-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PvqSM8TULdG39tKeXemtIZ9KHeflhWO8RNd2zIcxYrV6+WSWihKGlr6e89LclJ1n 81TLvjuHDbkDKOtIZRz7Tw== 0000786622-00-000001.txt : 20000331 0000786622-00-000001.hdr.sgml : 20000331 ACCESSION NUMBER: 0000786622-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED PLUS LTD PARTNERSHIP CENTRAL INDEX KEY: 0000786622 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 042915281 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15815 FILM NUMBER: 587926 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE STREET 2: C/O BERKSHIRE REALTY AFFILIATES CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: KRUPP NATIONAL INSURED MARTGAGE FUND LTD PARTNERSHIP DATE OF NAME CHANGE: 19860702 10-K 1 KRUPP INSURED PLUS LIMITED PARTNERSHIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-15815 Krupp Insured Plus Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-2915281 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (617) 523-0066 (Registrant's telephone number, including area code) 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 9-10. PART I This Form 10-K contains forward-looking statements within the meaning of section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward looking statements as a result of a number of factors, including those identified herein. ITEM 1. BUSINESS On December 20, 1985, The Krupp Corporation and The Krupp Company Limited Partnership-IV (the "General Partners") formed Krupp Insured Plus Limited Partnership (the "Partnership"), a Massachusetts Limited Partnership. The Partnership raised approximately $149 million through a public offering of limited partner interests evidenced by units of depositary receipts ("Units") and used the net proceeds primarily to acquire participating insured mortgages ("PIMs") and mortgage backed securities ("MBS"). The Partnership considers itself to be engaged in the industry segment of investment in mortgages. The Partnership's investments in PIMs consist of a securitized multi-family first mortgage loan or a sole participation interest in a Department of Housing and Urban Development ("HUD") multi-family insured first mortgage loan, and participation interests in the current revenue stream of the mortgaged property and any increase in the mortgaged property's value above certain specified base levels. The Partnership provided the funds for the first mortgage loan made to the borrower by acquiring either a securitized first mortgage loan ("MBS"), originated under the lending program of Fannie Mae or a sole participation interest in a first mortgage loan originated under the Federal Housing Administration ("FHA") lending program (collectively the "insured mortgages"). The Partnership receives the participation interests in the mortgaged property as additional consideration for providing the funds for the first mortgage loan and accepting a below market interest rate on the insured mortgage. The borrower conveyed the participation interests to the Partnership through either a subordinated promissory note and mortgage or a shared income and appreciation agreement. Fannie Mae guarantees the principal and interest payments for the Fannie Mae. HUD insures the first mortgage loan originated under the FHA lending program. The participation interests conveyed to the Partnership by the borrower are neither insured nor guaranteed. The Partnership also acquired MBS backed by single-family or multi-family mortgage loans issued or originated by the Government National Mortgage Association ("GNMA"), FHA, Fannie Mae or the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC guarantee the principal and interest of these Fannie Mae and FHLMC MBS, respectively. GNMA guarantees the timely payment of principal and interest on its MBS and HUD insures the FHA mortgage loans and the pooled mortgage loans underlying the GNMA MBS. Although the Partnership will terminate no later than December 31, 2025 the Partnership anticipates realizing the value of the PIMs through repayment well before this date. Therefore, dissolution of the Partnership should occur significantly prior to December 31, 2025. The Partnership's investments are not subject to seasonal fluctuations. However, the realization of the participation features of the PIMs are subject to similar risks associated with equity real estate investments, including: reliance on the owner's operating skills, ability to maintain occupancy levels, control operating expenses, maintain the property and provide adequate insurance coverage; adverse changes in general economic conditions, adverse local conditions, and changes in governmental regulations, real estate zoning laws, or tax laws; and other circumstances over which the Partnership may have little or no control. The requirements for compliance with federal, state and local regulations to date have not adversely effected the Partnership's operations and the Partnership does not presently anticipate adverse effects in the future. As of December 31, 1999, there were no personnel directly employed by the Partnership. ITEM 2. PROPERTIES None. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or to which any of its investments is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There currently is no established trading market for the Units. The number of investors holding Units as of December 31, 1999 was approximately 6,000. One of the objectives of the Partnership is to provide quarterly distributions of cash flow generated by its investments in mortgages. The Partnership presently anticipates that future operations will continue to generate cash available for distribution. Adjustments may be made to the distribution rate in the future due to the realization and payout of the existing mortgages. During January 2000, the Partnership made a special distribution of $1.30 per Limited Partner interest from the principal proceeds from the LaCosta PIM. During 1998, the Partnership made a special distribution consisting primarily of principal proceeds from the Greentree PIM. The Partnership may make special distributions in the future if PIMs prepay or a sufficient amount of cash is available from MBS and PIM principal collections. The Partnership made the following distributions, in quarterly installments, and special distributions, to its Partners during the two years ended December 31, 1999 and 1998:
1999 1998 Amount Per Unit Amount Per Unit Distributions: Limited Partners $ 5,700,076 $.76 $ 5,700,075 $ .76 General Partners 112,626 - 137,665 - 5,812,702 5,837,740 Special Distributions: Limited Partners - - 8,400,111 $1.12 Total Distributions $ 5,812,702 $ 14,237,851
ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Supplementary Data, which are included in Item 7 and Item 8, (Appendix A) of this report, respectively.
1999 1998 1997 1996 1995 Total revenues $ 4,215,833 $ 4,823,813 $ 6,078,663 $ 7,216,716 $ 7,097,154 Net income 3,610,232 4,171,014 4,743,768 5,329,348 5,247,543 Net income allocated to: Limited Partners 3,501,925 4,045,884 4,601,455 5,169,468 5,090,117 Average Per Unit .47 . 54 . 61 . 69 . 68 General Partners 108,307 125,130 142,313 159,880 157,426 Total assets at December 31 54,564,577 57,367,612 67,795,436 73,273,523 93,784,033 Distributions to: Limited Partners 5,700,076 5,700,075 5,700,093 9,000,119 9,000,119 Average per Unit .76 .76 .76 1.20 1.20 Special - 8,400,111 4,575,060 16,500,218 - Average per Unit - 1.12 .61 2.20 - General Partners 112,626 137,665 172,798 181,178 187,157
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. Impact of the Year 2000 Issue Starting in 1997 the General Partners conducted an assessment of the Partnership's core internal and external computer information systems to understand the nature and extent of work required to make its systems Year 2000 ready. The Year 2000 readiness issue was concerned with the inability of computerized information systems to accurately calculate, store or use a date after 1999. The General Partners believed that a system failure or miscalculation could cause disruptions of operations. As a result of this concern, the General Partners, along with certain affiliates, upgraded their computer systems including their hardware and software so they would be Year 2000 ready. In addition, the General Partners surveyed the Partnership's material third-party service providers and significant vendors and received assurances that they were Year 2000 ready. The General Partners also developed contingency plans for all of their "mission-critical functions" to insure business continuity. As a result of these efforts and the efforts of third parties, the Year 2000 did not result in any disruption of activities to the Partnership. Liquidity and Capital Resources At December 31, 1999 the Partnership had liquidity consisting of cash and cash equivalents of approximately $13.0 million as well as the cash flow provided by its investments in the PIMs and MBS. The Partnership anticipates that these sources will be adequate to provide the Partnership with sufficient liquidity to meet its obligations as well as to provide distributions to its investors. In December 1999, the Partnership received a prepayment in the amount of $9,746,923 representing the outstanding principal balance due on the La Costa PIM. The Borrower defaulted on the first mortgage loan underlying the PIM in June of 1999. The Partnership continued to receive its full principal and interest payments until the default was resolved, because GNMA guaranteed those payments to the Partnership. The Partnership did not receive any participation interest as a result of this default. On January 11, 2000, the Partnership paid a special distribution to the investors of $1.30 per Limited Partner interest. The most significant demand on the Partnership's liquidity is quarterly distributions paid to investors of approximately $1.4 million each quarter. The Partnership currently has a distribution rate of $.76 per unit per year, paid in quarterly installments of $.19 per unit. Funds for the quarterly distributions come from the monthly principal and interest payments received on the PIMs and MBS, the principal prepayments of the PIMs and MBS, interest earned on the Partnership's cash and cash equivalents, and cash reserves. The portion of distributions attributable to the principal collected in those payments reduces the capital resources of the Partnership. As the capital resources of the Partnership decrease, the total cash flows to the Partnership also will decrease and over time will result in periodic adjustments to the distributions paid to investors. The General Partners periodically review the distribution rate to determine whether an adjustment is necessary based on projected future cash flows. In general, the General Partners try to set a distribution rate that provides for level quarterly distributions. Based on current projections, the General Partners believe the Partnership will need to adjust the current distribution rate beginning with the distribution payable in May 2000. The General Partners will determine the new rate during the first quarter of the year 2000. In addition to providing insured or guaranteed monthly principal and basic interest payments, the Partnership's investments in the PIMs also may provide additional income through a participation interest in the underlying properties. However, this payment is neither guaranteed nor insured and depends on the successful operations of the underlying properties. In July of 1997 the borrower on the Greentree PIM defaulted on the first mortgage obligation, but the Partnership continued to receive its full principal and basic interest payments because GNMA guaranteed those payments. In March 1998, GNMA exercised its right to prepay the GNMA MBS due to the continuing default of the underlying first mortgage loan. The Partnership received proceeds from the prepayment of the GNMA MBS in the amount of $8,382,336. On April 16, 1998, the Partnership made a special distribution to the investors from the capital proceeds of $1.12 per Limited Partner interest. Subsequent to the payoff of the GNMA MBS, the General Partners negotiated a settlement with the borrower to release the Subordinated Promissory Note, and $250,000 was received in July 1998. The General Partners do not expect any of the other PIMs still held in the Partnership's portfolio to pay off during 2000. Royal Palm Place and Vista Montana operate under long-term restructure programs. As an ongoing result of the Partnership's 1995 agreement to modify the payment terms of the Royal Palm Place PIM, the Partnership received basic interest-only payments on the Fannie Mae MBS at the rate of 7.375% per annum during 1999. Thereafter, the interest rate will range from 7.875% to 8.775% per annum through the maturity of the first mortgage loan in 2006. The Partnership also received its share of the scheduled $250,000 principal payment in January 1999. Although occupancy at Royal Palm averaged in the low 90% range through 1999, it faces significant competition from neighboring properties that have changed ownership and benefited from new capital investment in exterior and interior renovations. The Partnership agreed in 1993 to permanently reduce the interest rate on the Vista Montana first mortgage loan to 7.375% per annum. The Partnership has the option to call certain PIMs by accelerating the maturity date of the loans if they are not prepaid by the tenth year after permanent funding. The Partnership will determine the merits of exercising the call option for each PIM as economic conditions warrant. Such factors as the condition of the asset, local market conditions, interest rates and available financing will have an impact on these decisions. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by Fannie Mae, GNMA, FHLMC or HUD and therefore the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities. Fannie Mae is a federally chartered private corporation that guarantees obligations originated under its programs. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs and is wholly-owned by the twelve Federal Home Loan Banks. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA guarantees the full and timely payment of principal and basic interest on the securities it issues, which represents interest in pooled mortgages insured by HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by the full faith and credit of the U.S. Government. The Partnership includes in cash and cash equivalents approximately $12.5 million of commercial paper, which is issued by entities with a credit rating equal to one of the top two rating categories of a nationally recognized statistical rating organization. Interest Rate Risk The Partnerships's primary market risk exposure is to interest rate risk, which can be defined as the exposure of the Partnership's net income, comprehensive income or financial condition to adverse movements in interest rates. At December 31, 1999, the Trust's PIMs, PIMIs and MBS comprise the majority of the Partnerhsip's assets. As such decreases in interest rates may accelerate the prepayment of the Partnership's investments. The Partnership does not utilize any derivatives or other instruments to manage this risk as the Partnership plans to hold all of its investments to expected maturity. The Partnership monitors prepayments and considers prepayment trends, as well as distribution requirements of the Partnership, when setting regular dividend distribution policy. For MBS, the fund forecasts prepayments based on trends in similar securities as reported by statistical reporting entities such as Bloomberg. For PIMs and PIMIs, the Partnership incorporates prepayment assumptions into planning as individual properties notify the Partnership of the intent to prepay or as they mature. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For mortgage investments, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The expected maturity date is contractual maturity adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands) 2000 2001 2002 2003 2004 Thereafter Total Fair Value Interest-sensitive assets: MBS $ 628 $ 528 $ 451 $ 391 $ 346 $ 19,266 $ 21,610 $ 22,244 Weighted Average interest rate 8.60% 8.6 8.60% 8.60% 8.60% 8.60% 8.60% PIMs 157 96 103 111 120 18,446 19,033 18,624 Weighted Average interest rate 7.52% 7.67% 7.79% 7.79% 7.80% 7.72% 7.72% Total Interest- sensitive assets $ 785 $ 624 $ 554 $ 502 $ 466 $ 37,712 $ 40,643 $ 40,868
Results of Operations
The following discussion relates to the operation of the Partnership during the years ended December 31, 1999, 1998 and 1997. (Amounts in thousands) 1999 1998 1997 Interest income on PIMs: Basic interest $ 2,085 $ 2,257 $ 3,137 Participation income - 250 543 Interest income on MBS 1,900 2,048 2,181 Other interest income 231 268 218 Partnership expenses (505) (551) (722) Amortization of prepaid fees and expenses (101) (101) (613) Net income $ 3,610 $ 4,171 $ 4,744
Net income decreased in 1999 as compared to 1998 and 1998 as compared to 1997 due primarily to decreases in interest income on PIMs and MBS. Basic interest on PIMs decreased in 1999 as compared to 1998 and 1998 as compared to 1997, primarily as a result of repayments of the Greentree PIM in March 1998 and the Pine Hills PIM in November 1997. Participation income on PIMs in 1998 was a result of the Greentree payoff while the 1997 income was a result of the Pine Hills payoff. Interest income on MBS declined when comparing 1999 to 1998 and 1998 to 1997, respectively, due to principal collections reducing the outstanding MBS portfolio. Interest income on MBS and basic interest on PIMs will continue to decline as principal collections reduce the outstanding balance of these investments. Amortization expense decreased in 1998 as compared to 1997 as all the prepaid fees and expenses associated with all the remaining PIMs, except Vista Montana, became fully amortized in 1997. Partnership expenses decreased in 1999 as compared to 1998 and in 1998 versus 1997. The decrease from 1998 to 1999 was primarily due to lower asset management fees caused by a declining asset base. The decrease from 1997 to 1998 was primarily due to lower asset management fees of approximately $95,000 because of a declining asset base and lower expense reimbursements of approximately of $49,000 because the Partnership received a rebate for expense reimbursements related to 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of the Partnership and is the general partner of The Krupp Company Limited Partnership-IV, the other General Partner of the Partnership, is as follows:
Name and Age Position with The Krupp Corporation Douglas Krupp (53) Co-Chairman, President and Director George Krupp (55) Co-Chairman, President and Director Robert A. Barrows (42) Vice President and Chief Accounting Officer
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, investment sponsorship, venture capital investing, mortgage banking and financial management, and ownership of three operating companies through private equity investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969 and he has served as the Chief Executive Officer since 1992. Mr. Krupp serves as a member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where he received an honorary Doctor of Science in Business Administration in 1989 and was elected trustee in 1990. George Krupp (age 55) is the Co-Founder and Co-Chairman of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, investment sponsorship, venture capital investing, mortgage banking and financial management, and ownership of three operating companies through private equity investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish High School in Waltham, Massachusetts since September of 1997. Mr. Krupp attended the University of Pennsylvania and Harvard University and holds a Master's Degree in History from Brown University. Robert A. Barrows is Senior Vice President and Chief Financial Officer of Berkshire Mortgage Finance. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting, financial reporting, treasury and management information systems for Berkshire Mortgage Finance. Prior to joining The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1999 no person owned of record or was known by the General Partners to own beneficially more than 5% of the Partnership's 7,500,099 outstanding Units. The only interests held by management or its affiliates consist of its General Partner and Corporate Limited Partner Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is contained in Note F to the Partnership's financial statements presented in Appendix A to this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Financial Statements - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 of this report. 2. Financial Statement Schedule - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 of this report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Financial Statements or the Notes thereto. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable Exhibits required under Item 601 of Regulation S-K: (4) Instruments defining the rights of security holders including indentures: (4.1)Amended Agreement of Limited Partnership dated as of June 27, 1986 [Exhibit A to Prospectus included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated July 2, 1986 (File No. 33-2520)].* (4.2)Subscription Agreement whereby a subscriber agrees to purchase Units and adopts the provisions of the Amended Agreement of Limited Partnership [Exhibit D to Prospectus included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated July 2, 1986 (File No. 33-2520)].* (4.3)Eighth Amendment and Restatement of Certificate of Limited Partnership filed with the Massachusetts Secretary of State on February 6, 1987 [Exhibit 4.3 to Registrant's Report on Form 10-K for the year ended December 31, 1986 (File No. 33-2520)].* (10) Material Contracts: Vista Montana (10.1) Subordinated Promissory Note, dated March 31, 1988, between VM Associates Limited Partnership, an Arizona Limited Partnership and GMAC Mortgage Corporation of PA. [Exhibit 19.7 to Registrant's Report on Form 10-Q for the Quarter Ended March 31, 1988 (File No. 0-15815)].* (10.2) Subordinated Multi-family Deed of Trust, dated March 31, 1988, between VM Associates Limited Partnership, an Arizona Limited Partnership, and GMAC Mortgage Corporation of PA [Exhibit 19.8 to Registrant's Report on Form 10-Q for the Quarter Ended March 31, 1988 (File No. 0-15815)].* (10.3) Assignment of Subordinated Deed of Trust, dated March 31, 1988, between GMAC Mortgage Corporation of PA, and Krupp Insured Plus-II Limited Partnership, a Massachusetts Limited Partnership. [Exhibit 19.9 to Registrant's Report on Form 10-Q for the Quarter Ended March 31, 1988 (File No. 0-15815)].* (10.4) Assignment of Closing Documents, dated July 12, 1988 by and between Krupp Insured Plus-II Limited Partnership ("KIP-II"), a Massachusetts limited partnership, and Krupp Insured Plus Limited Partnership ("KIP-I"), a Massachusetts limited partnership. [Exhibit 19.10 to Registrant's Report on Form 10-Q for the Quarter Ended June 30, 1988 (File No. 0-15815)].* (10.5) Deed of Trust, dated March 31, 1988 between VM Associates Limited Partnership, an Arizona limited partnership and Transamerica Title Insurance Company, a California corporation. [Exhibit 19.11 to Registrant's Report on Form 10-Q for the Quarter Ended September 30, 1988 (File No. 0-15815)].* (10.6) Deed of Trust Note, dated March 31, 1988, between VM Associates Limited Partnership, an Arizona limited partnership and GMAC Mortgage Corporation of PA, a Pennsylvania corporation. [Exhibit 19.12 to Registrant's Report on Form 10-Q for the Quarter Ended September 30, 1988 (File No. 0-15815)].* (10.7) Assignment of Mortgage and Collateral Documents, dated March 31, 1988 by and between Krupp Insured Plus-II Limited Partnership, a Massachusetts limited partnership and GMAC Mortgage Corporation of PA, a Pennsylvania corporation. [Exhibit 19.13 to Registrant's Report on Form 10-Q for the Quarter Ended September 30, 1988 (File No. 0-15815)].* (10.8) Servicing Agreement, dated March 31, 1988 by and between Krupp Insured Plus-II Limited Partnership, a Massachusetts limited partnership and GMAC Mortgage Corporation of PA, a Pennsylvania corporation. [Exhibit 19.14 to Registrant's Report on Form 10-Q for the Quarter Ended September 30, 1988 (File No. 0-15815)].* (10.9) Modification to the First mortgage loan and subordinated Promissory Note, dated June 7, 1993, by and between Krupp Insured Plus-II Limited Partnership and V.M. Associates Limited Partnership. [Exhibit 10.28 to Registrant's Report on Form 10-K for the Year Ended December 31, 1994 (File No. 0-15815)].* (10.10) Assignment of interest from Krupp Insured Plus Limited Partnership II to Krupp Insured Plus Limited Partnership, dated February 6, 1995. [Exhibit 10.29 to Registrant's Report on Form 10-K for the Year Ended December 31, 1994 (File No. 0-15815)].* Royal Palm Place (10.11) Supplement to Prospectus for FNMA Pool No. MB-109057. [Exhibit 10.30 to Registrant's Report on Form 10-K for the year ended December 31, 1995(File No. 0-15815)].* (10.12) Subordinated Multifamily Mortgage dated March 20, 1991 between Royal Palm Place, Ltd., a Florida limited partnership (the "Mortgagor") and Krupp Insured Plus-III Limited Partnership (the "Mortgagee"). [Exhibit 19.2 to Registrant's Report on Form 10-Q for the Quarter Ended June 30, 1991 (File No. 0-15815)].* (10.13) Amended and Restated Subordinated Promissory Note dated December 1, 1995 between Royal Palm Place, Ltd., a Florida limited partnership (the "Mortgagor") and Krupp Insured Plus-III Limited Partnership (the "Holder") [Exhibit 10.32 to Registrant's Report on Form 10-K for the year ended December 31, 1995(File No.0-15815)].* (10.14) Modification Agreement dated March 20, 1991 by and between Royal Palm Place, Ltd., a Florida limited partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.4 to Registrant's Report on Form 10-Q for the Quarter Ended June 30, 1991 (File No. 0-15815)].* (10.15) Participation Agreement dated March 20, 1991 between Krupp Insured Plus-III Limited Partnership and Krupp Insured Plus Limited Partnership. [Exhibit 19.1 to Registrant's Report on Form 10-Q for the Quarter Ended September 30, 1991 (File No. 0-15815)].* * Incorporated by reference. (c) Reports on Form 8-K During the last quarter of the year ended December 31, 1999 the Partnership did not file any reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 9th day of March, 2000. KRUPP INSURED PLUS LIMITED PARTNERSHIP By: The Krupp Corporation, a General Partner By: /s/ Douglas Krupp Douglas Krupp, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 9th day of March, 2000.
Signatures Title(s) /s/ Douglas Krupp Co-Chairman (Principal Executive Officer), President Douglas Krupp and Director of The Krupp Corporation, a General Partner of the Registrant. /s/ George Krupp Co-Chairman (Principal Executive Officer)and Director George Krupp of The Krupp Corporation, a General Partner of the Registrant /s/ Robert A. Barrows Vice President and Chief Accounting Officer of Robert A. Barrows The Krupp Corporation, a General Partner of the Registrant.
APPENDIX A KRUPP INSURED PLUS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 of FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1999 KRUPP INSURED PLUS LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Report of Independent Accountants F-3 Balance Sheets at December 31, 1999 and 1998 F-4 Statements of Income and Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997 F-5 Statements of Changes in Partners' Equity for the Years Ended December 31, 1999, 1998 and 1997 F-6 Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 F-7 Notes to Financial Statements F-8 - F-14 All schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Insured Plus Limited Partnership: In our opinion, the accompanying balance sheets and the related statements of income and comprehensive income, of partner's equity and of cash flows present fairly, in all material respects, the financial position of Krupp Insured Plus Limited Partnership (the "Partnership") at December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with auditing principles generally accepted in the United States. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts March 17, 2000
KRUPP INSURED PLUS LIMITED PARTNERSHIP BALANCE SHEETS December 31, 1999 and 1998 ASSETS 1999 1998 Participating Insured Mortgages ("PIMs") (Notes B, C and H) $ 19,032,999 $ 29,074,105 Mortgage-Backed Securities and insured mortgage ("MBS") (Notes B, D and H) 21,918,397 23,880,438 Total mortgage investments 40,951,396 52,954,543 Cash and cash equivalents (Notes B, C and H) 13,002,087 3,653,130 Interest receivable and other assets 319,994 367,780 Prepaid acquisition fees and expenses, net of accumulated amortization of $657,985 and $590,032, respectively (Note B) 186,267 254,220 Prepaid participation servicing fees, net of accumulated amortization of $226,219 and $193,113, respectively (Note B) 104,833 137,939 Total assets $ 54,564,577 $ 57,367,612
LIABILITIES AND PARTNERS' EQUITY Liabilities $ 19,550 $ 20,198 Partners' equity (deficit) (Notes A, C and E): Limited Partners 54,522,528 56,720,679 (7,500,099 Limited Partner interests outstanding) General Partners (241,347) (237,028) Accumulated Comprehensive Income (Note B) 263,846 863,763 Total Partners' equity 54,545,027 57,347,414 Total liabilities and Partners' equity $ 54,564,577 $ 57,367,612
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF INCOME & COMPREHENSIVE INCOME For the Years Ended December 31, 1999, 1998 and 1997 1999 1998 1997 Revenues: Interest income - PIMs Basic interest $ 2,085,273 $ 2,257,069 $ 3,136,659 Participation interest - 250,000 542,650 Interest income - MBS 1,899,734 2,048,263 2,181,378 Other interest income 230,826 268,481 217,976 Total revenues 4,215,833 4,823,813 6,078,663 Expenses: Asset management fee to an affiliate (Note F) 376,755 407,132 502,332 Expense reimbursements to affiliates (Note F) 42,279 27,413 76,727 Amortization of prepaid fees and expenses (Note B) 101,059 101,057 612,631 General and administrative expenses 85,508 117,197 143,205 Total expenses 605,601 652,799 1,334,895 Net income (Note G) 3,610,232 4,171,014 4,743,768 Other Comprehensive Income: Net change in unrealized gain on MBS (599,917) (360,068) 223,447 Total Comprehensive Income $ 3,010,315 $ 3,810,946 $ 4,967,215 Allocation of net income (Notes E and G): Limited Partners $ 3,501,925 $ 4,045,884 $ 4,601,455 Average net income per Limited Partner Interest $ .47 $ .54 $ .61 (7,500,099 Limited Partner interests outstanding) General Partners $ 108,307 $ 125,130 $ 142,313
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the Years Ended December 31, 1999, 1998 and 1997 Accumulated Total Limited General Comprehensive Partners' Partners Partners Income Equity Balance at December 31, 1996 $72,448,679 $(194,008) $1,000,384 $73,255,055 Net income 4,601,455 142,313 - 4,743,768 Quarterly distributions (5,700,093) (172,798) - (5,872,891) Special distributions (4,575,060) - - (4,575,060) Change in unrealized gain on MBS - - 223,447 223,447 Balance at December 31,1997 66,774,981 (224,493) 1,223,831 67,774,319 Net income 4,045,884 125,130 - 4,171,014 Quarterly distributions (5,700,075) (137,665) - (5,837,740) Special distribution (8,400,111) - - (8,400,111) Change in unrealized gain on MBS - - (360,068) (360,068) Balance at December 31,1998 56,720,679 (237,028) 863,763 57,347,414 Net income 3,501,925 108,307 - 3,610,232 Quarterly distributions (5,700,076) (112,626) - (5,812,702) Change in unrealized gain on MBS - - (599,917) (599,917) Balance at December 31, 1999 $ 54,522,528 $(241,347) $ 263,846 $54,545,027
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998 and 1997 1999 1998 1997 Operating activities: Net income $ 3,610,232 $ 4,171,014 $ 4,743,768 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 101,059 101,057 612,631 Shared Appreciation Interest and prepayment premium - (250,000) (252,260) Premium Amortization 6,630 - - Changes in assets and liabilities: Decrease (increase) in interest receivable and other assets 47,786 166,398 (16,702) Increase (decrease) in liabilities (648) (919) 2,649 Net cash provided by operating activities 3,765,059 4,187,550 5,090,086 Investing activities: Principal collections and prepayments on PIMs including prepayment premium of $250,000 in 1998 and Shared Appreciation Income of $252,260 in 1997. 10,041,106 8,945,730 5,228,215 Principal collections on MBS 1,355,494 1,657,086 1,473,068 Net cash provided by investing activities 11,396,600 10,602,816 6,701,283 Financing activities: Quarterly distributions (5,812,702) (5,837,740) (5,872,891) Special distributions - (8,400,111) (4,575,060) Net cash used for financing activities (5,812,702) (14,237,851) (10,447,951) Net increase in cash and cash equivalents 9,348,957 552,515 1,343,418 Cash and cash equivalents, beginning of period 3,653,130 3,100,615 1,757,197 Cash and cash equivalents, end of period $ 13,002,087 $ 3,653,130 $ 3,100,615
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS A. Organization Krupp Insured Plus Limited Partnership (the "Partnership") is a Massachusetts Limited Partnership. The Partnership was organized for the purpose of investing in multi-family loans and mortgage-backed securities. The General Partners of the Partnership are The Krupp Corporation and The Krupp Company Limited Partnership-IV and the Corporate Limited Partner is Krupp Depositary Corporation. The Partnership terminates on December 31, 2025, unless terminated earlier upon the occurrence of certain events as set forth in the Partnership Agreement. The Partnership commenced the public offering of Units on July 7, 1986 and completed its public offering having sold 7,499,099 Units for $149,489,830 net of purchase volume discounts of $510,150 as of January 27, 1987. In addition, Krupp Depositary owns 100 Units. B. Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes which differ in certain respects from those used for federal income tax purposes (Note G): MBS The Partnership, in accordance with Financial Accounting Standards Board's Statement 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), classifies its MBS portfolio as available-for-sale. As such the Partnership carries its MBS at fair market value and reflects any unrealized gains (losses) as a separate component of Partners' Equity. The Partnership amortizes purchase premiums or discounts over the life of the underlying mortgages using the effective interest method. Effective January 1, 1998, the Partnership adopted Statement of Financial Accounting Standards No. 130, 'Reporting Comprehensive Income' (FAS 130). FAS 130 established standards for reporting and displaying comprehensive income and its components. FAS 130 requires comprehensive income and its components, as recognized under accounting standards, to be displayed in a financial statement with the same prominence as other financial statements, if material. Accordingly, unrealized gains (losses) on the Partnership's available-for sale securities have been included in other comprehensive income. The Federal Housing Administration (FHA) insured mortgage is carried at amortized cost. The Partnership holds this loan at amortized cost since it is fully insured by the FHA. 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 Fannie Mae MBS at amortized cost. The insured mortgage portion of the Federal Housing Administration PIM (FHA PIM) is carried at amortized cost since they are fully insured by the FHA. Basic interest on PIMs is recognized at the stated rate of the Federal Housing Administration insured mortgage (less the servicer's fee) or the stated coupon rate of the Fannie Mae MBS. The Partnership recognizes interest related to the participation features as earned and when it deems these amounts are collectible. The Partnership holds a participating mortgage loan insured by the Federal Housing Administration and carries it at amortized cost. 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. Continued KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, continued B. Significant Accounting Policies, Continued Prepaid Fees and Expenses Prepaid fees and expenses represent prepaid acquisition fees and expenses and prepaid participation servicing fees paid for the acquisition and servicing of PIMs. The Partnership amortizes the prepaid acquisition fees and expenses using a method that approximates the effective interest method over a period of ten to twelve years, which represents the actual maturity or anticipated repayment of the underlying mortgage. The Partnership amortizes the prepaid participation servicing fees using a method that approximates the effective interest method over a ten year period beginning from the acquisition of the Fannie Mae MBS or final endorsement of the FHA loan. Income Taxes The Partnership is not liable for federal or state income taxes because Partnership income is allocated to the partners for income tax purposes. If the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in Partnership taxable income, such change will be reported to the partners. Estimates and Assumptions The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the period. Actual results could differ from those estimates. C. PIMs At December 31, 1999, and 1998 the Partnership had investments in two PIMs and three PIMs, respectively. The Partnership's PIMs consist of a Fannie Mae MBS representing the securitized first mortgage loan on the underlying property and a sole participation interest in a first mortgage loan originated under the FHA lending program on the underlying property (collectively the "insured mortgages"), and participation interests in the revenue stream and appreciation of the underlying properties above specified base levels. The borrower conveys these participation features to the Partnership generally through a subordinated promissory note and mortgage (the "Agreement"). The Partnership receives guaranteed monthly payments of principal and basic interest on the Fannie Mae MBS and HUD insures the FHA mortgage loan. The Partnership may receive income related to its participation interests in the underlying property, however, these amounts are neither insured nor guaranteed. Generally, the participation features consist of the following: (i) "Minimum Additional Interest" which is at the rate of .5% per annum calculated on the unpaid principal balance of the first mortgage on the underlying property, (ii) "Shared Income Interest" which is 30% of the monthly gross rental income generated by the underlying property in excess of a specified base, but only to the extent that it exceeds the amount of Minimum Additional Interest earned during such month or 25% of distributable surplus cash, (iii) "Shared Appreciation Interest" which is 30% of any increase in the value of the underlying property in excess of a specified base to 25% of the net sales proceeds. Payment of participation interest from the operations of the property is limited to 50% of net revenue or surplus cash as defined by Fannie Mae or HUD, respectively. The aggregate amount of Minimum Additional Interest, Shared Income Interest and Shared Appreciation Interest payable by the underlying borrower on the maturity date generally cannot exceed 50% of any increase in value of the property. 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 KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, continued C. PIMs, continued The borrower may prepay the first mortgage loan subject to a 9% prepayment premium in years six through nine, a 1% prepayment premium in year ten and no prepayment premium thereafter. Under the Agreement, the Partnership, upon giving twelve months written notice, can accelerate the maturity date of the Agreement to a date not earlier than ten years from the date of the Agreement for (a) the payment of all participation interest due under the Agreement as of the accelerated maturity date, or (b) the payment of all participation interest due under the Agreement plus all amounts due on the first mortgage note on the property. In December 1999, the Partnership received a prepayment in the amount of $9,746,923 representing the outstanding principal balance due on the La Costa PIM. The Borrower defaulted on the first mortgage loan underlying the PIM in June of 1999. The Partnership continued to receive its full principal and interest payments until the GNMA mortgagee exercised its right to prepay the GNMA MBS due to the continuing default of the underlying first mortgage loan. The Partnership did not receive any participation interest as a result of this default. On January 11, 2000, the Partnership paid a special distribution to the investors of $1.30 per Limited Partner interest. In July of 1997 the borrower on the Greentree PIM defaulted on the first mortgage obligation, but the Partnership continued to receive its full principal and basic interest payments because GNMA guaranteed those payments. In March 1998, GNMA exercised its right to prepay the GNMA MBS due to the continuing default of the underlying first mortgage loan. The Partnership received proceeds from the prepayment of the GNMA MBS in the amount of $8,382,336. On April 16, 1998, the Partnership made a special distribution to the investors from the capital proceeds of $1.12 per Limited Partner interest. Subsequent to the payoff of the GNMA MBS, the General Partners negotiated a settlement with the borrower to release the Subordinated Promissory Note, and $250,000 was received in July 1998. At December 31, 1999 and 1998 there were no loans within the Partnership's portfolio that were delinquent as to principal or interest.
The Partnership's PIMs consist of the following at December 31, 1999 and 1998: Original Interest Maturity Monthly Investment Basis at PIMs Face Amount Rates (a) Dates Payment December 31, 1999 1998 GNMA La Costa $ 11,050,000 - - - $ - $ 9,890,213 Apts. Miami Fl. FHA Vista Montana 13,814,400 7.375% 12/1/33 86,000 13,400,589 13,483,058 Apts. (b) Val Vista Lakes, Az. Fannie Mae Royal Palm Place 6,021,258 7.875% 4/1/06 - 5,632,410 5,700,834 Kendall, Fl. (c) (d) $19,835,658 $ 19,032,999 $ 29,074,105 (e)
KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, continued C. PIMs, continued (a) Represents only the stated interest rate of the FNMA MBS or the stated interest rate of the FHA mortgage loan less the servicing fee. In addition, the Partnership may receive participation income, consisting of (i) Minimum Additional Interest, (ii) Shared Income Interest and (iii) Shared Appreciation Interest. (b) On November 30, 1993, the Partnership entered into an agreement with the underlying borrower of the FHA PIM for a permanent interest rate reduction from 8.875% per annum to 7.375% per annum, retroactive to January 1, 1992. In exchange for the interest rate reduction, the Partnership received an increase in Shared Appreciation Income from 25% in excess of the base amount of $15,410,000 to 25% of the net sales proceeds over the outstanding indebtedness at the time of sale. In the event of a refinancing, Shared Appreciation Income is 25% of the appraised value over the outstanding indebtedness at the time of refinancing. In addition, Shared Income Interest increased from 25% of rental income in excess of the base amount of $175,000 to 25% of all distributable surplus cash. (c) The total PIM on the underlying property is $22,000,000 of which 73% or $15,978,742 is held by Krupp Insured Plus III Limited Partnership, an affiliate of the Partnership. (d) During December 1995, the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Fannie Mae MBS and increased its participation percentage in income and appreciation from 25% to 30%. The Partnership will receive interest only payments on the FNMA MBS at interest rates ranging from 7.875% to 8.775% per annum through maturity. The Partnership will receive its pro-rata share of the annual principal payment totaling $250,000 due in January 2000. (e) The aggregate cost of PIMs for federal income tax purposes is $19,032,999. A reconciliation of the carrying value of Mortgages for each of the three years in the period ended December 31, 1999 is as follows:
1999 1998 1997 Balance at beginning of period $ 29,074,105 $ 37,769,835 $ 42,745,790 Deductions during period: Prepayment and principal collections (10,041,106) (8,695,730) (4,975,955) Balance at end of period $ 19,032,999 $ 29,074,105 $ 37,769,835
The underlying mortgages of the PIMs are collateralized by multi-family apartment complexes located in two states. The apartment complexes range in size from 352 to 377 units. D. MBS At December 31, 1999, the Partnership's MBS portfolio had an amortized cost of $12,541,035 and gross unrealized gains and losses of $265,822 and $1,976 respectively. At December 31, 1998, the Partnership's MBS portfolio had an amortized cost of $13,861,966 and gross unrealized gains of $863,763. The portfolio has maturities ranging from 2006 to 2032. At December 31, 1999 and 1998, the Partnership's insured mortgage had an amortized cost of $9,113,516, and $9,154,709, respectively.
Unrealized Maturity Date Fair Value Gain/(Loss) 2001 - 2005 $ - $ - 2006 - 2010 967,190 42,870 2011 - 2032 21,276,651 546,420 Total $ 22,243,841 $ 589,290
KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, continued E. Partners' Equity Profits and losses from Partnership operations and Distributable Cash Flow are allocated 97% to the Unitholders and Corporate Limited Partner (the "Limited Partners") and 3% to the General Partners. Upon the occurrence of a capital transaction, as defined in the Partnership Agreement, net cash proceeds will be distributed first, to the Limited Partners until they have received a return of their total invested capital, second, to the General Partners until they have received a return of their total invested capital, third, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to any deficiency in the 10% cumulative return on their invested capital that exists through fiscal years prior to the date of the capital transaction, fourth, to the class of General Partners until they have received an amount equal to 4% of all amounts of cash distributed under all capital transactions and fifth, 96% to the Limited Partners and 4% to the General Partners. Profits arising from a capital transaction will be allocated in the same manner as related cash distributions. Losses from a capital transaction will be allocated 97% to the Limited Partners and 3% to the General Partners. During 1999, 1998 and 1997, the Partnership made quarterly distributions totaling $.76 per Unit annually. The Partnership made special distributions of $1.12, and $.61 per Unit in 1998, and 1997 respectively.
As of December 31, 1999, the following cumulative partner contributions and allocations have been made since inception of the Partnership: Corporate Limited General Unrealized Unitholders Partner Partners gain on MBS Total Capital $149,489,830 $ 2,000 $ 3,000 $ - $149,494,830 contributions Syndication (7,906,604) - - - (7,906,604) Costs Quarterly distributions (117,536,046) (1,611) (2,752,614) (120,290,271) Special Distributions (50,624,974) (675) - - (50,625,649) Net income 81,099,517 1,091 2,508,267 83,608,875 Unrealized gains on MBS - - - 263,846 263,846 Balance at December 31, 1999 $ 54,521,723 $ 805 $ (241,347) $ 263,846 $ 54,545,027
KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, continued F. Related Party Transactions Under the terms of the Partnership Agreement, the General Partners receive an Asset Management Fee equal to .75% per annum of the value of the Partnership's total invested assets payable quarterly. The General Partners may also receive an incentive management fee in an amount equal to .3% per annum on the Partnership's Total Invested Assets providing the Unitholders receive a specified non-cumulative annual return on their Invested Capital. Total fees payable to the General Partners for asset management and incentive management fees shall not exceed 10% of distributable cash flow over the life of the Partnership. Additionally, the Partnership reimburses affiliates of the General Partners for certain expenses incurred in connection with maintaining the books and records of the Partnership and the preparation and mailing of financial reports, tax information and other communications to investors. G. Federal Income Taxes The reconciliation of the net income reported in the accompanying statement of income with the net income reported in the Partnership's 1999 federal income tax return is as follows:
Net income from statement of operations $3,610,232 Less: Book to tax difference for amortization of prepaid expenses and fees (552,989) Net income for federal income tax purposes $3,057,243
The allocation of the 1999 net income for federal income tax purposes is as follows: Portfolio Income Unitholders $ 2,965,486 Corporate Limited Partner 40 General Partners 91,717 $ 3,057,243
For the years ended December 31, 1999, 1998 and 1997 the average per unit net income to the Unitholders for federal income tax purposes was $.40, $.48, and $.64, respectively. The basis of the Partnership's assets for financial reporting purposes is less than its tax basis by approximately $343,000 and $290,000 at December 31, 1999 and 1998, respectively. The basis of the Partnership's liabilities for financial reporting purposes are the same for its tax basis at December 31, 1999 and 1998, respectively. H. Fair Value Disclosures of Financial Instruments The Partnership used the following methods and assumptions to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents The carrying amount approximates fair value because of the short maturity of those instruments. KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, continued H. Fair Value Disclosures of Financial Instruments, continued MBS The Partnership estimated the fair value of MBS based on quoted market prices while it estimates the fair value of insured mortgages based on quoted prices of MBS with similar interest rates. 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 $591,000 and $2,000 at December 31, 1999 and $864,000 and $0 at December 31, 1998. PIMs There is no active trading market for these investments, so management estimates the fair value of the PIMs using quoted market prices of MBS having a similar interest rate. Management does not include any participation interest in the Partnership's estimated fair value arising from the properties, because Management does not believe it can predict the time of realization of the feature with any certainty. Based on the estimated fair value determined using these methods and assumptions, the Partnership's investments in PIMs had gross unrealized losses of approximately $409,000 at December 31, 1999, and unrealized gains of approximately $680,000 at December 31, 1998.
At December 31, 1999 and 1998, the Partnership estimates fair the value of its financial instruments as follows: (Rounded to $1,000) 1999 1998 Fair Carrying Fair Carrying Value Value Value Value Cash and cash equivalents $ 13,002 $ 13,002 $ 3,653 $ 3,653 MBS and insured mortgages 22,244 21,918 23,880 23,880 PIMs 18,624 19,033 29,754 29,074 $ 53,870 $ 53,953 $57,287 $56,607
Unaudited Distributable Cash Flow and Net Cash Proceeds from Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions, as defined by Section 17 of the Partnership Agreement, and the source of cash distributions for the year ended December 31, 1999 and the period from inception through December 31, 1999. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity.
(Amounts in thousands, except per Unit amounts) Year Inception Ended Through 12/31/99 12/31/99 Distributable Cash Flow: Income for tax purposes $ 3,057 $ 84,216 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid fees and expenses 654 7,671 Shared appreciation income - (502) Amortization of MBS premiums 7 291 Acquisition expenses paid from offering proceeds charged to operations - 1,098 Gain on sale of MBS - (114) Total Distributable Cash Flow ("DCF") $ 3,718 $ 92,660 Limited Partners Share of DCF $ 3,607 $ 89,880 Limited Partners Share of DCF per Unit $ .48 $ 11.98 (c) General Partners Share of DCF $ 111 $ 2,780 Net Proceeds from Capital Transactions: Insurance claim proceeds, prepayment proceeds and PIM principal collections including shared appreciation income $ 10,041 $ 87,189 Principal collections on MBS 1,355 44,989 Insurance claim proceeds and principal collections on PIMs and MBS reinvested in PIMs and MBS - (40,775) Gain on sale of MBS - 114 Total Net Proceeds from Capital Transactions $ 11,396 $ 91,517 Cash available for distribution (DCF plus Net Proceeds from Capital Transactions) $ 15,114 $184,177 Distributions: (includes special distributions) Limited Partners $ 15,450 (a) $179,338 (b) Limited Partners Average per Unit $ 2.06 (a) $ 23.91 (b)(c) General Partners $ 111 (a) $ 2,780 (b) Total Distributions $ 15,561 $ 182,118
(a) Represents all distributions paid in 1999 except the February 1999 distribution and includes the special distribution paid in January 2000 and an estimate of the distribution to be paid in February 2000. (b) Includes the special distribution paid in January 2000 and an estimate of the distribution to be paid in February 2000. (c) Limited Partners average per Unit return of capital as of February 2000 is $11.93 [$23.91 - $11.98]. 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. EX-27 2 FDS --
5 The schedule contains summary financial information extracted from the balance sheet and statement of income and is qualified in its entirety by reference to such financial statements. 0000786622 KRUPP INSURED PLUS LIMITED PARTNERSHIP 12-MOS Dec-31-1999 Dec-31-1999 13,002,087 40,951,396 319,994 0 0 291,100 0 0 54,564,577 19,550 0 0 0 54,281,181 263,846 54,564,577 0 4,215,833 0 0 605,601 0 0 3,610,232 0 3,610,232 0 0 0 3,610,232 0 0 Includes Participating Insured Mortgages ("PIMs") of $19,032,999 and Mortgage-Backed Securities ("MBS") of $21,918,397. Includes prepaid acquisition fees and expenses of $844,252 net of accumulated amortization of $657,985 and prepaid participation servicing fees of $331,052 net of accumulated amortization of $226,219. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($241,237) and Limited Partners equity of $54,522,528. Unrealized gains on MBS. Represents interest income on investments in mortgages and cash. Includes $101,059 of amortization of prepaid fees and expenses. Net income allocated $108,307 to the General Partners and $3,501,925 to the Limited Partners. Average net income per Limited Partner interest is $.47 on 7,500,099 Limited Partner interests outstanding.
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