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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, 2000
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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
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Commission file number 0-17690
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Krupp Insured Mortgage Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3021395
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 523-0066
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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
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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") 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 (participation interest). 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 Fannie Mae 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, 2000 there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
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None.
ITEM 3. LEGAL PROCEEDINGS
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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
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 2000 was approximately
12,700. 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 2000, the Partnership made special distributions consisting of principal
proceeds, Shared Appreciation Interest and prepayment premiums from the
Brookside, Enclave, Bell Station, Salishan, Saratoga, and Marina Shores PIM
prepayments and the Patrician MBS prepayment.
During 1999, the Partnership made special distributions consisting of principal
proceeds, Shared Appreciation Interest and prepayment premiums from the Pope
Building, Remington, Valley Manor and Cross Creek PIM Prepayments.
The Partnership will make special distributions in the future as PIMs prepay or
if 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, 2000 and 1999 as follows:
2000 1999
Amount Per Unit Amount Per Unit
--------------- ----------- ---------------- -------------
Quarterly Distributions:
Limited Partners $ 5,833,146 $ .39 $ 12,563,709 $ .84
General Partners 142,320 260,692
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5,975,466 12,824,401
Special Distributions:
Limited Partners 53,994,033 $ 3.61 30,511,863 $ 2.04
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$ 59,969,499 $ 43,336,264
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ITEM 6. SELECTED FINANCIAL DATA
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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,
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total revenues $ 4,690,857 $ 9,806,072 $ 11,954,179 $ 16,679,293 $16,039,711
Net income 3,879,148 7,502,317 9,100,138 12,188,074 11,372,365
Net income allocated
to Partners:
Limited Partners 3,762,774 7,277,247 8,827,134 11,822,432 11,031,194
Average per Unit .25 .49 .59 .79 .74
General Partners 116,374 225,070 273,004 365,642 341,171
Total assets at
December 31 42,790,650 98,726,491 135,213,294 161,358,290 195,755,977
Distributions to Partners:
Quarterly Distributions:
Limited Partners 5,833,146 12,563,709 13,909,819 17,948,156 17,948,153
Average per Unit .39 .84 .93 1.20 1.20
General Partners 142,320 260,692 310,079 386,086 431,074
Special Distributions:
Limited Partners 53,994,033 30,511,863 20,789,946 28,717,048 25,426,553
Average Per Unit 3.61 2.04 1.39 1.92 1.70
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Liquidity and Capital Resources
The most significant demand on the Partnership's liquidity is the regular
quarterly distribution paid to investors of approximately $900,000. 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 have determined that the
Partnership will pay a distribution of $.06 per Limited Partner interest per
quarter.
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 June 2, 2000, the Partnership paid a special distribution of $.93 per Limited
Partner interest from the Bell Station and Enclave PIM payoffs along with the
Shared Appreciation Interest proceeds from the Brookside PIM (see below). On
March 30, 2000, the Partnership received $190,239 of Shared Appreciation
Interest and $5,973 of Shared Income Interest from the Bell Station PIM. During
April, the Partnership received the principal proceeds of $4,901,863 from the
Bell Station PIM. During May, the Partnership received the principal proceeds of
$8,508,892 from the Enclave PIM. The underlying first mortgage loan matured on
May 1, 2000; however, the Borrower was unable to close on his refinancing of the
property in time to payoff the loan on its maturity date. Consequently, Fannie
Mae paid off the MBS under its guarantee obligation. Subsequent to the payoff of
the MBS portion of the PIM, the Partnership received $178,854 of Shared
Appreciation Interest and $200,398 of Shared Income Interest.
On March 30, 2000, the Partnership paid a special distribution of $.31 per
Limited Partner interest from the principal proceeds in the amount of
$4,531,910, received from the Brookside Apartments PIM payoff in February of
2000. The underlying first mortgage loan matured on February 1, 2000; however,
the Borrower was unable to close on his refinancing of the property in time to
payoff the loan on its maturity date. Consequently, Fannie Mae paid off the MBS
under its guarantee obligation. Subsequent to the payoff of the MBS portion of
the PIM, the Partnership received $130,000 of Shared Appreciation Interest and
$176,513 of Shared Income Interest.
In addition to the payoffs mentioned above, the Partnership, received Shared
Income Interest of $24,233 from the Enclave PIM during February and $34,793 from
the Creekside PIM during June.
On January 11, 2000, the Partnership paid a special distribution of $2.37 per
Limited Partner interest from the prepayment proceeds received during December
1999 from 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 Income Interest and Minimum Additional Interest. The
Partnership received $6,008,565 of principal proceeds from the Marina Shores PIM
along with $176,679 of Shared Appreciation Interest 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 participation interest on the Saratoga prepayment.
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 distribution 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 Income Interest 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 of the Paddock Club and Southland Station PIMs together
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
Interest on Southland Station and an $895,000 prepayment premium on Paddock
Club.
The Partnership agreed to provide debt service relief for the Wildflower PIM due
to the property's poor operating performance in the competitive Las Vegas
market. Occupancy has fallen as low as 80%, and the property has been unable to
generate sufficient revenues to adequately maintain the property. Consequently,
a loan modification agreement between the Partnership, the borrower entity under
the PIM, the principals of the borrower entity, and the affiliated property
management agent will provide operating funds for property repairs. Under the
modification, the principals of the borrower entity converted $105,000 of cash
advances to a long-term non interest-bearing loan. In addition, an escrow
account to be used exclusively for property repairs has been established and is
under the control of the Partnership. The management agent made an initial
deposit into the escrow equal to 30% of the management fees it received during
2000 and will continue to deposit a similar amount until December 2002. The
Partnership made an initial deposit into the escrow account to match the
$105,000 principals' loan and the management agent's initial deposit and will
continue to match additional deposits until December 2002. The Partnership's
contributions to the escrow account will be considered to be an interest rebate.
The principals' loan and the escrow deposits made by the management agent and
the Partnership can be repaid exclusively out of any Surplus Cash, as defined by
HUD, that the property may generate in future years. Any repayments will be made
on a pro rata basis amongst the parties.
The Partnership's only other remaining PIM investments are backed by the
underlying first mortgage loans on Creekside and Richmond Park. Creekside,
located in the Portland, Oregon area, continues to operate successfully with
occupancy in the mid-90% range. However, Clackamas County is undertaking an
extensive road improvement project adjacent to Creekside, and a portion of the
property may be taken during the road's construction. The Partnership does not
expect any changes to the property during 2001, but eventually, property
operations could be affected by the road project. The remaining property,
Richmond Park, maintains its position in a stable, older Cleveland suburb.
Occupancy generally hovers in the low 90% range, but because the neighborhood
does not support significant rental rate increases, the property only generates
sufficient cash flow for adequate maintenance and not enough to provide for
major capital improvements.
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 GNMA,
Fannie Mae, 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 $2.5 million
of commercial paper, which is issued by entities with a credit rating equal to
one of the top two rating categories of a nationally recognized statistical
rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
December 31, 2000, the Partnerships PIMs and MBS comprise the majority of the
Partnership's assets. As such, decreases in interest rates may accelerate the
prepayment of the Partnership's investments. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the Partnership forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For PIMs, the Partnership incorporates prepayment assumptions into
planning as individual properties notify the Partnership of the intent to prepay
or as they mature.
The table below provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates ("WAIR") by expected maturity dates. The expected
maturity date is contractual maturity adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands)
2001 2002 2003 2004 2005 Thereafter Total Fair
Face Value
Value
Interest-sensitive assets:
MBS $ 803 $ 607 $ 438 $ 293 $ 168 $ 4,197 $ 6,506 $ 6,640
WAIR 7.90% 7.90% 7.90% 7.90% 7.90% 7.90%
PIMs 424 459 496 537 582 30,506 33,004 32,886
WAIR 7.82% 7.82% 7.82% 7.82% 7.82% 7.82%
------- -------- -------- -------- ------- ----------- ----------- ------------
Total Interest-
sensitive assets $ 1,227 $ 1,066 $ 934 $ 830 $ 750 $ 34,703 $ 39,510 $ 39,526
======= ======== ======== ======== ======= =========== =========== ============
Results of Operations
The following discussion relates to the operation of the Partnership during the
years ended December 31, 2000, 1999 and 1998.
(Amounts in thousands)
2000 1999 1998
---- ---- ----
Interest income on PIMs:
Basic interest $ 2,773 $ 6,325 $ 9,089
Participation interest 941 1,666 865
Interest income on MBS 550 1,206 1,595
Other interest income 427 609 406
Partnership expenses (674) (1,006) (1,219)
Amortization of prepaid fees and
expenses (138) (1,298) (1,636)
-------- ---------- ---------
Net income $ 3,879 $ 7,502 $ 9,100
======== ========== =========
Net income decreased in 2000 as compared to 1999 due primarily to lower interest
income on PIMs and MBS. Basic interest on PIMs decreased due to the payoffs of
the Enclave, Bell Station and Brookside PIMs in 2000 and the Salishan, Saratoga,
Marina Shores and Valley Shores PIMs in 1999. Participation interest decreased
due to the PIM payoffs mentioned above. MBS interest income decreased due
primarily to the payoff of the Patrician MBS in 1999. Expenses decreased in 2000
compared with 1999 due primarily to lower asset management fees and amortization
expenses. The decrease in asset management fees is a result of the Partnership's
asset base declining. Amortization expense was greater in 1999 as compared to
2000 as a result of the full amortization of the remaining prepaid fees and
expenses on the 1999 PIM prepayments being greater than the 2000 PIM
prepayments.
Net income decreased during 1999 as compared to 1998. This decrease was due
primarily to lower basic interest on PIMs and interest income on MBS. This was
partially offset by an increase in participation interest and decreases in asset
management fees and amortization expense. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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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:
Name and Age Position with
Krupp Plus Corporation
Douglas Krupp (54) President, Co-Chairman of the Board and Director
George Krupp (56) Co-Chairman of the Board and Director
Peter F. Donovan (47) Senior Vice President
Ronald Halpern (59) Senior Vice President
Robert A. Barrows (43) Vice President and Treasurer
Carol J.C. Mills (51) 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. He is a graduate of Bryant College where he
received an honorary Doctor of Science in Business Administration in 1989.
George Krupp 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. Douglas and George Krupp are
brothers.
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 11th largest commercial mortgage servicer in the United States with a
servicing and asset management portfolio of $11.5 billion. 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. Mr. Donovan is currently a member of
the Advisory Council for Fannie Mae.
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 which includes his experience as 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 Berkshire Mortgage Finance. She manages the
estimated $11.5 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, 2000, 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 Limited Partner interests. 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)].*
(10.7) Loan Modification Agreement, dated December 21, 2000,
between Krupp Insured Mortgage Limited Partnership,
Berkshire Mortgage Finance Corporation (formally known
as Krupp Mortgage Corporation), Legacy Wildflower
Limited Partnership (formally known as Lincoln
Wildflower Limited Partnership), Legacy Partners 326
Limited Partnership (formally known as Lincoln Property
Company #326 Limited) and Legacy Partners Residential,
Inc.+
Creekside Apartments
(10.8) 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)].*
(10.9) 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)].*
(10.10) 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.
+ Filed herein
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 2000, 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, 2001.
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, 2001.
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, 2000
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 2000 and 1999 F-4
Statements of Income and Comprehensive Income for the Years Ended December 31, 2000,
1999 and 1998 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 2000, 1999 and 1998 F-6
Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998 F-7
Notes to Financial Statements F-8 - F-17
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 Mortgage Limited Partnership:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Krupp
Insured Mortgage Limited Partnership (the "Partnership") at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. 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 of America 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 23, 2001
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
---- ----
Participating Insured Mortgages ("PIMs")
(Notes B, C and H) $ 33,004,074 $ 51,390,092
Mortgage-Backed Securities ("MBS")
(Notes B, D and H) 6,640,398 7,460,112
------------ -------------
Total mortgage investments 39,644,472 58,850,204
Cash and cash equivalents (Notes B, C and H) 2,737,740 39,434,806
Interest receivable and other assets 292,370 187,363
Prepaid acquisition fees and expenses, net of
accumulated amortization of $544,434 and
$3,151,323 respectively (Note B) 83,208 184,416
Prepaid participation servicing fees, net of
accumulated amortization of $174,676 and
$1,033,292, respectively (Note B) 32,860 69,702
------------- -------------
Total assets $ 42,790,650 $ 98,726,491
============= ==============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 17,650 $ 19,550
------------- -------------
Partners' equity (deficit) (Notes A, C and E):
Limited Partners 42,986,643 99,051,048
(14,956,796 Limited Partner interests
outstanding)
General Partners (373,628) (347,682)
Accumulated Comprehensive Income (Note B) 159,985 3,575
------------- -------------
Total Partners' equity 42,773,000 98,706,941
------------- --------------
Total liabilities and Partners' equity $ 42,790,650 $ 98,726,491
============= ==============
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, 2000, 1999 and 1998
2000 1999 1998
----------------- ----------------- -------------------
Revenues (Note B):
Interest income - PIMs (Note C):
Basic interest $ 2,772,996 $ 6,324,994 $ 9,088,624
Participation interest 941,003 1,665,793 865,027
Interest income - MBS (Note D) 549,802 1,205,925 1,594,765
Other interest income 427,056 609,360 405,763
------------ ------------- -------------
Total revenues 4,690,857 9,806,072 11,954,179
------------- ------------- --------------
Expenses:
Asset management fee to an
affiliate (Note F) 318,118 703,699 918,778
Expense reimbursements to affiliates
(Note F) 125,247 92,642 58,391
Amortization of prepaid fees and expenses
(Note B) 138,050 1,298,012 1,636,030
General and administrative 230,294 209,402 240,842
------------- ------------- ------------- -
Total expenses 811,709 2,303,755 2,854,041
------------- ------------- -------------
Net income (Note G) 3,879,148 7,502,317 9,100,138
Other comprehensive income
Net Change in unrealized gain
on MBS 156,410 (641,612) (145,118)
------------- ------------ ----------- -
Total comprehensive income $ 4,035,558 $ 6,860,705 $ 8,955,020
============= ============= =============
Allocation of net income (Note E):
Limited Partners $ 3,762,774 $ 7,277,247 $ 8,827,134
============= ============= ==============
Average net income per Limited Partner
interests (14,956,796 Limited Partner interests outstanding) $ .25 $ .49 $ .59
============= ============= ============
General Partners $ 116,374 $ 225,070 $ 273,004
============= ============= ==============
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, 2000, 1999 and 1998
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
----------------- ------------- ----------- -------------------
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
gain on MBS - - (641,612) (641,612)
---------------- ------------- ----------- --------------
Balance at December 31, 1999 99,051,048 (347,682) 3,575 98,706,941
Net income 3,762,774 116,374 - 3,879,148
Quarterly distributions (5,833,146) (142,320) - (5,975,466)
Special distributions (53,994,033) - - (53,994,033)
Change in unrealized
gain on MBS - - 156,410 156,410
--------------- ------------ ----------- -------------
Balance at December 31, 2000 $ 42,986,643 $ (373,628) $ 159,985 $ 42,773,000
============== ===========- =========== =============
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, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Operating activities:
Net income $ 3,879,148 $ 7,502,317 $ 9,100,138
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 138,050 1,298,012 1,636,030
Shared Appreciation Interest and prepayment
premium income (499,093) (1,027,201) (586,560)
Changes in assets and liabilities:
(Increase) decrease in interest receivable
and other assets (105,007) 598,802 150,718
Decrease in liabilities (1,900) (11,244) (90,172)
------------- ------------- -------------
Net cash provided by operating activities 3,411,198 8,360,686 10,210,154
------------- ------------- -------------
Investing activities:
Principal collections on PIMs including
Shared Appreciation Interest and prepayment premium
income of $499,093 in 2000, $1,027,201 in 1999
and $586,560 in 1998, respectively 18,885,111 48,587,772 14,687,620
Principal collections on MBS 976,124 10,705,146 4,748,870
------------ ------------- -------------
Net cash provided by investing activities 19,861,235 59,292,918 19,436,490
------------- ------------- --------------
Financing activities:
Quarterly distributions (5,975,466) (12,824,401) (14,219,898)
Special distributions (53,994,033) (30,511,863) (20,789,946)
------------- ------------- -------------
Net cash used for financing activities (59,969,499) (43,336,264) (35,009,844)
------------- ------------- -------------
Net (decrease) increase in cash and
cash equivalents (36,697,066) 24,317,340 (5,363,200)
Cash and cash equivalents, beginning of year 39,434,806 15,117,466 20,480,666
------------- ------------- -------------
Cash and cash equivalents, end of year $ 2,737,740 $ 39,434,806 $ 15,117,466
============= ============= =============
Non cash activities:
Increase (decrease) in fair value of MBS $ 156,410 $ (641,612) $ (145,118)
============= ============= =============
The accompanying notes are an integral part
of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 Limited Partner
interests on July 22, 1988 and completed its public offering on May 23,
1990 having sold 14,956,696 Limited Partner interests for $298,678,321
net of purchase volume discounts of $457,599. In addition, Krupp
Depository Corporation owns one hundred Limited Partner interests.
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):
Basis of Presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
MBS
The Partnership, in accordance with Financial Accounting Standards
Board's Statement 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115"), classifies its MBS portfolio as
available-for-sale. As such the Partnership carries its MBS at fair
market value and reflects any unrealized gains (losses) as a separate
component of Partners' Equity. The Partnership amortizes purchase
premiums or discounts over the life of the underlying mortgages using the
effective interest method.
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) 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 MBS. Participation interest is recognized as earned and when deemed
collectible by the Partnership.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, 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 and 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.
Upon the repayment of a PIM, any unamortized acquisition fees and
expenses and unamortized participation servicing fees related to such
loan are expensed.
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, 2000 and 1999, the Partnership had investments in three
PIMs and six 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").
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
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 during such month and (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 above certain thresholds.
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.
On June 2, 2000, the Partnership paid a special distribution of $.93 per
Limited Partner interest from the proceeds of the Bell Station and
Enclave insured mortgage payoffs along with the Shared Appreciation
Interest proceeds from the Brookside PIM (see below), the Bell Station
PIM and the Enclave PIM.
On March 30, 2000, the Partnership received $190,239 of Shared
Appreciation Interest and $5,973 of Shared Income Interest from the Bell
Station PIM. During April and May, the Partnership received the principal
proceeds of $4,901,863 and $8,508,892 from the Bell Station and the
Enclave PIM, respectively. Subsequent to the payoff of the MBS portion of
the Enclave PIM, the Partnership received $178,854 of Shared Appreciation
Interest and $200,398 of Shared Income Interest.
On March 30, 2000, the Partnership paid a special distribution of $.31
per Limited Partner interest from the principal proceeds in the amount of
$4,531,910, received from the Brookside Apartments PIM payoff in February
of 2000. Subsequent to the payoff of the MBS portion of the Brookside
PIM, the Partnership received $130,000 of Shared Appreciation Interest
and $176,513 of Shared Income Interest.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
On January 11, 2000, the Partnership paid a special distribution of $2.37
per Limited Partner interest from the prepayment proceeds received during
December 1999 from 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 Income Interest and
Minimum Additional Interest. The Partnership also received $6,008,565 of
principal proceeds from the Marina Shores PIM along with $176,679 of
Shared Appreciation Interest 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 participation interest on the Saratoga prepayment.
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 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 Interest and prepayment premium
income and $218,578 of Shared Income Interest 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 $9,414,586. Additional interest in lieu of a prepayment penalty
of approximately $318,000 along with Shared Income Interest of
approximately $60,000 was also received 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 repayment the Partnership received Minimum
Additional Interest and Shared Income Interest 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.
During January 1998, the Partnership made a $1.12 per Limited Partner
Interest special distribution with the prepayment proceeds of the Paddock
Club and Southland Station PIMs that were received during the fourth
quarter of 1997.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
At December 31, 2000 and 1999 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, 2000
and 1999:
Approximate
Original Monthly Investment Basis at
Face Interest Maturity Payment December 31,
PIMs Amount Rate (a) Date (f) (g) 2000 1999
- ---- ------ -------- -------- ------------- ------------ -------------
GNMA
Richmond Park Apts.
Richmond
Heights, $ 10,000,000 7.50% 8/15/24 $ 67,300 $ 8,995,263 $ 9,123,297
OH (b) (c) (d) (h)
Wildflower Apts.
Las Vegas,
NV 17,600,000 7.75% 1/15/25 121,700 16,002,630 16,213,253
------------- (b) (e) (i) ------------- -------------
27,600,000 24,997,893 25,336,550
------------- ------------- -------------
Fannie Mae
Bell Station Apts.
Montgomery, AL 5,300,000 - - - - 4,916,392
Brookside Apts.
Carmichael, CA 4,900,000 - - - - 4,536,418
The Enclave Apts.
Beavercreek,
OH 9,200,000 - - - - 17,995,214
---------------- ------------- -------------
19,400,000
----------------
FHA
Creekside Apts.
Portland, OR 8,354,500 8.305% 11/1/31 60,000 8,006,181 8,058,328
---------------- (b) (c) (d) ------------- -------------
Total $ 55,354,500 $ 33,004,074 $ 51,390,092
================ ============= =============
(j)
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
(a) 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.
(b) Minimum additional interest is at a rate of .5% per annum
calculated on the unpaid principal balance of the first mortgage
note.
(c) Shared income interest is based on 25% of monthly gross rental
income over a specified base amount.
(d) Shared appreciation interest is based on 25% of any increase in
the value of the project over the specified base value.
(e) 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.
(f) The Partnership's GNMA MBS and HUD direct mortgages have call
provisions, which allow the Partnership to accelerate their
respective maturity dates.
(g) 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.
(h) The total PIM on the underlying property is $26,000,000 of which
62% or $16,000,000 is held by Krupp Insured Plus-II Limited
Partnership, an affiliate of the Partnership.
(i) The coupon rate of interest on the Wildflower Apartments PIM is
7.75% per annum. However, in December 2000 the Partnership agreed
to provide debt service relief for the Wildflower PIM due to the
property's poor operating performance in the competitive Las
Vegas market. Occupancy has fallen as low as 80%, and the
property has been unable to generate sufficient revenues to
adequately maintain the property. Consequently, a loan
modification agreement between the Partnership, the borrower
entity under the PIM, the principals of the borrower entity, and
the affiliated property management agent will provide operating
funds for property repairs. Under the modification, the
principals of the borrower entity converted $105,000 of cash
advances to a long-term non interest-bearing loan. In addition,
an escrow account to be used exclusively for property repairs has
been established and is under the control of the Partnership. The
management agent made an initial deposit into the escrow equal to
30% of the management fees it received during 2000 and will
continue to deposit a similar amount until December 2002. The
Partnership made an initial deposit into the escrow to match the
$105,000 principals' loan and the management agent's initial
deposit and will continue to match additional deposits until
December 2002. The Partnership's contributions to the escrow
account will be considered to be an interest rebate. The
principals' loan and the escrow deposits made by the management
agent and the Partnership can be repaid exclusively out of any
Surplus Cash, as defined by HUD, that the property may generate
in future years. Any repayments will be made on a pro rata basis
amongst the parties. The approximate monthly payment is before
the rebate which fluctuates month to month.
(j) The aggregate cost of PIMs for federal income tax purposes is
$33,004,074.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
A reconciliation of the carrying value of PIMs for each of the three
years in the period ended December 31, 2000 is as follows:
2000 1999 1998
---- ---- ----
Balance at beginning of period $ 51,390,092 $ 98,950,663 $ 113,051,723
Deductions during period:
Prepayments and
principal collections (18,386,018) (47,560,571) (14,101,060)
-------------- ------------- --------------
Balance at end of period $ 33,004,074 $ 51,390,092 $ 98,950,663
============== ============= ==============
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in 3 states. The apartment complexes range in
size from 172 to 736 units.
D. MBS
---
At December 31, 2000, the Partnership's MBS portfolio has an amortized
cost of $6,480,413 and gross unrealized gains of $160,571 and gross
unrealized losses of $586. At December 31, 1999, the Partnership's MBS
portfolio had an amortized cost of $7,456,537 and gross unrealized gains
of $140,027 and gross unrealized losses of $136,452. The portfolio has
maturity dates ranging from 2016 to 2024.
Unrealized
Maturity Date Fair Value Gain/(Loss)
------------- ---------- ----------
2001 - 2005 $ - $ -
2006 - 2010 - -
2011 - 2024 6,640,398 159,985
------------ -----------
Total $ 6,640,398 $ 159,985
============ ==========
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.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
E. Partners' Equity, continued
As of December 31, 2000, 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 (220,467,349) (1,588) (4,850,235) - (225,319,172)
Special
distributions (159,438,377) (1,066) - - (159,439,443)
Net income 144,645,610 1,007 4,473,607 - 149,120,224
Unrealized
gains on MBS - - - 159,985 159,985
------------- ---------- ----------- ---------- ---------------
Balance,
December 31, 2000 $ 42,986,290 $ 353 $ (373,628) $ 159,985 $ 42,773,000
============= ========== =========== ========== ==============
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, the preparation and mailing of
financial reports, tax information, other communications to investors and
legal fees and expenses.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, 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 2000
federal income tax return is as follows:
Net income per statement of income $ 3,879,148
Less: Book to tax difference for amortization of prepaid fees and expenses (21,685)
------------ -
Net income for federal income tax purposes $ 3,857,463
============
The allocation of the 2000 net income for federal income tax purposes is
as follows:
Portfolio
Income
Unitholders $ 3,756,687
Corporate Limited Partner 25
General Partners 100,751
------------
$ 3,857,463
For the years ended December 31, 2000, 1999 and 1998 the average per unit
net income to the Unitholders for federal income tax purposes was $.25,
$.36 and $.60 respectively.
The basis of the Partnership's assets for financial reporting purposes is
less than its tax basis by approximately $2,191,000 and $2,634,000 at
December 31, 2000 and 1999, respectively. The basis of the Partnership's
liabilities for financial reporting purposes are the same as its tax basis
at December 31, 2000 and 1999, 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 $161,000 and $1,000 at
December 31, 2000 and $140,000 and $136,000 at December 31, 1999.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
H. Fair Value Disclosure of Financial Instruments, continued
----------------------------------------------
PIMs
As 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, as 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 $98,000 and $216,000, respectively, at
December 31, 2000, and gross unrealized gains and losses of approximately
$168,000 and $311,000 at December 31, 1999.
At December 31, 2000 and 1999, the estimated fair values of the
Partnership's financial instruments are as follows (amounts rounded to
nearest thousand):
2000 1999
---- ----
Fair Carrying Fair Carrying
Value Value Value Value
Cash and cash equivalents $ 2,738 $ 2,738 $ 39,435 $ 39,435
MBS 6,640 6,640 7,460 7,460
PIMS 32,886 33,004 51,247 51,390
--------- --------- -------- ----------
$ 42,264 $ 42,382 $ 98,142 $ 98,285
========= ========= ======== ==========
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 in Section 17 of the Partnership Agreement
and the source of cash distributions for the year ended December 31, 2000 and
the period from inception through December 31, 2000. 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.
Year Inception
Ended Through
12/31/00 12/31/00
(Amounts in thousands, except per Unit amounts)
Distributable Cash Flow:
- -----------------------
Income for tax purposes $ 3,857 $ 151,474
Items not requiring or (not providing) the use
of operating funds:
Shared Appreciation income (499) (5,716)
Amortization of prepaid fees and expenses 160 16,840
Interest rate reduction
collectible in the future - -
Acquisition expenses paid from offering
proceeds charged to operations - 184
Gain on sale of MBS - (417)
--------- -----------
Total Distributable Cash Flow ("DCF") $ 3,518 $ 162,365
========= ===========
Limited Partners Share of DCF $ 3,412 $ 157,494
========= ===========
Limited Partners Share of DCF per Unit $ 0.23 $ 10.53(c)
========= ===========
General Partners Share of DCF $ 106 $ 4,871
========= ===========
Net Proceeds from Capital Transactions:
- --------------------------------------
Prepayments and principal collections on PIMs
including shared appreciation income $ 18,885 $ 161,056
Principal collections on MBS 976 78,652
Principal collections on MBS and PIMs - (14,537)
reinvested
Gain on sale of MBS - 417
--------- -----------
Total Net Proceeds from Capital Transactions $ 19,861 $ 225,588
========= ===========
Cash available for distribution
- -------------------------------
(DCF plus proceeds from Capital
Transactions) $ 23,379 $ 387,953
========= ===========
Distributions:
- -------------
Limited Partners $ 22,136(a) $ 380,806
========= ===========
Limited Partners Average per Unit $ 1.48(a) $ 25.46(b)(c)
========= ===========
General Partners $ 106(a) $ 4,871(b)
========= ===========
Total Distributions $ 22,242 $ 385,677
========= ===========
(a) Represents all distributions paid in 2000 except the January 2000
special distribution and February 2000 quarterly distribution and
includes an estimate of the quarterly distribution to be paid in
February 2001.
(b) Includes an estimate of the quarterly distribution to be paid in
February 2001.
(c) Limited Partners average per Unit return of capital as of February 2001
is $14.93 [$25.46 - $10.53]. 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.