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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17690
Krupp Insured Mortgage Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3021395
(State or other jurisdiction of
incorporation or organization) (IRS Employer 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 10-11.
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
Krupp Insured Mortgage Limited Partnership (the "Partnership") is a
Massachusetts limited partnership which was formed on March 21, 1988. The
Partnership raised approximately $299 million through a public offering of
limited partner interests evidenced by units of depositary receipts ("Units"),
and used the proceeds available for investment primarily to acquire
participating insured mortgages ("PIMs") and mortgage-backed securities ("MBS").
The Partnership considers itself to be engaged only in the industry segment of
investment in mortgages.
The Partnership's investments in PIMs on multi-family residential properties
consist of a MBS or an insured mortgage loan (collectively, the "insured
mortgage") guaranteed or insured as to principal and basic interest. These
insured mortgages were issued or originated under or in connection with the
housing programs of the Government National Mortgage Association ("GNMA"),
"Fannie Mae" or the Department of Housing and Urban Development ("HUD"). PIMs
provide the Partnership with monthly payments of principal and basic interest
and also may provide the Partnership with participation in the current revenue
stream and in residual value, if any, from the sale or other realization of the
underlying property. The borrower conveys these rights to the Partnership
through a subordinated promissory note and mortgage. The participation features
are neither insured nor guaranteed.
The Partnership also acquired MBS collateralized by single-family mortgage loans
issued or originated by Fannie Mae or the Federal Home Loan Mortgage Corporation
("FHLMC"). Fannie Mae and FHLMC guarantee the principal and basic interest of
the Partnership's FNMA and FHLMC MBS, respectively.
Proceeds received from prepayments or other realizations of mortgage assets will
be distributed by the Partnership to investors through quarterly or special
distributions.
Although the Partnership will terminate no later than December 31, 2028, the
value of the PIMs may be realized by the Partnership through repayment or sale
as early as ten years from the dates of the closing of the permanent loans and
the Partnership may realize the value of all its other investments within that
time frame. Therefore, it is anticipated that dissolution of the Partnership
could occur significantly prior to December 31, 2028.
The Partnership's investments are not expected to be subject to seasonal
fluctuations. However, the future performance of the Partnership will depend
upon certain factors which cannot be predicted. In addition, any ultimate
realization of the participation features of the PIMs will be 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 had an adverse effect on the Partnership's operations, and the
Partnership does not presently anticipate any adverse effect in the future.
As of December 31, 1999 there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership is a
party or to which any of its securities is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1999 was approximately
13,200. 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.
During 1999, the Partnership made special distributions consisting of principal
proceeds from the Pope Building, Remington, Valley Manor and Cross Creek PIM
Prepayments.
During 1998, the Partnership made special distributions consisting primarily of
principal proceeds from the Deering Place, Southland and Paddock Club Apartments
PIM prepayments.
The Partnership will make special distributions in the future as PIMs prepay or
a sufficient amount of cash is available from MBS and PIM principal collections.
The Partnership made distributions to its Partners during the two years ended
December 31, 1999 and 1998 as follows:
1999 1998
Amount Per Unit Amount Per Unit
Limited Partners $ 12,563,709 $ .84 $ 13,909,819 $ .93
General Partners 260,692 310,079
12,824,401 14,219,898
Special Distributions:
Limited Partners 30,511,863 $ 2.04 20,789,946 $ 1.39
$ 43,336,264 $ 35,009,844
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 Items 7 and 8 (Appendix A) of this
report, respectively.
Year Ended December 31,
1999 1998 1997 1996 1995
Total revenues $ 9,806,072 $ 1,954,179 $ 16,679,293 $ 16,039,711 $ 17,325,924
Net income 7,502,317 9,100,138 12,188,074 11,372,365 13,270,482
Net income allocated
to Partners:
Limited Partners 7,277,247 8,827,134 11,822,432 11,031,194 12,872,368
Average per Unit .49 .59 .79 .74 .86
General Partners 225,070 273,004 365,642 341,171 398,114
Total assets at
December 31 98,726,491 135,213,294 161,358,290 195,755,977 228,653,458
Distributions to
Partners:
Limited Partners 12,563,709 13,909,819 17,948,156 17,948,153 17,948,156
Average per Unit .84 .93 1.20 1.20 1.20
General Partners 260,692 310,079 386,086 431,074 455,696
Special Distribution
Limited Partners 30,511,863 20,789,946 28,717,048 25,426,553 -
Average Per Unit 2.04 1.39 1.92 1.70 -
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.
Starting in 1997, the General Partners conducted an assessment of the
Partnership's core internal and external computer information systems to
understand the nature and extent of work required to make its systems Year 2000
ready. The Year 2000 readiness issue was concerned with the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. The General Partners believed that a system failure or
miscalculation could cause disruptions of operations.
As a result of this concern, the General Partners, along with certain
affiliates, upgraded their computer systems including their hardware and
software so they would be Year 2000 ready. In addition, the General Partners
surveyed the Partnership's material third-party service providers and
significant vendors and received assurances that they were Year 2000 ready. The
General Partners also developed contingency plans for all of their
"mission-critical functions" to insure business continuity. As a result of these
efforts and the efforts of third parties, the Year 2000 did not result in any
disruption of activities to the Partnership.
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are the regular
quarterly distributions paid to investors of approximately $3.1 million. Funds
used for the investor distributions are generated from interest income received
on the PIMs, MBS, cash and short-term investments and the principal collections
received on the PIMs and MBS. The Partnership funds a portion of the quarterly
distribution from principal collections causing the capital resources of the
Partnership to continually decrease. As a result of the decrease, the total cash
inflows to the Partnership will also decrease, which will result in periodic
adjustments to the distributions paid to investors. The General Partners
periodically review the distribution rate to determine whether an adjustment is
necessary based on projected future cash flows. In general, the General Partners
try to set a distribution rate that provides for level quarterly distributions.
Based on current projections the General Partners believe the Partnership will
need to adjust the current distribution rate of $.21 per Unit per quarter
commencing with the distribution to be paid in May 2000. The General Partners
will determine the revised rate during the first quarter of 2000.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's PIM investments also may provide additional
income through its participation feature in the underlying properties if they
operate successfully. The Partnership may receive a share in any operating cash
flow that exceeds debt service obligations and capital needs or a share in any
appreciation in value when the properties are sold or refinanced. However, this
participation is neither guaranteed nor insured, and it is dependent upon
whether property operations or its terminal value meet certain criteria.
On February 25, 2000 the Partnership received a payoff on the Brookside
Apartments PIM in the amount of $4,531,910. The Borrower defaulted on the first
mortgage loan and Fannie Mae paid off the MBS upon maturity in February 2000.
The Partnership anticipates a first quarter special distribution of $.31 per
unit. The Partnership is pursuing the receipt of approximately $307,000 in
additional income due from the borrower. At this time, it is uncertain if the
Partnership will receive this income.
During December 1999, the Partnership received prepayments on the Salishan,
Saratoga, and Marina Shores Apartments PIMs, and the Patrician MBS. In addition
to the principal proceeds of $14,666,235 from the Salishan PIM, the Partnership
also received $146,662 of prepayment premium income and $311,650 of Shared
Interest Income and Minimum Additional Income. The Partnership received
$6,008,565 of principal proceeds from the Marina Shores PIM along with $176,679
of Shared Appreciation and prepayment premium income. The principal proceeds
from the Saratoga PIM and the Patrician MBS prepayments were $6,204,895 and
$7,830,263, respectively. The Partnership did not receive any additional
interest on the Saratoga prepayment. On January 11, 2000, the Partnership paid a
special distribution of $2.37 per Limited Partner interest from the principal
proceeds, Shared Appreciation and prepayment premium received from these four
payoffs.
In October 1999 the Partnership received a repayment of the Valley Manor
Apartments PIM of $4,425,993. The Partnership did not receive any Additional
Interest as a result of this prepayment because the underlying property's
appraised value did not exceed the threshold required to realize additional
interest. In November 1999 the Partnership paid a special destribution of $.30
per Limited Partner interest from the Valley Manor proceeds. In February 1999,
the Partnership received a payoff of the Pope Building PIM in the amount of
$3,176,761. In addition, the Partnership received $703,860 of Shared
Appreciation and prepayment premium income and $218,578 of Shared Income and
Minimum Additional Interest upon the payoff of the underlying mortgage. During
March 1999, the Partnership received a payoff of the Remington PIM in the amount
of $12,199,298. The payoff was the result of a default on the underlying loan
which resulted in the Partnership receiving all of the outstanding principal
balance under the insurance feature of the PIM. However, due to the default the
Partnership did not receive any participation income from this PIM. During May
1999, the Partnership paid a special distribution of $1.08 per Limited Partner
interest from the principal proceeds received from the Remington and Pope
Building PIMs and the Shared Appreciation and prepayment premium proceeds
received from the Pope Building PIM.
During January 1999, the Partnership paid a special distribution of $.66 per
Limited Partner Interest from the principal proceeds and prepayment premium
received from the Cross Creek PIM in 1998. The prepayment of the Cross Creek PIM
remaining principal balance amounted to $9,414,586 with Additional Income (in
lieu of a prepayment premium) of approximately $318,000 was received along with
Shared Income of approximately $60,000.
The Partnership made two special distributions during 1998. On July 27, 1998 and
August 26, 1998, the Partnership received a partial prepayment and final
prepayment of approximately $654,000, and $2,985,000, respectively, for the
Deering Place Apartments PIM. In addition to the principal prepayment the
Partnership received minimum additional interest and shared interest income of
$90,195 and a prepayment premium of $268,638. The Partnership distributed the
capital transaction proceeds from this prepayment to investors through a special
distribution on September 18, 1998 in the amount of $.27 per Limited Partner
interest. In January 1998, a $1.12 per Unit special distribution was made with
the prepayment proceeds of the Paddock Club and Southland Station PIMs that were
received in 1997. During the fourth quarter of 1997, the Partnership received
the principal repayments totaling $15.2 million when those two properties were
sold. In addition to the principal repayments, the Partnership received a total
of $380,000 of accrued Additional Interest from both properties and $565,000 of
Shared Appreciation Income on Southland Station and a $895,000 prepayment
premium on Paddock Club.
Most of the properties had stable operating results in 1999. High occupancy
rates were maintained at more than half of the properties due to stable or
improving markets. However, due to poor operating performance, the General
Partners are closely monitoring the Wildflower apartments PIM property which is
located in the thriving Las Vegas market. Wildflower has suffered a dramatic
decline in occupancy to the mid-80% range at year-end that is not representative
of the rest of the market. Wildflower, which offers only a basic apartment, does
not compete successfully with the newer apartment properties, which have many
amenities that have been built since the strong Las Vegas economy has fostered a
tremendous construction boom.
During the first five years, owners are prohibited from prepaying the first
mortgage loans underlying the PIMs. During the second five years, owners may
prepay the loans by incurring a prepayment penalty. The Partnership has the
option to call certain PIMs by accelerating their maturity 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, the interest rate environment and availability of financing will
affect those 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 represent interests in pooled mortgages insured by
HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by
the full faith and credit of the U.S. Government.
The Partnership includes in cash and cash equivalents approximately $38.9
million of commercial paper, which is issued by entities with a credit rating
equal to one of the top two rating categories of a nationally recognized
statistical rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
December 31, 1999, the Partnerships PIMs, PIMIs and MBS comprise the majority of
the Partnership's assets. As such, decreases in interest rates may accelerate
the prepayment of the Partnership's investments. The Partnership does not
utilize any derivatives or other instruments to manage this risk as the
Partnership plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular dividend
distribution policy. For MBS, the fund forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For PIMs and PIMIs, the Partnership incorporates prepayment
assumptions into planning as individual properties notify the Partnership of the
intent to prepay or as they mature.
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates. For mortgage investments, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates. The expected maturity date is contractual maturity
adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands)
2000 2001 2002 2003 2004 Thereafter Total Fair
Value Value
Interest-sensitive assets:
MBS $1,599 $1,375 $ 1,183 $1,017 $ 875 $ 1,436 $ 7,486 $ 7,460
Weighted
Average interest rate 7.95% 7.95% 7.95% 7.95% 7.95% 7.95% 7.95%
PIMs 18,386 424 459 496 538 31,088 51,390 51,247
Weighted
Average interest rate 7.82% 7.82% 7.82% 7.82% 7.82% 7.82% 7.82%
Total Interest-
sensitive assets $19,985 $1,799$ 1,642 $1,513$ 1,413 $32,524 $58,876 $58,707
Results of Operations
The following discussion relates to the operation of the Partnership during the
years ended December 31, 1999, 1998 and 1997.
(Amounts in thousands)
1999 1998 1997
Interest income on PIMs:
Basic interest $ 6,325 $ 9,089 $ 10,887
Participation interest 1,666 865 3,710
Interest income on MBS 1,206 1,595 1,493
Other interest income 609 406 589
Partnership expenses (1,006) (1,219) (1,574)
Amortization of prepaid fees and
expenses (1,298) (1,636) (2,917)
Net income $ 7,502 $ 9,100 $ 12,188
Net income decreased by approximately $1,598,000 during 1999 as compared to
1998. This decrease was due primarily to lower basic interest on PIMs and
interest income on MBS in the amounts of approximately $2,764,000 and $389,000,
respectively. This was partially offset by an increase in Participation interest
of approximately $801,000 and decreases in asset management fees and
amortization expense, in the amounts of approximately $215,000 and $338,000,
respectively. The reduction in basic interest on PIMs is due to the payoff of
the Remington, Pope Building and Valley Manor PIMs in 1999 and the payoffs of
the Deering Place and Cross Creek PIMs in 1998. The decrease in MBS interest
income was due to the on-going prepayment of the Partnership's single-family
MBS. The increase in participation interest on PIMs was due primarily to the
receipt of $922,000, $458,000 and $177,000 of participation interest from the
Pope Building, Salishan and Marina Shores PIM prepayments as compared to the
$359,000 and $378,000 received in 1998 from the Deering Place and Cross Creek
PIM payoffs, respectively. Also, asset management fees decreased during 1999 as
compared to 1998 due to the prepayments and principal collections reducing the
Partnership's mortgage investments. Amortization expense was greater in 1998 as
a result of the full amortization of the remaining prepaid fees and expenses of
the Deering Place and Cross Creek PIMs and the Patrician multi-family MBS in
1998 exceeding the amount of amortization resulting from the PIM prepayments
occurring in 1999.
Net income decreased by approximately $3,088,000 during 1998 as compared to
1997. The decrease was primarily due to lower basic interest and participation
interest. The decrease in basic interest of approximately $1,798,000 was a
result of the Deering Place and Cross Creek PIM prepayments during 1998, and the
prepayments of the Rock Creek, Silver Springs, Hampton Ridge, Southland Station
and Paddock Club PIM's during 1997 and the Patrician PIM converting to a
non-participating insured mortgage during the fourth quarter of 1997.
Participation interest declined by approximately $2,845,000 as a result of the
significant level of PIM prepayments in 1997 mentioned above exceeding the level
of participation interest received when the Deering Place and Crosscreek PIM
prepayments occurred in 1998. Other interest income decreased in 1998 as
compared to 1997 due to lower average short-term investment balances during 1998
when compared to 1997. Amortization expense decreased for the twelve month
period ending 1998 as compared to the same period in 1997 as a result of the
Partnership fully amortizing the costs associated with the PIMs that were
prepaid in 1997. The decrease in Partnership expenses was due primarily to lower
asset management fees resulting from the prepayments of the Deering Place and
Crosscreek PIMs in 1998 and the Rock Creek, Silver Springs, Hampton Ridge,
Paddock Club and Southland PIMs in 1997. In addition, lower transfer agent costs
were incurred in 1998 and a rebate was received for expense reimbursements
related to 1997 during the second quarter of 1998.
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 Krupp Plus Corporation which is a General
Partner of the Partnership and is the general partner of Mortgage Services
Partners Limited Partnership which is the other General Partner of the
Partnership, is as follows:
Position with
Name and Age Krupp Plus Corporation
Douglas Krupp (53) President, Co-Chairman of the Board and Director
George Krupp (55) Co-Chairman of the Board and Director
Peter F. Donovan (46) Senior Vice President
Ronald Halpern (58) Senior Vice President
Robert A. Barrows (42) Vice President and Treasurer
Carol J.C. Mills (50) Vice President
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer
of The Berkshire Group, an integrated real estate financial services firm
engaged in real estate acquisitions, property management, investment
sponsorship, venture capital investing, mortgage banking and financial
management, and ownership of three operating companies through private equity
investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire
Group was established as The Krupp Companies in 1969 and he has served as the
Chief Executive Officer since 1992. Mr. Krupp serves as a member of the Board of
Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where
he received an honorary Doctor of Science in Business Administration in 1989 and
was elected trustee in 1990.
George Krupp (age 55) is the Co-Founder and Co-Chairman of The Berkshire Group,
an integrated real estate financial services firm engaged in real estate
acquisitions, property management, investment sponsorship, venture capital
investing, mortgage banking and financial management, and ownership of three
operating companies through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish
High School in Waltham, Massachusetts since September of 1997. Mr. Krupp
attended the University of Pennsylvania and Harvard University and holds a
Master's Degree in History from Brown University.
Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage Finance which
position he has held since January of 1998 and in this capacity, he oversees the
strategic growth plans of this mortgage banking firm. Berkshire Mortgage Finance
is the 16th largest servicer of commercial mortgages in the United States.
Previously he served as President of Berkshire Mortgage Finance from January of
1993 to January of 1998 and in that capacity he directed the production,
underwriting, servicing and asset management activities of the firm. Prior to
that, he was Senior Vice President of Berkshire Mortgage Finance and was
responsible for all participating mortgage originations. Before joining the firm
in 1984, he was Second Vice President, Real Estate Finance for Continental
Illinois National Bank & Trust, where he managed a $300 million construction
loan portfolio of commercial properties. Mr. Donovan received a B.A. from
Trinity College and an M.B.A. degree from Northwestern University.
Ronald Halpern is President and COO of Berkshire Mortgage Finance. He has served
in these positions since January of 1998 and in this capacity, he is responsible
for the overall operations of the Company. Prior to January of 1998, he was
Executive Vice President, managing the underwriting, closing, portfolio
management and servicing departments for Berkshire Mortgage Finance. Before
joining the firm in 1987, he held senior management positions with the
Department of Housing and Urban Development in Washington D.C. and several HUD
regional offices. Mr. Halpern has over 30 years of experience in real estate
finance. He is currently a member of the Advisory Council for Fannie Mae and
Freddie Mac and was prior Chairman of the MBA Multifamily Housing Committee. He
holds a B.A. degree from the University of the City of New York and J.D. degree
from Brooklyn Law School.
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.
Carol J.C. Mills is Senior Vice President for Loan Management of Berkshire
Mortgage Finance and in this capacity, she is responsible for the Loan Servicing
and Asset Management functions of the Boston, Bethesda and Seattle offices of
Berkshire Mortgage Finance. She manages the estimated $7.2 billion portfolio of
loans. Ms. Mills joined Berkshire in December 1997 as Vice President and was
promoted to Senior Vice President in January 1999. From January 1989 through
November 1997, Ms. Mills was Vice President of First Winthrop Corporation and
Winthrop Financial Associates, in Cambridge, MA. Ms. Mills earned a B.A. degree
from Mount Holyoke College and a Master of Architecture degree from Harvard
University. Ms. Mills is a member of the Real Estate Finance Association, New
England Women in Real Estate and the Mortgage Bankers Association.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1999, no person of record owned or was known by the General
Partners to own beneficially more than 5% of the Partnership's 14,956,796
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 SCHEDULES 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)Agreement of Limited Partnership dated as of July 19, 1988
[Exhibit A included in Amendment No. 1 of Registrant's
Registration Statement on Form S-11 dated July 20, 1988 (File No.
33-21201)].*
(4.2)Subscription Agreement whereby a subscriber agrees to purchase
Units and adopts the provisions of the Agreement of Limited
Partnership [Exhibit D included in Amendment No. 1 of
Registrant's Registration Statement on Form S-11 dated July 20,
1988 (File No. 33-21201)].*
(4.3)Copy of First Amended and Restated Certificate of Limited
Partnership filed with the Massachusetts Secretary of State on
July 1, 1988. [Exhibit 4.4 to Amendment No. 1 of Registrant's
Registration Statement on Form S-11 dated July 20, 1988 (File No.
33-21201)].*
(10) Material Contracts:
(10.1) Form of agreement between the Partnership and Krupp Mortgage
Corporation [Exhibit 10.2 to Registrant's Registration Statement
on Form S-11 dated April 20, 1988 (File No. 33-21201)].*
Richmond Park Apartments
(10.2) Prospectus for GNMA Pool No. 260865 (PL) [Exhibit 1 to
Registrant's report on Form 8-K dated August 30, 1989 (File No.
0-17690)].*
(10.3) Subordinated Multifamily Open-End Mortgage (including
Subordinated Promissory Note) dated July 14, 1989 between Carl
Milstein, Trustee, Irwin Obstgarten, Al Simmon and Krupp Insured
Plus-II Limited Partnership. [Exhibit 2 to Registrant's report on
Form 8-K dated August 30, 1989 (File No. 0-17690)].*
(10.4) Participation Agreement dated July 31, 1989 between Krupp
Insured Mortgage Limited Partnership and Krupp Insured Plus-II
Limited Partnership [Exhibit 3 to Registrant's report on Form 8-K
dated August 30, 1989 (File No. 0-17690)].*
Wildflower Apartments
(10.5) Prospectus for GNMA Pool No. 280652(PL) [Exhibit 10.30 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-17690)].*
(10.6) Subordinated Multifamily Deed of Trust dated December 12, 1989
(including Subordinated Promissory Note) between Lincoln
Wildflower Limited Partnership and Krupp Insured Mortgage Limited
Partnership [Exhibit 10.31 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No.
0-17690)].*
Brookside Apartments
(10.7) Supplement to Prospectus dated November 1, 1989 for Federal
National Mortgage Association Pool Number MX-073009 [Exhibit 19.1
to Registrant's report on Form 10-Q for the quarter ended March
31, 1990 (File No. 0-17690)].*
(10.8) Subordinated Multifamily Deed of Trust dated January 30, 1990
between Brookside Manzanita and Krupp Insured Mortgage Limited
Partnership [Exhibit 19.2 to Registrant's report on Form 10-Q for
the quarter ended March 31, 1990 (File No. 0-17690)].*
(10.9) Subordinated Promissory Note dated January 30, 1990 between
Brookside Manzanita and Krupp Insured Mortgage Limited
Partnership [Exhibit 19.3 to Registrant's report on Form 10-Q for
the quarter ended March 31, 1990 (File No. 0-17690)].*
Bell Station Apartments
(10.10) Supplement to Prospectus dated April 1, 1990 for Federal
National Mortgage Association Pool Number MX-073011 [Exhibit 19.4
to Registrant's report on Form 10-Q for the quarter ended June
30, 1990 (File No. 0-17690)].*
(10.11) Subordinated Multifamily Mortgage dated March 28, 1990 between
Bell Station Associates, L.P. and Krupp Insured Mortgage Limited
Partnership [Exhibit 19.4 to Registrant's report on Form 10-Q for
the quarter ended March 31, 1990 (File No. 0-17690)].*
(10.12) Subordinated Promissory Note dated March 28, 1990 between Bell
Station Associates, L.P. and Krupp Insured Mortgage Limited
Partnership [Exhibit 19.5 to Registrant's report on Form 10-Q for
the quarter ended March 31, 1990 (File No. 0-17690)].*
The Enclave Apartments
(10.13) Supplement to Prospectus dated April 1, 1990 for Federal
National Mortgage Association Pool Number MX-073013 [Exhibit 19.1
to Registrant's report on Form 10-Q for the quarter ended June
30, 1990 (File No. 0-17690)].*
(10.14) Subordinated Multifamily Open-End Mortgage dated April 26,
1990 between Beavercreek Associates and Krupp Insured Mortgage
Limited Partnership [Exhibit 19.2 to Registrant's report on Form
10-Q for the quarter ended June 30, 1990 (File No. 0-17690)].*
(10.15) Subordinated Promissory Note dated April 26, 1990 between
Beavercreek Associates and Krupp Insured Mortgage Limited
Partnership [Exhibit 19.3 to Registrant's report on Form 10-Q for
the quarter ended June 30, 1990 (File No. 0-17690)].*
Creekside Apartments
(10.16) Subordinated Promissory Note dated June 28, 1990 between
Creekside Associates Limited Partnership and Krupp Insured
Mortgage Limited Partnership [Exhibit 19.6 to Registrant's report
on Form 10-Q for the quarter ended June 30, 1990 (File No.
0-17690)].*
(10.17) Subordinated Multifamily Deed of Trust dated June 28, 1990
between Creekside Associates Limited Partnership and Krupp
Insured Mortgage Limited Partnership [Exhibit 19.7 to
Registrant's report on Form 10-Q for the quarter ended June 30,
1990 (File No. 0-17690)].*
(10.18) Participation Agreement dated June 28, 1990 between Krupp
Mortgage Corporation and Krupp Insured Mortgage Limited
Partnership [Exhibit 19.1 to Registrant's report on Form 10-Q for
the quarter ended September 30, 1990 (File No. 0-17690)].*
* Incorporated by reference.
(c) Reports on Form 8-K During the last quarter of the year ended December 31,
1999, the Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 9th day of March,
2000.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
By: Krupp Plus Corporation, a General
Partner
By: /s/ Douglas Krupp
Douglas Krupp, President, Co-Chairman (Principal Executive Officer),
and Director of Krupp Plus Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on the 9th day of March, 2000.
Signatures Title(s)
/s/ Douglas Krupp President, Co-Chairman (Principal Executive
Douglas Krupp Officer), and Director of Krupp Plus Corporation,
a General Partner
/s/ George Krupp Co-Chairman (Principal Executive Officer)
George Krupp and Director of Krupp Plus Corporation,
a General Partner
/s/ Peter F. Donovan Senior Vice President of Krupp Plus
Peter F. Donovan Corporation, a General Partner
/s/ Robert A. Barrows Vice President and Treasurer of Krupp Plus
Robert A. Barrows Corporation, a General Partner
APPENDIX A
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1999
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at
December 31, 1999 and 1998 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8 - F-14
Schedule IV - Mortgage Loans on Real Estate F-15 - 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Insured Mortgage Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of
income and comprehensive income, of partners' equity and of cash flows, and
Schedule IV, present fairly, in all material respects, the financial position of
Krupp Insured Plus Limited Partnership (the "Partnership") at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with auditing
principles generally accepted in the United States. These financial statements
are the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2000
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
Participating Insured Mortgages ("PIMs")
(Notes B, C, H and I) $ 51,390,092 $ 98,950,663
Mortgage-Backed Securities ("MBS")
(Notes B, D and H) 7,460,112 18,806,870
Total mortgage investments 58,850,204 117,757,533
Cash and cash equivalents (Notes B, C, H and I) 39,434,806 15,117,466
Interest receivable and other assets 187,363 786,165
Prepaid acquisition fees and expenses, net of
accumulated amortization of $3,151,323 and
$7,184,808 respectively (Note B) 184,416 1,167,020
Prepaid participation servicing fees, net of
accumulated amortization of $1,033,292 and
$2,170,982, respectively (Note B) 69,702 385,110
Total assets $ 98,726,491 $135,213,294
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 19,550 $ 30,794
Partners' equity (deficit) (Notes A, C, E and I):
Limited Partners 99,051,048 134,849,373
(14,956,796 Limited Partner interests
outstanding)
General Partners (347,682) (312,060)
Accumulated Comprehensive Income (Note B) 3,575 645,187
Total Partners' equity 98,706,941 135,182,500
Total liabilities and Partners' equity $ 98,726,491 $ 135,213,294
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Revenues (Note B):
Interest income - PIMs (Note C):
Basic interest $ 6,324,994 $ 9,088,624 $ 10,887,208
Participation interest 1,665,793 865,027 3,709,622
Interest income - MBS (Note D) 1,205,925 1,594,765 1,493,309
Other interest income 609,360 405,763 589,154
Total revenues 9,806,072 11,954,179 16,679,293
Expenses:
Asset management fee to an
affiliate (Note F) 703,699 918,778 1,129,880
Expense reimbursements to affiliates
(Note F) 92,642 58,391 164,813
Amortization of prepaid fees and expenses
(Note B) 1,298,012 1,636,030 2,916,678
General and administrative 209,402 240,842 279,848
Total expenses 2,303,755 2,854,041 4,491,219
Net income (Note G) 7,502,317 9,100,138 12,188,074
Other comprehensive income
Net Change in unrealized gain
on MBS (641,612) (145,118) 363,536
Total comprehensive income $ 6,860,705 $ 8,955,020 $ 12,551,610
Allocation of net income (Note E):
Limited Partners $ 7,277,247 $ 8,827,134 $ 11,822,432
Average net income per Limited Partner
interests $ .49 $ .59 $ .79
(14,956,796 Limited Partner interests
outstanding)
General Partners $ 225,070 $ 273,004 $ 365,642
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
Balance at December 31, 1996 $ 195,564,776 $ (254,541) $ 426,769 $195,737,004
Net income 11,822,432 365,642 - 12,188,074
Quarterly distributions (17,948,156) (386,086) - (18,334,242)
Special Distributions (28,717,048) - - (28,717,048)
Change in unrealized
gain on MBS - - 363,536 363,536
Balance at December 31, 1997 160,722,004 (274,985) 790,305 161,237,324
Net income 8,827,134 273,004 - 9,100,138
Quarterly distributions (13,909,819) (310,079) - (14,219,898)
Special Distributions (20,789,946) - - (20,789,946)
Change in unrealized
gain on MBS - - (145,118) (145,118)
Balance at December 31, 1998 134,849,373 (312,060) 645,187 135,182,500
Net income 7,277,247 225,070 - 7,502,317
Quarterly distributions (12,563,709) (260,692) - (12,824,401)
Special Distributions (30,511,863) - (30,511,863)
Change in unrealized
loss gain on MBS - (641,612) (641,612)
Balance at December 31, 1999 $ 99,051,048 $ (347,682) $ 3,575 $ 98,706,941
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Operating activities:
Net income $ 7,502,317 $ 9,100,138 $ 12,188,074
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and
expenses 1,298,012 1,636,030 2,916,678
Shared appreciation income and prepayment
premiums (1,027,201) (586,560) (2,620,113)
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 598,802 150,718 355,951
Increase (decrease) in liabilities (11,244) (90,172) 101,993
Net cash provided by operating activities 8,360,686 10,210,154 12,942,583
Investing activities:
Principal collections on PIMs including
shared appreciation income and prepayment premium
income of $1,027,201 in 1999, $586,560 in 1998
and $2,620,113 in 1997, respectively 48,587,772 14,687,620 46,486,602
Principal collections on MBS 10,705,146 4,748,870 2,045,694
Net cash provided by investing activities 59,292,918 19,436,490 48,532,296
Financing activities:
Quarterly distributions (12,824,401) (14,219,898) (18,334,242)
Special distributions (30,511,863) (20,789,946) (28,717,048)
Net cash used for financing activities (43,336,264) (35,009,844) (47,051,290)
Net (decrease)increase in cash and
cash equivalents 24,317,340 (5,363,200) 14,423,589
Cash and cash equivalents, beginning of year 15,117,466 20,480,666 6,057,077
Cash and cash equivalents, end of year $ 39,434,806 $ 15,117,466 $ 20,480,666
Supplemental disclosure of non-cash investing
activities:
Reclassification of investment in PIM to
a MBS $ - $ - $ 8,024,709
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
A. Organization
Krupp Insured Mortgage Limited Partnership (the "Partnership") was formed on
March 21, 1988 by filing a Certificate of Limited Partnership in The
Commonwealth of Massachusetts. The Partnership was organized for the purpose of
investing in multi-family loans and mortgage backed securities. The Partnership
issued all of the General Partner Interests to two General Partners in exchange
for capital contributions aggregating $3,000. Krupp Plus Corporation and
Mortgage Services Partners Limited Partnership are the General Partners of the
Partnership and Krupp Depositary Corporation is the Corporate Limited Partner.
Except under certain limited circumstances upon termination of the Partnership,
the General Partners are not required to make any additional capital
contributions. The Partnership terminates on December 31, 2028, 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 22, 1988 and
completed its public offering on May 23, 1990 having sold 14,956,696 Units for
$298,678,321 net of purchase volume discounts of $457,599. In addition, Krupp
Depository owns one hundred units.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial reporting
purposes, which may differ in certain respects from those used for federal
income tax purposes (see 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.
Effective January 1, 1998, the Partnership adopted Statement of Financial
Accounting Standards No. 130, 'Reporting Comprehensive Income' (FAS 130). FAS
130 established standards for reporting and displaying comprehensive income and
its components. FAS 130 requires comprehensive income and its components, as
recognized under accounting standards, to be displayed in a financial statement
with the same prominence as other financial statements, if material.
Accordingly, unrealized gains (losses) on the Partnership's available-for sale
securities have been included in other comprehensive income.
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 Fannie Mae MBS at amortized
cost.
The insured mortgage portion of its Federal Housing Administration (FHA) PIM is
carried at amortized cost. The Partnership holds this FHA insured mortgage at
amortized cost since the loan is fully insured by the FHA.
Basic interest on PIMs is recognized based on the stated rate of the FHA
mortgage loan (less the servicer's fee) or the stated coupon rate of the GNMA or
Fannie Mae MBS. Participation interest is recognized as earned and when deemed
collectible by the Partnership.
Continued
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, expenses and
prepaid participation servicing fees paid for the acquisition and servicing of
PIMs. The Partnership amortizes 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. Acquisition expenses incurred on potential acquisitions
which were not consummated were charged to operations.
The Partnership amortizes prepaid participation servicing fees using a method
that approximates the effective interest method over a ten-year period beginning
at final endorsement of the loan if a Department of Housing and Urban
Development ("HUD") loan or GNMA loan and at closing if a Fannie Mae loan.
Income Taxes
The Partnership is not liable for federal or state income taxes as Partnership
income is allocated to the partners for income tax purposes. In the event that
the Partnership's tax returns are examined by the Internal Revenue Service or
state taxing authority and the examination results in a change in Partnership
taxable income, such change will be reported to the partners.
Estimates and Assumptions
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, contingent assets and
liabilities and revenues and expenses during the period. Actual results could
differ from those estimates.
C. PIMs
At December 31, 1999 and 1998, the Partnership had investments in six PIMs and
twelve PIMs, respectively. The Partnership's PIMs consist of (a) a GNMA or
Fannie Mae MBS representing the securitized first mortgage loan on the
underlying property or a sole participation interest in the mortgage loan
originated under HUD's FHA lending program (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 Fannie Mae MBS, and HUD insures the FHA mortgage loan. The
borrower usually cannot prepay the first mortgage loan during the first five
years and may prepay the first mortgage loan thereafter subject to a 9%
prepayment premium in years six through nine, a 1% prepayment premium in year
ten and no prepayment premium thereafter. The Partnership may receive interest
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% to 1% per annum calculated on
the unpaid principal balance of the first mortgage on the underlying property,
(ii) "Shared Income Interest" which is 25% to 35% 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
Continued
C. PIMs, continued
during such month, (iii) "Shared Appreciation Interest" which is 25% to 35% 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 in any year 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 the 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 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.
During December 1999, the Partnership received prepayments on the Salishan,
Saratoga, and Marina Shores Apartments PIMs, and the Patrician MBS. In addition
to the principal proceeds from the Salishan PIM of $14,666,235, the Partnership
received $146,662 of prepayment premium income and $311,650 of Shared Interest
Income and Minimum Additional Income. The Partnership received $6,008,565 of
principal proceeds from the Marina Shores PIM along with $176,679 of Shared
Appreciation and prepayment premium income. The principal proceeds from the
Saratoga PIM and the Patrician MBS prepayments were $6,204,895 and $7,830,263,
respectively. The Partnership did not receive any additional interest on the
Saratoga prepayment. On January 11, 2000, the Partnership paid a special
distribution of $2.37 per Limited Partner interest from these four payoffs.
During November 1999, the Partnership paid a special distribution of $.30 per
Limited Partner interest from the principal proceeds received from the Valley
Manor PIM prepayment of $4,425,993. The Partnership did not receive any
participation income from this PIM prepayment.
During May 1999, the Partnership paid a special distribution of $1.08 per
Limited Partner interest from the principal proceeds, Shared Appreciation and
prepayment proceeds received from the Remington and Pope Building PIMs (see
below).
During March 1999, the Partnership received a payoff of the Remington PIM in the
amount of $12,199,298. The payoff was the result of a default on the underlying
loan which resulted in the Partnership receiving all of the outstanding
principal balance under the insurance feature of the PIM. However, due to the
default the Partnership did not receive any participation income from this PIM.
During February 1999, the Partnership received a payoff of the Pope Building PIM
in the amount of $3,176,761. In addition, the Partnership received $703,860 of
Shared Appreciation and prepayment premium income and $218,578 of Shared Income
and Minimum Additional Interest upon the payoff of the underlying mortgage.
During January 1999, the Partnership paid a special distribution of $.66 per
Limited Partner interest from the principal proceeds and prepayment premium
received from the Cross Creek PIM during 1998.
On November 16, 1998, the Partnership received a prepayment of the Cross Creek
PIM in the amount of approximately $9,414,586. Additional interest in lieu of a
prepayment penalty of approximately $318,000 along with shared interest income
of approximately $60,000 was also received during 1998.
Continued
C. PIMs, continued
On July 27, 1998 and August 26, 1998, the Partnership received a partial
prepayment and final prepayment of approximately $654,000, and $2,985,000,
respectively, for the Deering Place Apartments PIM. In addition to the principal
repayment, the Partnership received minimum additional interest and shared
interest income of $90,195 and a prepayment penalty of $268,638. The Partnership
distributed the capital transaction proceeds from this prepayment to investors
through a special distribution on September 18, 1998 in the amount of $.27 per
Limited Partner interest.
During January 1998, the Partnership made a $1.12 per Unit special distribution
with the prepayment proceeds of the Paddock Club and Southland Station PIMs that
were received during the fourth quarter of 1997.
At December 31, 1999 and 1998 there were no loans within the Partnership's
portfolio that were delinquent as to principal or interest.
The Partnership's PIMs consisted of the following at December 31, 1999 and 1998:
Aggregate Permanent Maturity
Original Number Interest Date Investment Basis
Issuer Principal of PIMs Rate Range Range at December 31,
1999 1998
GNMA $ 27,600,000 2 7.50% - 7.75% 2024 to 2025 $ 25,336,550 $ 57,833,529
(a) (b)
Fannie Mae 19,400,000 3 7.5% 2000 17,995,214 33,010,473
(c)
FHA 8,354,500 1 8.305% 2031 8,058,328 8,106,661
$ 55,354,500 6 $ 51,390,092 $ 98,950,663
(a) Includes one PIM - Richmond Park - in which the Partnership held
38% of the total PIM. The remaining portion is held by an
affiliate of the Partnership.
(b) The Partnership had seven GNMA PIMs as of December 31, 1998.
During 1999, the Partnership received prepayments on the Pope
Building, Valley Manor, Remington, Saratoga and Marina Shores
GNMA PIMs.
(c) The Partnership had four Fannie Mae PIMs as of December 31,1998.
During 1999 the Partnership received a prepayment of the Salishan
Apartments PIM.
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in 5 states. The apartment complexes range in size
from 92 to 736 units.
D. MBS
At December 31, 1999, the Partnership's MBS portfolio has an amortized cost of
$7,456,537 and gross unrealized gains of $140,027 and gross unrealized losses of
$136,452. At December 31, 1998, the Partnership's MBS portfolio had an amortized
cost of $18,161,683 and gross unrealized gains of $645,187. The MBS portfolio
has maturity dates ranging from 2016 to 2024.
Unrealized
Maturity Date Fair Value Gain/(Loss)
2001 - 2005 $ - $ -
2006 - 2010 - -
2011 - 2024 7,460,112 3,575
Total $ 7,460,112 $ 3,575
Continued
E. Partners' Equity
Profits 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 and profits from the capital transaction will be
distributed first, to the Limited Partners until they have received a return of
their total invested capital, second, to the General Partners until they have
received a return of their total invested capital, third, 99% to the Limited
Partners and 1% to the General Partners until the Limited Partners receive an
amount equal to any deficiency in the 11% 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. Losses from a capital transaction will be allocated 97% to the Limited
Partners and 3% to the General Partners.
As of December 31, 1999, the following cumulative partner contributions and
allocations have been made since inception of the Partnership:
Corporate Accumulated
Limited General Comprehensive
Unitholders Partner Partners Income Total
Capital
contributions $298,678,321 $ 2,000 $ 3,000 $ - $298,683,321
Syndication costs (20,431,915) - - - (20,431,915)
Quarterly
Distributions (214,634,242) (1,549) (4,707,915) (219,343,706)
Special
Distributions (105,444,705) (705) - - (105,445,410)
Net income 140,882,861 982 4,357,233 - 145,241,076
Unrealized
gain on MBS - - - 3,575 3,575
Balance,
December 31, 1999 $ 99,050,320 $ 728 $ (347,682) $ 3,575 $ 98,706,941
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General Partners or their
affiliates receive an Asset Management Fee equal to .75% per annum of the value
of the Partnership's 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 as asset management or incentive management fees
shall not exceed 9.05% 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.
Continued
G. Federal Income Taxes
The reconciliation of the net income reported in the accompanying statement of
income with the income reported in the Partnership's 1999 federal income tax
return is as follows:
Net income per statement of income $ 7,502,317
Book to tax difference for timing of PIM
income (263,674)
Book to tax difference for amortization of
prepaid expenses and fees (1,791,904)
Net income for federal income tax purposes $ 5,446,739
The allocation of the 1999 net income for federal income tax purposes is as
follows:
Portfolio
Income
Unitholders $5,314,117
Corporate Limited Partner 36
General Partners 132,586
$5,446,739
For the years ended December 31, 1999, 1998 and 1997 the average per unit income
to the Unitholders for federal income tax purposes was $.36, $.60 and $.83
respectively.
The basis of the Partnership's assets for financial reporting purposes is less
than its tax basis by approximately $2,634,000 and $3,823,000 at December 31,
1999 and 1998, respectively. The basis of the Partnership's liabilities for
financial reporting purposes are less than its tax basis by approximately
$265,000 and $0 at December 31, 1999 and 1998, respectively.
H. Fair Value Disclosure of Financial Instruments
The Partnership uses 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 due to the short maturity of those
instruments.
MBS
The Partnership estimates the fair value of MBS based on quoted market prices.
Based on the estimated fair value determined using these methods and
assumptions, the Partnership's investments in MBS had gross unrealized gains and
losses of approximately $140,000 and $136,000 at December 31, 1999 and $645,000
and $0 at December 31, 1998.
Continued
H. Fair Value Disclosure of Financial Instruments, continued
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 appreciation of 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 $168,000 and $311,000,
respectively, at December 31, 1999, and gross unrealized gains of approximately
$2,527,000 at December 31, 1998.
At December 31, 1999 and 1998, the estimated fair values of the Partnership's
financial instruments are as follows:
(Amounts in thousands)
1999 1998
Fair Carrying Fair Carrying
Value Value Value Value
Cash and cash equivalents $ 39,435 $ 39,435 $ 15,117 $ 15,117
MBS 7,460 7,460 18,807 18,807
PIMS 51,247 51,390 101,478 98,951
$ 98,142 $ 98,285 $135,402 $132,875
I. Subsequent Event
On February 25, 2000 the Partnership received a payoff on the Brookside
Apartments PIM in the amount of $4,531,910. The Borrower defaulted on the first
mortgage loan and Fannie Mae paid off the MBS upon maturity in February 2000.
The Partnership anticipates a first quarter special distribution of $.31 per
unit. The Partnership is pursuing the receipt of approximately $307,000 in
additional income due from the borrower. At this time, it is uncertain if the
Partnership will receive this income.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Normal Carrying
Monthly Original Amount at
Interest Maturity Payment Face Current Face 12/31/99
PIMs (a) Rate (b) Date (i) (j)(k)(l) Amount Amount (n)
GNMA
Richmond Park Apts. 7.50%
Richmond Heights, (c) (d) (e) 8/15/24 67,400 $10,000,000 $ 9,123,297 $ 9,123,297
OH
Wildflower Apts. 7.75%
Las Vegas, NV (c) (h) 1/15/25 122,000 17,600,000 16,213,253 16,213,253
27,600,000 25,336,550 25,336,550
Fannie Mae
Bell Station Apts. 7.50% 35,700
Montgomery, AL (c) (f) (g) 4/1/00 (m) 5,300,000 4,916,392 4,916,392
Brookside Apts. 7.50% 33,000
Carmichael, CA (c) (d) (e) 2/1/00 (m) 4,900,000 4,536,418 4,536,418
The Enclave Apts. 7.50% 62,000
Beavercreek, OH (c) (d) (g) 5/1/00 (m) 9,200,000 8,542,404 8,542,404
19,400,000 17,995,214 17,995,214
FHA
Creekside Apts. 8.305%
Portland, OR (c) (d) (e) 11/1/31 61,600 8,354,500 8,058,328 8,058,328
Total $55,354,500 $51,390,092 $51,390,092
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(a) The Participating Insured Mortgages ("PIMs") consist of either a
mortgage-backed security ("MBS") issued and guaranteed by Fannie
Mae, an MBS issued and guaranteed by the Government National
Mortgage Association ("GNMA") or a sole participation interest in
a first mortgage loan insured by the United States Department of
Housing and Urban Development ("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 specified base levels.
(b) Represents the permanent interest rate of the GNMA or Fannie Mae
MBS or the HUD-insured first mortgage less the servicers fee. The
Partnership may also receive additional interest which consists
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), (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.
(c) Minimum additional interest is at a rate of .5% per annum
calculated on the unpaid principal balance of the first mortgage
note.
(d) Shared income interest is based on 25% of monthly gross rental
income over a specified base amount.
(e) Shared appreciation interest is based on 25% of any increase in
the value of the project over the specified base value.
(f) Shared income interest is based on 30% of monthly gross rental
income over a specified base amount.
(g) Shared appreciation interest is based on 30% of any increase in
the value of the project over the specified base value.
(h) Shared income interest is based on 35% of monthly gross rental
income over a specified base amount and shared appreciation
interest is based on 35% of any increase in the value of the
project over the specified base value.
(i) The Partnership's GNMA MBS and HUD direct mortgages have call
provisions, which allow the Partnership to accelerate their
respective maturity dates.
(j) The normal monthly payment consisting of principal and interest
is payable monthly at level amounts over the term of the GNMA MBS
and the HUD direct mortgages.
(k) PIMs generally may not be prepaid during the first five years and
may 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.
(l) The normal monthly payment consisting of principal and interest
for a Fannie Mae PIM is payable at level amounts based on a
35-year amortization. All unpaid principal and accrued interest
is due at the end of year ten.
(m) The approximate principal balance due at maturity for each PIM,
respectively, is as follows:
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE, Continued
PIM Amount
Bell Station Apartments $ 4,897,000
Brookside Apartments $ 4,527,000
The Enclave Apartments $ 8,500,000
(n) The aggregate cost of PIMs for federal income tax purposes is
$51,390,092.
A reconciliation of the carrying value of PIMs for each of the three years in
the period ended December 31, is as follows:
1999 1998 1997
Balance at beginning of period $ 98,950,663 $ 113,051,723 $164,942,921
Deductions during period:
Reclassification - - (8,024,709)
Prepayments and
principal collections (47,560,571) (14,101,060) (43,866,489)
Balance at end of period $ 51,390,092 $ 98,950,663 $113,051,723
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 in Section 17 of the Partnership Agreement
and the source of cash distributions for the year ended December 31, 1999 and
the period from inception through December 31, 1999. The General Partners
provide certain of the information below to meet requirements of the Partnership
Agreement and because they believe that it is an appropriate supplemental
measure of operating performance. However, Distributable Cash Flow and Net Cash
Proceeds from Capital Transactions should not be considered by the reader as a
substitute to net income as an indicator of the Partnership's operating
performance or to cash flows as a measure of liquidity.
(Unaudited)
(Amounts in thousands, except per Unit amounts)
Year Inception
Ended Through
12/31/99 12/31/99
Distributable Cash Flow:
Income for tax purposes $ 5,447 $ 147,617
Items not requiring or (not providing) the use
of operating funds:
Shared Appreciation income (1,027) (5,217)
Amortization of prepaid fees and expenses 3,090 16,680
Interest rate reduction
collectible in the future 264 -
Acquisition expenses paid from offering
proceeds charged to operations - 184
Gain on sale of MBS - (417)
Total Distributable Cash Flow ("DCF") $ 7,774 $ 158,847
Limited Partners Share of DCF $ 7,541 $ 154,082
Limited Partners Share of DCF per Unit $ .50 $ 10.30 (c)
General Partners Share of DCF $ 233 $ 4,765
Net Proceeds from Capital Transactions:
Prepayments and principal collections on PIMs
including shared appreciation income $48,588 $ 142,171
Principal collections on MBS 10,705 77,676
Principal collections on MBS and PIMs
reinvested - (14,537)
Gain on sale of MBS - 417
Total Net Proceeds from Capital Transactions $ 59,293 $ 205,727
Cash available for distribution
(DCF plus Net Proceeds from Capital
Transactions) $ 67,067 $ 364,574
Distributions:
Limited Partners $ 78,523 (a) $ 358,670
Limited Partners Average per Unit $ 5.25 (a) $ 23.98 (b)(c)
General Partners $ 233 (a) $ 4,765 (b)
Total Distributions $ 78,756 $ 363,435
(a) Represents all distributions paid in 1999 except the February
1999 distribution and includes the special distribution paid in
January 2000, and an estimate of the distribution to be paid in
February 2000.
(b) Includes the special distribution paid in January 2000 and an
estimate of the distribution to be paid in February 2000.
(c) Limited Partners average per Unit return of capital as of
February 2000 is $13.68 [$23.98 - $10.30]. 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.