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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17690
Krupp Insured Mortgage Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3021395
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 523-0066
---------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Depositary
Receipts representing
Units of Limited
Partner Interests
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: See Part IV, Item 14
The exhibit index is located on pages 10-14.
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, 1998 there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership
is a party or to which any of its 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, 1998 was
approximately 14,600. 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 1998, the Partnership made special distributions consisting of
principal proceeds from the Deering Place and Cross Creek PIM Prepayments.
During 1997, the Partnership made special distributions consisting
primarily of principal proceeds from the Rock Creek, Silver Spring, and Hampton
Ridge 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, 1998 and 1997 as
follows:
1998 1997
----------------------- ------------
Amount Per Unit Amount Per Unit
Limited Partners $ 13,909,819 $ .93 $ 17,948,156 $1.20
General Partners 310,079 386,086
------------ ------------
14,219,898 18,334,242
Special Distributions
Limited Partners $ 20,789,946 $1.39 $ 28,717,048 $1.92
------------ ------------
$ 35,009,844 $ 47,051,290
============ ============
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,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total revenues $ 11,954,179 $ 16,679,293 $ 16,039,711 $ 17,325,924 $ 17,333,146
Net income 9,100,138 12,188,074 11,372,365 13,270,482 13,039,155
Net income allocated
to Partners:
Limited Partners 8,827,134 11,822,432 11,031,194 12,872,368 12,647,980
Average per Unit .59 .79 .74 .86 .85
General Partners 273,004 365,642 341,171 398,114 391,175
Total assets at
December 31 135,213,294 161,358,290 195,755,977 228,653,458 232,892,400
Distributions to
Partners:
Limited Partners 13,909,819 17,948,156 17,948,153 17,948,156 24,879,313
Average per Unit .93 1.20 1.20 1.20 1.66
General Partners 310,079 386,086 431,074 455,696 450,239
Special Distribution
Limited Partners 20,789,946 28,717,048 25,426,553 - -
Average Per Unit 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.
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the further necessary steps to understand the nature and extent of the
work required to make its systems Year 2000 ready in those situations in which
it is required to do so. The Year 2000 readiness issue concerns the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
General Partners of the Partnership incurred hardware costs as well as
consulting and other expenses related to the infrastructure and facilities
enhancements necessary to complete the upgrade and prepare for the Year 2000.
There are no other significant internal systems or software that the Partnership
is using at the present time.
The General Partners of the Partnership are in the process of evaluating the
potential adverse impact that could result from the failure of material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors to be Year 2000 ready. The
Trust is in the process of surveying these third party providers and assessing
their readiness with year 2000. To date, the Partnership is not aware of any
problems that would materially impact its results of operations, liquidity or
capital resources. However, the Partnership has not yet obtained all written
assurances that these providers would be Year 2000 ready.
The Partnership currently does not have a contingency plan in the event of a
particular provider or system not being Year 2000 ready. Such plan will be
developed if it becomes clear that a provider is not going to achieve its
scheduled readiness objectives by June 30, 1999. The inability of one of these
providers to complete its Year 2000 resolution process could impact the
Partnership. In addition, the Partnership is also subject to external forces
that might generally affect industry and commerce, such as utility and
transportation company Year 2000 readiness failures and related service
interruptions. To date, the Partnership has not incurred any cost associated
with being Year 2000 ready. All costs have been incurred by the General Partners
and it is estimated that any future Year 2000 readiness costs will be borne by
the General Partners. No estimate can be made at this time as to the impact of
the readiness of such third parties.
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 each
quarter. Funds for the investor distributions come from monthly principal and
basic interest payments received on the PIMs and MBS, the principal prepayments
on the PIMs and MBS, and interest earned on the Partnership's cash and cash
equivalents. In general, the General Partners try to set a distribution rate
that provides for level quarterly distributions of cash available for
distribution. To the extent that quarterly distributions do not fully utilize
the cash available for distributions and cash balances increase, the General
Partners may adjust the distribution rate or distribute such funds through a
special distribution. The portion of distributions attributable to the principal
collections reduces the capital resources of the Partnership. As the capital
resources decrease, the total cash flows to the Partnership also will decrease
and over time will result in periodic adjustments to the distributions paid to
investors. The General Partners periodically review the distribution rate to
determine whether an adjustment is necessary based on projected future cash
flows. At this time the General Partners have determined that the Partnership
can maintain its current dividend rate of $.84 per Unit per year.
The Partnership made two special distributions during 1998 and anticipates
making a special distribution during the first quarter of 1999. 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 during the fourth
quarter 1997. In September 1998, a $.27 per Unit special distribution was made
with the prepayment proceeds of the Deering Place PIM prepayment received during
the third quarter 1998. The Partnership anticipates making a $.63 per Unit
special distribution during the first quarter 1999 with the prepayment proceeds
of the Cross Creek PIM that was received during the fourth quarter 1998. In the
event of further PIM prepayments, the General Partners may determine that an
adjustment to the distribution rate will be necessary to reflect the reduced
future cash flows from the remaining mortgage investments.
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. During
1998, the Partnership received a total of $278,467 in participation income from
operating cash flow that exceeded the established thresholds from eight of its
PIM investments: Bell Station, Creekside, Cross Creek, Deering Place, Enclave,
Marina Shores, Pope Building and Salishan. The Partnership also received a total
of $586,560 in participation income when Cross Creek and Deering Place were
refinanced and the PIMs were paid off.
Most of the properties had stable operating results in 1998. 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 two properties. Remington Place is located in a
competitive market in the Washington, D.C. metropolitan area. The property did
not generate sufficient operating income to both maintain the asset and cover
the debt service obligations. Consequently, the borrower on the PIM defaulted on
the underlying first mortgage loan in November 1997. However, the Partnership
has continued to receive its full principal and basic interest payments during
the default because GNMA guaranteed those payments. The borrower worked with HUD
to structure a modification to the mortgage which resulted in a March 15th
prepayment of the outstanding principal balance then due on the PIM. The
Partnership will not receive any participation income. Wildflower is located in
the thriving Las Vegas market, but it 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 with many amenities
that have been built since the strong Las Vegas economy has fostered a
tremendous construction boom.
The underlying loans on two of the Partnership's PIM investments were prepaid
during 1998. During the second quarter, Deering Place was refinanced, and the
first mortgage loan underlying the PIM was prepaid. The Partnership received
approximately $3,636,000 in principal as well as a prepayment penalty and
accrued participation income earned on operations prior to the prepayment, which
together totaled another $360,000. During the third quarter, Cross Creek was
refinanced, and the first mortgage loan underlying that PIM was prepaid. The
Partnership received approximately $9,415,000 in principal as well as its share
in the increase in the property's value and accrued participation income earned
on operations prior to the prepayment, which together totaled another $377,000.
The General Partners expect that there will be more prepayments during 1999.
During the first quarter 1999, the Pope Building was refinanced, and the first
mortgage loan underlying the PIM was prepaid. The Partnership received
approximately $3,170,000 in principal as well as its share in the increase in
the property's value and accrued participation income earned on operations prior
to the prepayment, which together totaled another $920,000. Four of the
Partnership's other PIM investments may be prepaid during 1999. The owners of
Marina Shores, Salishan, Saratoga, and Valley Manor have all notified the
General Partners of their intention to refinance their properties if favorable
refinancing conditions persist.
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.
Operations
The following discussion relates to the operation of the Partnership during
the years ended December 31, 1998, 1997 and 1996.
(Amounts in thousands)
1998 1997 1996
Interest income on PIMs:
Basic interest $ 9,089 $10,887 $ 12,953
Participation interest 865 3,710 1,176
Interest income on MBS 1,595 1,493 1,498
Other interest income 406 589 413
Partnership expenses (1,219) (1,574) (1,655)
Amortization of prepaid fees and
expenses (1,636) (2,917) (3,013)
------ ------- ------
Net income $ 9,100 $12,188 $11,372
======= ======= =======
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 by the Deering Place and Crosscreek PIM
prepayments occuring 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 PIM's 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.
Net income increased during 1997 as compared to 1996 by approximately $816,000.
Participation Income increased $2,534,000 which was primarily a result of
receiving shared appreciation income, accrued additional interest and prepayment
penalties from the prepayment of the Silver Springs, Hampton Ridge, Southland
and Paddock Club Apartment PIMs totaling $3,389,000. In addition, $321,000 of
additional interest was received from five of the Partnerships other PIMs. As a
result of the four above mentioned repayments and the Rock Creek PIM prepayment
by FNMA, basic interest decreased approximately $2,066,000 or 16%. Other
interest income increased in 1997 as compared to 1996 due to the short-term
investment of the proceeds from the prepayments until such funds were ultimately
distributed to the investors. Partnership expenses have decreased when comparing
1997 to 1996, due primarily to lower asset management fees.
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 (52) President, Co-Chairman of the Board
and Director
George Krupp (54) Co-Chairman of the Board and Director
Peter F. Donovan (45) Senior Vice President
Ronald Halpern (57) Senior Vice President
Carol J. C. Mills (49) Vice President
Robert A. Barrows (41) Vice President and Treasurer
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive
Officer of The Berkshire Group, an integrated real estate financial services
firm engaged in real estate acquisition and property management, mortgage
banking and financial management. The Berkshire Group's interests include
ownership of a mortgage company specializing in commercial mortgage financing
with a portfolio of approximately $6.0 billion. In addition, The Berkshire Group
has a significant ownership interest in Berkshire Realty Company, Inc.
(NYSE-BRI), a real estate investment trust specializing in apartment
investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire
Group was established as The Krupp Companies in 1969 and he has served as the
Chief Executive Officer since 1992. Mr. Krupp serves as Chairman of the Board
and Director of Berkshire Realty Company, Inc. (NYSE-BRI) and he is also a
member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate
of Bryant College where he received an honorary Doctor of Science in Business
Administration in 1989 and was elected trustee in 1990. Mr. Krupp also serves as
Chairman of the Board and Trustee of Krupp Government Income Trust and Krupp
Government Income Trust II.
George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group,
an integrated real estate financial services firm engaged in real estate
acquisition, mortgage banking, investment sponsorship, venture capital investing
and financial management. Mr. Krupp has held the position of Co-Chairman since
The Berkshire Group was established as The Krupp Companies in 1969. Mr. Krupp
has been an instructor of history at the New Jewish High School in Waltham,
Massachusetts since September of 1997. Mr. Krupp attended the University of
Pennsylvania and Harvard University and holds a Master's Degree in History from
Brown University.
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 in the United States based on servicing and
asset management of a $5.7 billion loan portfolio. 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 (age 57) 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
$6 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, 1998, no person of record owned or was known by the
General Partners to own beneficially more than 5% of the Partnership's
14,956,896 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)].*
Saratoga Apartments
(10.5) Prospectus for GNMA Pool No. 280643 (PL) [Exhibit 4
to Registrant's report on Form 8-K dated August 30,1989
(File No. 0-17690)].*
(10.6) Subordinated Multifamily Mortgage(including Subordinated
Promissory Note) dated July 27, 1989 between American
National Bank and Trust Company of Chicago, as Trustee
and Krupp Insured Mortgage Limited Partnership.
[Exhibit 5 to Registrant's report on Form
8-K dated August 30, 1989 (File No. 0-17690)].*
(10.7) Participation Agreement dated July 31, 1989 between
Krupp Insured Plus-II Limited Partnership and Krupp
Insured Mortgage Limited Partnership [Exhibit 6 to
Registrant's report on Form 8-K dated August 30, 1989
(File No. 0-17690)].*
Valley Manor Apartments
(10.8) Prospectus for GNMA Pool No. 272541 (PL) [Exhibit 7
to Registrant's report on Form 8-K dated August 30,1989
(File No. 0-17690)].*
(10.9) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated June 28, 1989
between New Valley Manor Associates and Krupp Insured
Mortgage Limited Partnership [Exhibit 8 to Registrant's
report on Form 8-K dated August 30, 1989 (File No.
0-17690)].*
Remington Place Apartments
(10.10) Prospectus to GNMA Pool No. 280644(PL)[Exhibit 10.14
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No. 0-17690)].*
(10.11) Subordinated Promissory Note dated September 21, 1989
between Brinkley Towers Associates Limited Partnership
and Krupp Insured Mortgage Limited Partnership [Exhibit
10.15 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No.
0-17690)].*
(10.12) Subordinated Multifamily Deed of Trust dated September
21, 1989 between Brinkley Towers Associates Limited
Partnership and Krupp Insured Mortgage Limited
Partnership [Exhibit 10.16 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989
(File No. 0-17690)].*
(10.13) Workout Agreement and Subordinated Promissory Note
Modification Agreement for the interest rate reduction
dated December 23, 1993 by and between Berkshire
Mortgage Finance Corporation, Krupp Insured Mortgage
Limited Partnership and Brinkly Towers Associates
Limited Partnership. [Exhibit 10.16 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-17690)].*
The Patrician
(10.14) Supplement to Prospectus dated November 1, 1989 for FNMA
Pool No MX-073008 [Exhibit 10.20 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1989 (File No. 0-17690)].*
Wildflower Apartments
(10.15) 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)].*
(10.16) 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
(10.17) 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)].*
(10.18) 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)].*
(10.19) 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
(10.20) 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)].*
(10.21) 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)].*
(10.22) 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
(10.23) 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)].*
(10.24) 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)].*
(10.25) 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
(10.26) 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)].*
(10.27) 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)].*
(10.28) 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)].*
Salishan Apartments
(10.29) Supplement to Prospectus dated July 1, 1990 for Federal
National Mortgage Association Pool Number MX-073017
[Exhibit 19.2 to Registrant's report on Form 10-Q for
the quarter ended September 30, 1990 (File No.
0-17690)].*
(10.30) Subordinated Promissory Note dated June 20, 1990 between
Dale A. Williams and D.R. Salishan (the "Mortgagor") and
Krupp Insured Mortgage Limited Partnership (the
"Holder") [Exhibit 19.3 to Registrant's report on Form
10-Q for the quarter ended September 30, 1990 (File No.
0-17690)].*
(10.31) Subordinated Multifamily Deed of Trust dated June 20,
1990 between Dale A. Williams and D.R. Salishan (the
"Borrower") and Krupp Insured Mortgage Limited
Partnership (the "Lender") [Exhibit 19.4 to Registrant's
report on Form 10-Q for the quarter ended September 30,
1990 (File No. 0-17690)].*
Marina Shores Apartments
(10.32) Participation Agreement dated June 29, 1990 by and
between Krupp Insured Plus-III Limited Partnership and
Krupp Insured Mortgage Limited Partnership [Exhibit 19.9
to Registrant's report on Form 10-Q for the quarter
ended September 30, 1990 (File No. 0-17690)].*
Pope Building
(10.33) Subordinated Promissory Note dated May 30, 1991 between
Pope Building Associates Limited Partnership (the
"Mortgagor") and Krupp Insured Mortgage Limited
Partnership (the "Holder") [Exhibit 19.1 to Registrant's
report on Form 10-Q for the quarter ended September 30,
1991 (File No. 0-17690)].*
(10.34) Subordinated Multi-family Mortgage dated May 31, 1991
between American National Bank and Trust Company of
Chicago (the "Borrower") and Krupp Insured Limited
Partnership (the "Mortgagee"). [Exhibit 19.2 to
Registrant's report on Form 10-Q for the quarter ended
September 30, 1991 (File No. 0-17690)].*
(10.35) Supplement to Prospectus for Government National
Mortgage Association Pool Number 280842. [Exhibit 19.3
to Registrant's report on Form 10-Q for the quarter
ended September 30, 1991 (File No. 0-17690)].*
* Incorporated by reference.
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1998, the
Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 5th day of
March, 1999.
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 5th day of March, 1999.
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, 1998
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 1998 and 1997 F-4
Statements of Income for the Years Ended December 31, 1998,
1997 and 1996 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 F-7
Notes to Financial Statements F-8 - F-15
Schedule IV - Mortgage Loans on Real Estate F-16 - F-18
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 Financial Statements listed on the index on
Page F-2 of this Form 10-K present fairly, in all material respects, the
financial position of Krupp Insured Mortgage Limited Partnership (the
"Partnership") at December 31, 1998 and 1997 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the 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
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion express
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 12, 1999
F-6
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
---- ----
Participating Insured Mortgages ("PIMs")
(Notes B, C and H) $ 98,950,663 $113,051,723
Mortgage-Backed Securities ("MBS")
(Notes B, D and H) 18,806,870 23,700,858
------------ ------------
Total mortgage investments 117,757,533 136,752,581
Cash and cash equivalents (Notes B and H) 15,117,466 20,480,666
Interest receivable and other assets 786,165 936,883
Prepaid acquisition fees and expenses, net of
accumulated amortization of $7,184,808 and
$6,944,814 respectively (Note B) 1,167,020 2,393,273
Prepaid participation servicing fees, net of
accumulated amortization of $2,170,982 and
$2,293,034, respectively (Note B) 385,110 794,887
------------ ------------
Total assets $135,213,294 $161,358,290
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 30,794 $ 120,966
------------ ------------
Partners' equity (deficit) (Notes A and E):
Limited Partners 134,849,373 160,722,004
(14,956,796 Limited Partner interests
outstanding)
General Partners (312,060) (274,985)
Acumulated Comprehensive Income (Note B) 645,187 790,305
------------ ------------
Total Partners' equity 135,182,500 161,237,324
------------ ------------
Total liabilities and Partners' equity $135,213,294 $161,358,290
============ ============
Theaccompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
----------- ----------- --------
Revenues (Note B):
Interest income - PIMs (Note C):
Basic interest $ 9,088,624 $10,887,208 $12,952,992
Participation interest 865,027 3,709,622 1,176,169
Interest income - MBS (Note D) 1,594,765 1,493,309 1,497,760
Other interest income 405,763 589,154 412,790
----------- ----------- -----------
Total revenues 11,954,179 16,679,293 16,039,711
------------ ----------- -----------
Expenses:
Asset management fee to an
affiliate (Note F) 918,778 1,129,880 1,311,377
Expense reimbursements to affiliates
(Note F) 58,391 164,813 156,784
Amortization of prepaid fees and expenses
(Note B) 1,636,030 2,916,678 3,013,133
General and administrative 240,842 279,848 186,052
----------- ----------- -----------
Total expenses 2,854,041 4,491,219 4,667,346
----------- ----------- -----------
Net income (Note G) $ 9,100,138 $12,188,074 $11,372,365
=========== =========== ===========
Allocation of net income (Note E):
Limited Partners $ 8,827,134 $11,822,432 $11,031,194
=========== =========== ===========
Average net income per Limited Partner
interests $ .59 $ .79$ .74
=========== ======================
(14,956,796 Limited Partner interests
outstanding)
General Partners $ 273,004 $ 365,642 $ 341,171
=========== =========== ===========
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, 1998, 1997 and 1996
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
Balance at December 31, 1995 $227,908,288 $ (164,638) $ 895,050 $228,638,700
Net income 11,031,194 341,171 - 11,372,365
Quarterly distributions (17,948,153) (431,074) - (18,379,227)
Special Distributions (25,426,553) - - (25,426,553)
Change in unrealized
gain on MBS - - (468,281) (468,281)
------------ --------- ---------- ------------
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
loss on MBS - - (145,118) (145,118)
--------------------- ---------- -------------
Balance at December 31, 1998 $ 134,849,373 $(312,060) $ 645,187 $135,182,500
============= ========== ========== ==================
The accompanying notes are an integral
part of the financial statements.
F-19
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Operating activities:
Net income $ 9,100,138 $12,188,074 $11,372,365
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid expenses and
fees 1,636,030 2,916,678 3,013,133
Shared appreciation income and prepayment
penalities (586,560) (2,620,113) (982,845)
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 150,718 355,951 820,544
Increase (decrease) in liabilities (90,172) 101,993 4,215
--------- ---------- ---------
Net cash provided by operating
activities 10,210,154 12,942,583 14,227,412
----------- ----------- -----------
Investing activities:
Principal collections on PIMs including
shared appreciation income and prepayment
penalities of $586,560 in 1998,
$2,620,113 in 1997 and $982,845 in 1996,
respectively 14,687,620 46,486,602 26,365,229
Principal collections on MBS 4,748,870 2,045,694 3,299,457
----------- ----------- -----------
Net cash provided by investing
activities 19,436,490 48,532,296 29,664,686
----------- ----------- -----------
Financing activities:
Quarterly distributions (14,219,898) (18,334,242) (18,379,227)
Special distributions (20,789,946) (28,717,048) (25,426,553)
----------- ------------ -----------
Net cash used for financing
activities (35,009,844) (47,051,290) (43,805,780)
----------- ----------- -----------
Net (decrease)increase in cash and
cash equivalents (5,363,200) 14,423,589 86,318
Cash and cash equivalents, beginning of year 20,480,666 6,057,077 5,970,759
----------- ----------- -----------
Cash and cash equivalents, end of year $15,117,466 $20,480,666 $ 6,057,077
========== =========== ===========
Supplemental disclosure of non-cash investing
activities:
Reclassification of investment in PIM to
a MBS $ - $ 8,024,709 $ -
=========== =========== =======
Theaccompanying 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 commercial and 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 14,956,796
Units for $298,678,321 net of purchase volume discounts of $457,599.
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" (AFAS 115@), classifies
its MBS portfolio as available-for-sale. As such the Partnership
carries its MBS at fair market value and reflects any unrealized
gains (losses) as a separate component of Partners' Equity. The
Partnership amortizes purchase premiums or discounts over the life
of the underlying mortgages using the effective interest method.
Effective January 1, 1998, the Partnership adopted the Statement of
Financial Accounting Standards No. 130, 'Reporting Comprehensive
Income' (FAS 130), was issued establishing standards for reporting
and displaying comprehensive income and its components. 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. FAS
130 had no material effect on the Partnership's financial position or
results of operations.
PIMs
The Partnership accounts for its MBS portion of a PIM in accordance
with FAS 115 under the classification of held to maturity. The
Partnership carries the Government National Mortgage Association
(AGNMA@) or Fannie Mae MBS at amortized cost.
The Federal Housing Administration PIM is carried at amortized cost
unless the General Partners of the Partnership believe there is an
impairment in value, in which case a valuation allowance would be
established in accordance with Financial Accounting
continued
B. Significant Accounting Policies, continued
PIMs, continued
Standards No.114, Accounting by Creditors for Impairment of a
Loan,@ and Financial Accounting Standard No.118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures.
Basic interest on PIMs is recognized based on the stated rate of the
Federal Housing Administration ("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.
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
continued
B. Significant Accounting Policies, continued
Estimates and Assumptions, continued
liabilities, contingent assets and liabilities and revenues and
expenses during the period. Actual results could differ from those
estimates.
C. PIMs
At December 31, 1998, the Partnership has investments in 12 PIMs. 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 and the mortgage loan underlying the GNMA MBS. 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 penalty in years six through nine, a 1% prepayment
penalty in year ten and no prepayment penalty 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, (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.
Continued
C. PIM's continued
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 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.
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. During
July of 1998 the Partnership received minimum additional interest and
shared interest income of $90,195 and a prepayment penalty of $268,638
from the Deering Place Apartment PIM. 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.
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. The Partnership expects to make a special distribution in the
amount of $.63 per unit during the first quarter of 1999.
On February 25, 1997, the Partnership received a prepayment of the Rock
Creek Apartments PIM. The Partnership received the outstanding principal
balance of $11,139,968 plus outstanding interest. The Partnership did
not receive any prepayment penalty or participation income from this
PIM. The Borrower of the Rock Creek Springs PIM defaulted on its debt
service obligation during the third quarter of 1996. Fannie Mae, the
guarantor of the MBS portion of the PIM, was unable to negotiate a
workout plan with the borrower and exercised its option to repay the MBS
in February 1997 and pursue a foreclosure. On March 21, 1997, the
Partnership made a special distribution of $.75 per Limited Partner
interest with the proceeds from the Rock Creek payoff.
On April 25, 1997, the Partnership received a prepayment of the Silver
Springs PIM. The Partnership received the outstanding principal balance
of $7,249,479 plus outstanding interest on April 25, 1997, while on March
31, 1997, the Partnership had received a prepayment penalty of $652,453
and Minimum Additional and Shared Income Interest of $41,173. On May 23,
1997 the Partnership made a special distribution of $.53 per unit to the
Limited Partners from the proceeds of the Silver Springs PIM prepayment.
During the second quarter of 1997, the Partnership received a $100,000
payment for all additional interest earned on the Patrician Apartments
PIM though the date of discharge. The Partnership then converted the
investment in the PIM to a multi-family insured mortgage.
Continued
C. PIMs, continued
On October 27, 1997, the Partnership received a prepayment of the Hampton
Ridge Apartments PIM. The Partnership received the outstanding principal
balance of $9,067,437 plus outstanding interest. The Partnership received
a prepayment penalty of approximately $508,000 in addition to
participation income of approximately $249,000. On November 21, 1997, the
Partnership made a special distribution of $.64 per unit to the Limited
Partners from the proceeds of the Hampton Ridge PIM prepayment.
During December, 1997, the Partnership received prepayments of the
Southland Station Apartments and Paddock Club Apartments PIMs,
respectively. The Partnership received the outstanding principal
balances of $5,254,302 and $9,942,697 on the Southland Apartments and
Paddock Club Apartments PIMs, respectively. The Partnership received
shared appreciation and prepayment penalties of $565,195 and $894,843
from the prepayment of the Southland Apartments and Paddock Club
Apartments PIMs, respectively. In addition, the Partnership received
participation income of $83,441 and $296,799 from the Southland and
Paddock Club Apartment PIMs, respectively.
At December 31, 1998 and 1997 there were no loans within the
Partnerships portfolio that were delinquent as to principal or interest.
The Partnership's PIMs consisted of the following at December 31, 1998
and 1997:
Aggregate Permanent Maturity
Original Number Interest Date Investment
Basis
Issuer Principal of PIMs Rate Range Range at December 31,
1998 1997
GNMA $61,897,932 7 7.50% - 8% 2024 to 2032 $57,833,529 $67,900,036
(a) (b)
Fannie Mae 35,143,543 4 7.5% 1999 to 2000 33,010,473 37,000,564
(c)
FHA 8,354,500 1 8.305% 2031 8,106,661 8,151,123
----------- -- --------------- -----------
$105,395,975 12 $98,950,663 $113,051,723
(a)Includes three PIMs - Richmond Park, Saratoga, and Marina Shores - in
which the Partnership holds 38%, 50% and 29% of the total PIM,
respectively. The remaining portion is held by an affiliate of the
Partnership.
(b)The Partnership had eight GNMA PIMs as of December 31, 1997. During
November 1998, the Partnership received a prepayment of the Cross
Creek GNMA PIM.
(c)The Partnership had five Fannie Mae PIMs as of December 31, 1997. During
1998 the Partnership received a prepayment of the Deering Place
Apartments PIM.
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in 9 states. The apartment complexes range in size
from 92 to 736 units.
Continued
D. MBS
At December 31, 1998, the Partnership's MBS portfolio has an amortized
cost of $18,161,683 and gross unrealized gains of $645,187. At December
31, 1997, the Partnership's MBS portfolio had an amortized cost of
$22,910,553 and gross unrealized gains of $790,305. The MBS portfolio has
maturity dates ranging from 1999 to 2024.
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, 1998, the following cumulative partner contributions and
allocations have been made since inception of the Partnership:
Corporate Accumulated
Limited General Comprehensive
Unitholders Partners 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 (202,070,617) (1,465) (4,447,223) (206,519,305)
Special
Distributions (74,933,046) (501) - - (74,933,547)
Net income 133,605,663 933 4,132,163 - 137,738,759
Unrealized
gain on MBS - - - 645,187 645,187
------------ -------- ---------- --------- -----------
Balance,
December 31, 1998 $134,848,406 $ 967 $ (312,060) $ 645,187 $135,182,500
============ ======== ========== ========= ============
Continued
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.
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 1998
federal income tax return is as follows:
Net income per statement of income $9,100,138
Book to tax difference for timing of PIM
income (47,386)
Book to tax difference for amortization of
prepaid expenses and fees 156,210
Net income for federal income tax purposes $9,208,962
==========
The allocation of the 1998 net income for federal income tax purposes is
as follows:
Portfolio
Income
Unitholders $8,950,230
Corporate Limited Partner 60
General Partners 258,672
----------
$9,208,962
For the years ended December 31, 1998, 1997 and 1996 the average per unit
income to the Unitholders for federal income tax purposes was $.60, $.83
and $.76 respectively.
The basis of the Partnership=s assets for financial reporting purposes is
less than its tax basis by approximately $3,823,000 and $3,547,000 at
December 31, 1998 and 1997, respectively. The basis of the Partnership's
liabilities for financial reporting purposes are the same for its tax
basis at December 31, 1998 and 1997, respectively.
Continued
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.
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 Trust's investments in PIMs had gross unrealized
gains of approximately $2,527,000 at December 31, 1998, and gross
unrealized gains of approximately $2,596,000 at December 31, 1997.
At December 31, 1998 and 1997, the estimated fair values of the
Partnership's financial instruments are as follows:
(Amounts in thousands)
1998 1997
Fair Carrying Fair Carrying
Value Value Value Value
Cash and cash equivalents $15,117 $15,117 $20,481 $20,481
MBS 18,807 18,807 23,701 23,701
PIMS 101,478 98,951 115,648 113,052
------- ------ ------- -------
$135,402 $132,875 $159,830 $157,234
======== ======== ======== ========
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Normal Carrying
Monthly Original Amount at
Interest Maturity Payment Face Current
Face 12/31/98
PIMs (a) Rate (b) Date (j) (k)(l)(m) Amount Amount (p)
- - -------- -------- -------- --------- ------ ------------ ------
GNMA
Marina Shores Apts 8.00%
Virginia Beach, VA (c) (g) (h) 5/15/32 $ 43,100 $6,200,300 $6,040,948 $6,040,948
Pope Building Apts. 8.00%
Chicago, IL (c) (e) (f) 6/15//26 23,800 3,349,600 3,179,305
3,179,305
Remington Place Apts. 7.50%
Fort Washington, MD (d) (e)
(f) (n) 10/15/24 89,000 13,200,000
12,224,217 12,224,217
Richmond Park Apts. 7.50%
Richmond Heights, (c) (e) (f) 8/15/24 67,400 10,000,000 9,241,813 9,241,813
OH
Saratoga Apts. 7.875%
Rolling Meadow, IL (c) (e) (f) 8/15/24 47,300 6,750,000 6,274,040 6,274,040
Valley Manor Apts. 8.00%
Dover Township, PA (c) (g) (h) 7/15/24 34,000 4,798,032 4,465,473 4,465,473
Wildflower Apts. 7.75%
Las Vegas, NV (c) (i) 1/15/25 122,000 17,600,000 16,407,733 16,407,733
------------ ----------- ------------
61,897,932 57,833,529 57,833,529
Fannie Mae
Bell Station Apts. 7.50% 35,700
Montgomery, AL (c) (g) (h) 4/1/00 (o) 5,300,000 4,971,611 4,971,611
Brookside Apts. 7.50% 33,000
Carmichael, CA (c) (e) (f) 2/1/00 (o) 4,900,000 4,588,174 4,588,174
Salishan Apts. 7.50% 106,000
Sacramento, CA (c) (f) (g) 7/1/00 (o) 15,743,543 14,813,085 14,813,085
The Enclave Apts. 7.50% 62,000
Beavercreek, OH (c) (e) (h) 5/1/00 (o) 9,200,000 8,637,603 8,637,603
------------ ------------ ------------
35,143,543 33,010,473 33,010,473
FHA
Creekside Apts. 8.305%
Portland, OR (c) (e) (f) 11/1/31 61,600 8,354,500 8,106,661 8,106,661
------------ ------------ ------------
Total $105,395,975 $98,950,663 $98,950,663
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) Minimum additional interest is at a rate of 1% per annum calculated on
the unpaid principal balance of the first mortgage note.
(e) Shared income interest is based on 25% of monthly gross rental income
over a specified base amount.
(f) Shared appreciation interest is based on 25% of any increase in the
value of the project over the specified base value.
(g) Shared income interest is based on 30% of monthly gross rental income
over a specified base amount.
(h) Shared appreciation interest is based on 30% of any increase in the
value of the project over the specified base value.
(i) 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.
(j) The Partnership's GNMA MBS and HUD direct mortgages have call
provisions, which allow the Partnership to accelerate their respective
maturity date.
(k) 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.
(l) 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.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE, Continued
----------
(m) 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.
(n) The Partnership agreed to reduce the permanent loan rate to 6.75% per
annum from January 1, 1994 through December 31, 1995, with an increase
then to 7% per annum beginning January 1, 1996 through December 31, 1996
and thereafter 7.5% per annum until maturity. This was done in exchange
for a lower Shared Appreciation Interest base value of $13,200,000 from
$15,450,000 and an obligation from the borrower to repay the interest
not paid under the interest rate reduction upon the sale of the property
or the maturity or prepayment of subordinated promissory note.
(o) The approximate principal balance due at maturity for each PIM,
respectively, is as follows:
PIM Amount
Bell Station Apartments $ 4,897,000
Brookside Apartments $ 4,527,000
Salishan Apartments $14,546,000
The Enclave Apartments $ 8,500,000
(p) The aggregate cost of PIMs for federal income tax purposes is $98,950,663.
A reconciliation of the carrying value of PIMs for each of the three years in
the period ended December 31, is as follows:
1998 1997 1996
---- ---- ----
Balance at beginning of period $113,051,723 $164,942,921 $190,325,305
Deductions during period:
Reclassification - (8,024,709) -
Prepayments and
principal collections (14,101,060) (43,866,489) (25,382,384)
------------ ------------ ------------
Balance at end of period $ 98,950,663 $113,051,723 $164,942,921
============ ============ ============