership will receive its pro-rata share of annual
principal payments totaling $250,000 due each year in January for the next
two years.
(e) The aggregate cost of PIMs for federal income tax purposes is $29,074,105.
A reconciliation of the carrying value of Mortgages for each of the three
years in the period ended December 31, 1998 is as follows:
1998 1997 1996
Balance at beginning of period $37,769,835 $42,745,790 $ 59,289,135
Deductions during period:
Prepayment and principal collections (8,695,730) (4,975,955) (16,543,345)
Balance at end of period $29,074,105 $37,769,835 $ 42,745,790
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, 1998, the Partnership's MBS portfolio had an amortized
cost of $14,725,729 and gross unrealized gains of $863,763. 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. The MBS portfolio
has maturities ranging from 2004 to 2033. At December 31, 1998 and 1997,
the Partnership's insured mortgage had an amortized cost of $9,154,709,
and $9,192,003, respectively.
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,
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
E. Partners' Equity, continued
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 1998, 1997 and 1996, the Partnership made quarterly distributions
totaling $.76, $.76 and $1.20 per Unit, respectively. The Partnership made
special distributions of $1.12, $.61 and $2.20 per Unit in 1998, 1997 and
1996 respectively.
As of December 31, 1998, 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 (111,836,046) (1,535) (2,639,988) (114,477,569)
Special
Distributions (50,624,974) (675) - - (50,625,649)
Net income 77,597,639 1,044 2,399,960 79,998,643
Unrealized
gains on MBS - - - 863,763 863,763
Balance at
December 31,
1998 $ 56,719,845 $ 834 $ (237,028) $ 863,763 $ 57,347,414
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.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
F. Related Party Transactions, continued
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
1998 federal income tax return is as follows:
Net income from statement of operations $4,171,014
Less: Book to tax difference for amortization of
prepaid expenses and fees (505,285)
Net income for federal income tax purposes $3,665,729
The allocation of the 1998 net income for federal income tax purposes is
as follows:
Portfolio
Income
Unitholders $3,563,209
Corporate Limited Partner 48
General Partners 102,472
$3,665,729
For the years ended December 31, 1998, 1997 and 1996 the average per
unit net income to the Unitholders for federal income tax purposes was
$.48, $.64 and $.71, respectively.
The basis of the Partnership's assets for financial reporting purposes
is less than its tax basis by approximately $290,000 and $442,000 at
December 31, 1998 and 1997, respectively. The basis of the Partnership's
liabilities for financial reporting purposes are the same for its tax
basis at December 31, 1998 and 1997, 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.
Continued
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 prizes of MBS with similar interest rates. Insured mortgage loans
are valued in a manner consistent with PIMS as defined below:
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 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
approximately $680,000 at December 31, 1998, and unrealized gains and
losses of approximately $133,000 and $22,000 at December 31, 1997
respectively.
At December 31, 1998 and 1997, the Partnership estimates fair the value
of its financial instruments as follows:
(Rounded to $1,000)
1998 1997
Fair Carrying Fair Carrying
Value Value Value Value
Cash and cash equivalents $ 3,653 $3,653 $3,101 $3,101
MBS 23,880 23,880 25,898 25,898
PIMs 29,754 29,074 37,881 37,769
$57,287 $56,607 $66,880 $66,768
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,
1998 and the period from inception through December 31, 1998. 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
12/31/98 12/31/98
Distributable Cash Flow:
Income for tax purposes $ 3,666 $ 81,159
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid fees and expenses 606 7,017
Shared appreciation income (250) (502)
Amortization of MBS premiums - 284
Acquisition expenses paid from offering proceeds
charged to operations - 1,098
Gain on sale of MBS - (114)
Total Distributable Cash Flow ("DCF") $ 4,022 $ 88,942
Limited Partners Share of DCF $ 3,901 $ 86,273
Limited Partners Share of DCF per Unit $ .52 $ 11.50 (c)
General Partners Share of DCF $ 121 $ 2,669
Net Proceeds from Capital Transactions:
Insurance claim proceeds, prepayment proceeds and PIM
principal collections including shared appreciation
income $ 8,945 $ 77,148
Principal collections on MBS 1,657 43,634
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 $ 10,602 $ 80,121
Cash available for distribution
(DCF plus Net Proceeds from Capital Transactions) $ 14,624 $169,063
Distributions: (includes special distributions)
Limited Partners $ 14,100 (a) $163,888 (b)
Limited Partners Average per Unit $ 1.88 (a) $ 21.85 (b)(c)
General Partners $ 121 (a) $ 2,669 (b)
Total Distributions $ 14,221 $166,557
(a) Represents all distributions paid in 1998 except the February 1998
distribution and includes an estimate of the distribution to be paid
in February 1999.
(b) Includes an estimate of the distribution to be paid in February 1999.
(c) Limited Partners average per Unit return of capital as of February
1999 is $10.35 [$21.85 - $11.50]. 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.