UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K 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, 1995 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 0-14377 Krupp Realty Limited Partnership-VII (Exact name of registrant as specified in its charter) Massachusetts 4-2842924 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 423-2233 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Investor Limited Partner Interest 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, since securities are non-voting. Documents incorporated by reference: Part IV, Item 14 The exhibit index is located on pages 9-12. PART I ITEM 1. BUSINESS Krupp Realty Limited Partnership-VII ("KRLP-VII") was formed on August 21, 1984 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-VII has issued all of the General Partner Interests to two General Partners, The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership. KRLP-VII has also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II. On November 2, 1984, KRLP-VII commenced an offering of up to 40,000 units of Investor Limited Partner Interest (the "Units") for $1,000 per Unit. The public offering was closed on April 25, 1986, at which time 27,184 Units had been sold. For additional details, see Note A to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. The primary business of KRLP-VII is to invest in, operate, refinance and ultimately dispose of a diversified portfolio of residential and commercial real estate. KRLP-VII considers itself to be engaged only in the industry segment of investment in real estate. On December 19, 1984 the General Partners formed Krupp Realty Courtyards Limited Partnership ("Realty-VII") as a prerequisite for the refinancing of Courtyards Village East Apartments ("Courtyards"). At the same time, the General Partners transferred ownership of Courtyards to Realty-VII. The General Partner of Realty-VII is the Krupp Corporation ("Krupp Corp."). The Limited Partner of Realty-VII is KRLP-VII. Krupp Corp. has beneficially assigned its interest in Realty-VII to KRLP-VII. On March 31, 1994, the General Partners formed Windsor Partners Limited Partnership ("Windsor L.P.") as a prerequisite for the refinancing of Windsor Apartments. At the same time, the General Partners transferred ownership of the property to Windsor L.P.. In exchange for the property, KRLP-VII received 99% Limited Partnership interest in Windsor L.P.. The General Partner of Windsor L.P. is ST. Windsor Corporation which has a 1% interest in Windsor L.P. and is 100% owned by KRLP-VII. KRLP-VII, Realty-VII and Windsor L.P. are collectively known as Krupp Realty Limited Partnership-VII and Subsidiaries (collectively referred to herein as the "Partnership"). The Partnership's real estate investments are subject to some seasonal fluctuations due to changes in utility consumption and seasonal maintenance expenditures. However, the future performance of the Partnership will depend upon factors which cannot be predicted. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's real estate investments are located, the availability and cost of borrowed funds, real estate tax rates, operating expenses, energy costs, government regulations and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse affect on the Partnership's operations, and no adverse affect therefrom is now anticipated in the future. The Partnership's investments in real estate are also subject to such risks as (i) competition from existing and future projects held by other owners in the locations of the Partnership's properties, (ii) possible reduction in rental income due to an inability to maintain high occupancy levels, to the financial failure of a tenant or the inability of retail tenants to achieve gross sales at a level sufficient to provide for additional rental income based on a percentage of sales, (iii) possible adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic and local conditions, such as competitive over-building, increases in unemployment, or adverse changes in real estate zoning laws, (v) the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (vi) other circumstances over which the Partnership may have little or no control. As of December 31, 1995, there were approximately 29 full and part-time on-site personnel employed by the Partnership. ITEM 2. PROPERTIES As of December 31, 1995, the Partnership has leveraged investments in two apartment complexes having an aggregate of 524 units and one commercial shopping center with 89,432 square feet of leasable space. A summary of the Partnership's real estate investments is presented below. Total Units/ Average Occupancy Year Current Leasable December 31, Description Acquired Square Footage 1995 1994 1993 1992 1991 Multi-Family Residential Courtyards Village East Apartments Naperville, Illinois 1985 224 95% 97% 96% 93% 92% Windsor Apartments Garland, Texas 1984 300 95% 94% 92% 93% 92% Shopping Center - Commercial Nora Corners Shopping Center Indianapolis, Indiana 1986 89,432 93% 93% 93% 95% 95% ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party. 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 The transfer of Units is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop. The number of Investor Limited Partners as of December 31, 1995 was approximately 1,500. One of the objectives of the Partnership is to generate cash available for distribution, all or a portion of which will be treated as a return of capital and therefore not currently taxable. The Partnership discontinued distributions during 1989 due to insufficient operating cash flow. In 1994, however, the General Partners determined that there was sufficient Cash Flow to reinstate distributions. These distributions commenced in August 1994 and thereafter are to be paid semiannually. The Partnership made the following distributions to its Partners during the years ended December 31, 1995 and 1994: Year Ended December 31, 1995 1994 Amount Per Unit Amount Per Unit Limited Partners: Investor Limited Partner Interest (27,184 Units outstanding) $543,679 $20.00 $135,920 $5.00 Original Limited Partner 48,327 12,082 General Partners 12,082 3,020 $604,088 $151,022 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 used in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto, which are included in Items 7 and 8 of this report, respectively. 1995 1994 1993 1992 1991 Total revenue $ 4,537,418 $ 4,286,787 $ 4,799,476 $ 5,396,406 $ 5,681,346 Loss before gain on sale/(loss on foreclosure) (24,601) (409,938) (789,506) (994,525) (893,791) Gain on sale/(loss on foreclosure) - - 843,368 - (1,668,385) Net income (loss) (24,601) (409,938) 53,862 (994,525) (2,562,176) Net income (loss) allocated to: Investor Limited Partners: Income (loss) before gain on sale/(loss on foreclosure) (24,355) (405,839) (781,611) (984,580) (884,853) Per Unit (.90) (14.93) (28.75) (36.22) (32.55) Gain on sale/(loss on foreclosure) - - 834,934 - (1,651,701) Per Unit - - 30.71 - (60.76) Net income (loss) (24,355) (405,839) 53,323 (984,580) (2,536,554) Per Unit (.90) (14.93) 1.96 (36.22) (93.31) General Partners: Income (loss) before gain on sale/(loss on foreclosure) (246) (4,099) 539 (9,945) (8,938) Gain on sale/(loss on foreclosure) - - - - (16,684) Net income (loss) (246) (4,099) 539 (9,945) (25,622) Total assets $17,592,386 $18,336,983 $18,729,696 $24,239,479 $25,444,546 Long-term obligations $12,563,382 $12,745,312 $ 8,364,761 $17,226,999 $17,484,896 Distributions to: Investor Limited Partners 543,679 135,920 - - - Per Unit 20.00 5.00 - - - Original Limited Partner 48,327 12,082 - - - General Partners 12,082 3,020 - - - Operations results for the periods presented are not comparable due to the following events: (1) Westbrook Place and Willow Cove Apartments were sold July 1, 1993. (2) Richland Mall was foreclosed upon on June 4, 1991. Prior performance of the Partnership is not necessarily indicative of future operations. TEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership's ability to generate cash adequate to meet its needs is dependent primarily upon the operations of its real estate investments. Such ability would also be impacted by the future availability of bank borrowings and the future refinancing and sale of the Partnership's remaining real estate investments. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, capital expenditures, debt service and expenses. Cash Flow, if any, as calculated under Section 8.2(a) of the Partnership Agreement, will then be available for distribution to the Partners. In 1994, the General Partners determined that there was sufficient Cash Flow to reinstate semi-annual distributions. These distributions commenced in August 1994 at a rate of $5.00 per Unit and increased in February 1995 to a rate of $20.00 per Unit. The Partnership's properties (Courtyards Village, Nora Corners and Windsor Apartments) have generated increased liquidity due to higher rental rates in 1995, as compared to 1994. Furthermore, the partnership has increased availability of funds due to reduced mortgage payments resulting from the 1994 refinancing of the mortgage notes payable at Nora Corners and Windsor Apartments. Cash Flow Shown below, as required by the Partnership Agreement, is the calculation of Cash Flow of the Partnership for the year ended December 31, 1995. 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, Cash Flow 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. Rounded to $1,000 Net loss for tax purposes $ (86,000) Items not requiring (requiring) the use of operating funds: Tax basis depreciation and amortization 1,346,000 Principal payments on mortgage notes payable (168,000) Capital improvement expenditures (262,000) Working capital reserves (226,000) Cash Flow $ 604,000 Operations The following discussion relates to the operations of the Partnership and its properties (Courtyards Village, Nora Corners, Westbrook and Windsor Apartments) for the years ended December 31, 1995, 1994, and 1993 or portion thereof. The sale of Westbrook, effective July 1, 1993, significantly impacted the comparability of the Partnership's operations. 1995 versus 1994 During 1995 as compared to 1994, cash flow increased 60% due to increases in rental revenues and reduced operating and interest expense. Rental revenues increased primarily due to steady rental rate increases implemented at Courtyards and Windsor in 1994. The Partnership's commercial property, Nora Corners, is maintaining its high level of occupancy with the signing of two new tenants in the first quarter of 1994, D.L. Lowry Salon, a hair salon, and Food King, a Chinese food restaurant, and one new tenant in the second quarter of 1995, After all, a women's clothing store. In addition, the Accent Shop, a home retail store, renewed its lease. Interest income increased due to additional investments in commercial paper yielding higher rates of return. During 1995 as compared to 1994, overall expenses have decreased. The decrease in operating expense is primarily due to a reduction in insurance expense due to a favorable claim history as well as management's efforts to reduce reimbursable operating costs. Interest expense decreased due to the refinancing of the mortgage notes payable at Windsor Apartments and Nora Corners in April and October of 1994, respectively. The new mortgage note at Windsor has a reduced interest rate of 9.25% per annum from the previous rate of 10.3% per annum. At Nora Corners, the new mortgage note has an interest rate of 9% per annum from the previous rate of 10.5% per annum. Maintenance expense increased due to landscaping, parking lot and exterior building improvements implemented at Courtyards and Windsor primarily during the third and fourth quarters of 1995. General and administrative expenses have increased due to legal and consulting fees paid for the appraisals of the properties. In 1996, Courtyards and Windsor are scheduled to have capital improvement expenditures totaling $312,000 and $340,000, respectively. The General Partners believe these improvements will improve the appearance of the properties and allow the properties to remain competitive in their respective real estate markets. 1994 versus 1993 During 1994, as compared to 1993, cash flow increased primarily due to increases in operating cash flow and reduced capital expenditures. Rental revenues increased by $198,000, excluding $714,000 of revenue generated by Westbrook in 1993. This was primarily due to improved occupancy as well as increased rental rates at Courtyards and Windsor. Interior and exterior painting improvements and carpentry renovations, started in 1993 at Courtyards and Windsor, were completed in the first quarter of 1994. Landscaping and parking lot upgrades were also implemented at Courtyards in 1993. These improvements allowed the Partnership to obtain rental increases at both properties. Occupancy at Windsor increased due to the stabilization of the Dallas economy, with home purchasing leveling off. As a result, all rental concessions at Windsor were eliminated in the first quarter of 1994. At Courtyards, rental concessions were reduced as a result of the improved occupancy. The Partnership's commercial property, Nora Corners, maintained its high occupancy with the signing of two new tenants in the first quarter of 1994, D.L. Lowry Salon, a hair salon, and Food King, a Chinese food restaurant. Property expenses for 1994, as compared to 1993 (excluding Westbrook), increased by $30,000. The increase was primarily due to higher operating expenses for the snow removal costs incurred at Courtyards and Nora Corners as a result of the heavy snow storms during the winter of 1994. General In accordance with Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which is effective for fiscal years beginning after December 15, 1995, the Partnership has implemented policies and practices for assessing impairment of its real estate assets. The investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a significant impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are significantly impaired. 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 both KRLP-VII and The Krupp Company Limited Partnership-II, the other General Partner of KRLP-VII, is as follows: Position with Name and Age The Krupp Corporation Douglas Krupp (49) Co-Chairman of the Board George Krupp (51) Co-Chairman of the Board Laurence Gerber (39) President Robert A. Barrows (38) Senior Vice President and Corporate Controller Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking, healthcare facility ownership and the management of the Company. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for the more than $4 billion under management for institutional and individual clients. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of Berkshire Realty Company, Inc. (NYSE-BRI). George Krupp is Douglas Krupp's brother. George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for more than $4 billion under management for institutional and individual clients. Mr. Krupp attended the University of Pennsylvania and Harvard University. Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and as Chairman of the Board and Trustee of Krupp Government Income Trust II. Laurence Gerber is the President and Chief Executive Officer of The Berkshire Group. Prior to becoming President and Chief Executive Officer in 1991, Mr. Gerber held various positions with The Berkshire Group which included overall responsibility at various times for: strategic planning and product development, real estate acquisitions, corporate finance, mortgage banking, syndication and marketing. Before joining The Berkshire Group in 1984, he was a management consultant with Bain & Company, a national consulting firm headquartered in Boston. Prior to that, he was a senior tax accountant with Arthur Andersen & Co., an international accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics from the University of Pennsylvania, Wharton School and an M.B.A. degree with high distinction from Harvard Business School. He is a certified Public Accountant. Mr. Gerber also serves as President and Director of Berkshire Realty Company, Inc. (NYSE-BRI) and President and Trustee of Krupp Government Income Trust and President and Trustee of Krupp Government Income Trust II. Robert A. Barrows is Senior Vice President and Corporate Controller of The Berkshire Group. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting and financial reporting, treasury, tax, payroll and office administrative activities. 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, 1995, no person owned of record or was known by the General Partners to own beneficially more than 5% of the Partnership's 27,184 outstanding Units. The only interests held by management or its affiliates consist of its General Partner and Original Limited Partner interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. Additionally, as of December 31, 1995, no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's outstanding Units. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements - see Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule included under Item 8, Appendix A, on page F-2 to this report. 2. Consolidated Financial Statement Schedules - see Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule included under Item 8, Appendix A, on page F-2 to this report. All other schedules are omitted as they are not applicable or not required or the information is provided in the Consolidated 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 October 23, 1984 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-92889)].* (4.2) Thirty-Second Amendment and Restatement of Certificate of Limited Partnership filed with the Massachusetts Secretary of State on June 4, 1986 [Exhibit 4.2 to Registrant's Report on Form 10-K dated October 31, 1986 (File No. 0-14377)].* (10) Material Contracts Windsor Apartments (10.1) Purchase and Sale Agreement dated June 3, 1983 between Douglas Krupp, on behalf of himself and others, and Garland Land Joint Venture [Exhibit 1 to Registrant's Report on Form 8-K dated December 27, 1984 (File No. 2-92889)].* (10.2) Management Agreement dated December 27, 1984 between Krupp Realty Limited Partnership-VII, as Owner and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. [Exhibit 10.4 to Registrant's Report on Form 10-K for the fiscal year ended October 31, 1984 (File No. 2-92889)].* (10.3) Promissory Note dated April 13, 1994 by and between Windsor Partners Limited Partnership and Sun Life Insurance Company of America [Exhibit 10.1 to Registrant's Report on Form 10-Q dated June 30, 1994 (File No. 0-14377)].* (10.4) Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated April 13, 1994 from the grantor, Windsor Partners Limited Partnership, to the Trustee, Brian C. Rider [Exhibit 10.2 to Registrant's Report on Form 10-Q dated June 30, 1994 (File No. 0-14377)].* Courtyards Village East Apartments (10.5) Purchase and Sale Agreement dated October 12, 1984 between Douglas Krupp on behalf of himself and others, and The Courtyards Village and The Courtyards Village Inn-East Apartments Partnership [Exhibit 1 to Registrant's Report on Form 8-K dated April 1, 1985 (File 2-92889)].* (10.6) Amended Trust Agreement dated May 6, 1976 between The Courtyards Village and The Courtyards Village Inn-East Apartments Partnership and American National Bank and Trust Company of Chicago [Exhibit 2 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.7) Assignment of Trust of American National Bank and Trust Company of Chicago dated April 1, 1985 [Exhibit 3 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.8) Mortgage Note dated January 1, 1973 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Company [Exhibit 4 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.9) Modification Agreement dated May 1, 1975 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Corporation. [Exhibit 5 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.10) Mortgage Note dated May 18, 1976 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Company [Exhibit 6 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.11) Mortgage Agreement dated May 18, 1976 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Corporation [Exhibit 7 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.12) Amended HUD Regulatory Agreement dated May 18, 1976 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Corporation [Exhibit 8 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.13) Consolidation Agreement dated June 14, 1976 between American Bank and Trust Company of Chicago, as Trustee, and Republic Realty Mortgage Corporation [Exhibit 9 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.14) Management Agreement dated April 1, 1985 between Krupp Realty Limited Partnership-VII, as Owner and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. {Exhibit 10.20 to Registrant's Report on Form 10-K for the year ended October 31, 1985 (File No. 2- 92889)].* Nora Corners Shopping Center (10.15) Purchase and Sale Agreement dated June 16, 1986 between Douglas Krupp, on behalf of himself and others and Nora Corners Building Associates, Ltd., an Illinois limited partnership [Exhibit 1 to Registrant's Report on Form 8-K dated September 24, 1986 (File No. 0-14377)].* (10.16) Amendment to Purchase and Sale Agreement dated August 29, 1986 between Douglas Krupp, on behalf of himself and others (assigned to Krupp Realty Limited Partnership-VII), and Nora Corners Building Associates, Ltd., an Illinois limited partnership [Exhibit 2 to Registrant's Report on Form 8-K dated September 24, 1986 (File No. 0-14377)].* (10.17) Property Management Agreement dated September 24, 1986 between Krupp Realty Limited Partnership-VII, as Owner and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM") Berkshire Property Management Company, as Agent [Exhibit 10.36 to Registrant's Report on Form 10-K dated October 31, 1987 (File No. 0-14377)].* (10.18) Special Warranty Deed dated September 24, 1986 between Krupp Realty Limited Partnership-VII and Nora Corners Building Associates, Ltd., an Illinois limited partnership [Exhibit 8 to Registrant's Report on Form 8-K dated September 24, 1986 (File No. 0-14377)].* (10.19) Land Lease dated October 11, 1962 between Cornelius M. and Wilma Brown (lessor) and Burger Chef Systems, Inc., an Indiana corporation (lessee) [Exhibit 9 to Registrant's Report on Form 8-K dated September 24, 1986 (File No. 0-14377)].* (10.20) Notice of Lease dated September 23, 1963 between Cornelius M. and Wilma Brown (lessor) and Burger Chef Systems, Inc., an Indiana corporation (lessee) [Exhibit 10 to Registrant's Report on Form 8-K dated September 24, 1986 (File No. 0-14377)].* (10.21) Assignment of Lease dated September 24, 1986 between Krupp Realty Limited Partnership-VII and Nora Corners Building Associates, Ltd., an Illinois limited partnership [Exhibit 11 to Registrant's Report on Form 8-K dated September 24, 1986 (File No. 0-14377)].* (10.22) Promissory Note dated September 27, 1994, effective October 6, 1994, by and between Krupp Realty Limited Partnership-VII and John Hancock Mutual Life Insurance Company. [Exhibit 10.22 to Registrant's Report on Form 10-K dated December 31, 1994 (File No. 0-14377)].* (10.23) Mortgage, Security Agreement, Assignment of Leases and Fixture Filing dated September 27, 1994, effective October 6, 1994, by and between Krupp Realty Limited Partnership-VII and John Hancock Mutual Life Insurance Company. [Exhibit 10.23 to Registrant's Report on Form 10-K dated December 31, 1994 (File No. 0-14377)].* * Incorporated by reference (c) Reports on Form 8-K During the last quarter of the year ended December 31, 1995, the Partnership filed no 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 21st day of March, 1996. KRUPP REALTY LIMITED PARTNERSHIP-VII 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 21st day of March, 1996. Signatures Titles /s/Douglas Krupp Co-Chairman (Principal Executive Officer) Douglas Krupp and Director of The Krupp Corporation, a General Partner. /s/George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of The Krupp Corporation, a General Partner. /s/Laurence Gerber President of The Krupp Corporation, a Laurence Gerber General Partner. /s/Robert A. Barrows Senior Vice President and Corporate Robert A. Barrows Controller of The Krupp Corporation, a General Partner. APPENDIX A KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1995 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Consolidated Balance Sheets at December 31, 1995 and 1994 F-4 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 F-5 Consolidated Statements of Changes in Partners' Equity for the years ended December 31, 1995, 1994 and 1993 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 F-7 Notes to Consolidated Financial Statements F-8 - F-15 Schedule III - Real Estate and Accumulated Depreciation F-16 - F-17 All other schedules are omitted as they are not applicable, not required, or the information is provided in the consolidated financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Realty Limited Partnership-VII and Subsidiaries: We have audited the consolidated financial statements and consolidated financial statement schedule of Krupp Realty Limited Partnership-VII and subsidiaries (the "Partnership") listed in the index on page F-2 of this Form 10-K. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Krupp Realty Limited Partnership-VII and Subsidiaries as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 1, 1996 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 ASSETS 1995 1994 Multi-family apartment complexes, net of accumulated depreciation of $9,521,601 and $8,664,936, respectively (Note D) $ 9,030,289 $ 9,665,226 Retail center, net of accumulated depreciation of $3,285,620 and $2,896,863, respectively (Notes D and H) 6,376,225 6,724,369 Total real estate assets 15,406,514 16,389,595 Cash and cash equivalents 1,311,037 1,021,464 Cash restricted for tenant security deposits 35,979 55,084 Cash restricted for capital improvements (Note D) 57,462 54,189 Prepaid expenses and other assets (Note I) 549,614 555,508 Deferred expenses, net of accumulated amortization of $55,514 and $19,538, respectively (Note I) 231,780 261,143 Total assets $17,592,386 $18,336,983 LIABILITIES AND PARTNERS' EQUITY Mortgage notes payable (Note D) $12,744,191 $12,912,152 Accrued expenses and other liabilities (Note E) 815,041 762,988 Total liabilities 13,559,232 13,675,140 Commitment (Note F) Partners' equity (Note F): Investor Limited Partners (27,184 Investor Limited Partner interests outstanding) 4,606,880 5,174,914 Original Limited Partner (337,462) (289,135) General Partners (236,264) (223,936) Total Partners' equity 4,033,154 4,661,843 Total liabilities and Partners' equity $17,592,386 $18,336,983 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1995, 1994 and 1993 1995 1994 1993 Revenue: Rental (Note G) $4,470,378 $4,258,043 $4,774,332 Interest income 67,040 28,744 25,144 Total revenue 4,537,418 4,286,787 4,799,476 Expenses: Operating (Notes H and I) 1,036,703 1,161,154 1,491,610 Maintenance 359,058 331,826 497,049 Real estate taxes 437,955 404,887 464,734 Management fees to an affiliate (Note I) 192,572 176,861 208,563 Depreciation and amortization 1,281,398 1,293,815 1,387,232 Interest (Note D) 1,119,216 1,230,723 1,446,343 General and administrative (Note I) 135,117 97,459 93,451 Total expenses 4,562,019 4,696,725 5,588,982 Net loss before gain on sale of Westbrook - - (789,506) Gain on sale of Westbrook (Note C) - - 843,368 Net income (loss) (Note J): $ (24,601) $ (409,938) $ 53,862 Allocation of net income (loss) (Note F): Investor Limited Partner Interest (27,184 Units outstanding) $ (24,354) $ (405,839) $ 53,323 Per Unit of Investor Limited Partner Interest: Loss before gain on sale of Westbrook $ (.90) $ (14.93) $ (28.75) Gain on sale of Westbrook - - 30.71 Net income (loss) $ (.90) $ (14.93) $ 1.96 General Partners: Loss before gain on sale of Westbrook $ (246) $ (4,099) $ (7,895) Gain on sale of Westbrook - - 8,434 Net income (loss) $ (246) $ (4,099) $ 539 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the Years Ended December 31, 1995, 1994 and 1993 Investor Original Total Limited Limited General Partners' Partners Partner Partners Equity Balance at December 31, 1992 $5,663,350 $(277,053) $(217,356) $5,168,941 Net income 53,323 - 539 53,862 Balance at December 31, 1993 5,716,673 (277,053) (216,817) 5,222,803 Distribution (135,920) (12,082) (3,020) (151,022) Net loss (405,839) - (4,099) (409,938) Balance at December 31, 1994 5,174,914 (289,135) (223,936) 4,661,843 Distribution (543,679) (48,327) (12,082) (604,088) Net loss (24,355) - (246) (24,601) Balance at December 31, 1995 $4,606,880 $(337,462) $(236,264) $4,033,154 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994 and 1993 1995 1994 1993 Operating activities: Net income (loss) $ (24,601) $ (409,938) $ 53,862 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on sale of Westbrook - - (843,368) Depreciation and amortization 1,281,398 1,293,815 1,387,232 Decrease in restricted cash for tenant security deposits 19,105 6,279 21,472 Decrease (increase) in prepaid expenses and other assets 5,894 (227,646) 67,570 Increase (decrease) in accrued expenses and other liabilities 52,053 (61,873) 91,295 Net cash provided by operating activities 1,333,849 600,637 778,063 Investing activities: Additions to fixed assets (262,341) (221,949) (333,793) Decrease (increase) in cash restricted for capital improvements (3,273) 3,559 91,925 Proceeds from sale of Westbrook - - 75,000 Net cash used in investing activities (265,614) (218,390) (166,868) Financing activities: Principal payments on mortgage notes payable (167,961) (145,050) (157,909) Proceeds from mortgage notes payable - 9,550,000 - Repayment of mortgage notes payable - (9,174,830) - Increase in deferred expenses (6,613) (280,679) - Distributions (604,088) (151,022) - Net cash used in financing activities (778,662) (201,581) (157,909) Net increase in cash and cash equivalents 289,573 180,666 453,286 Cash and cash equivalents, beginning of year 1,021,464 840,798 387,512 Cash and cash equivalents, end of year $1,311,037 $1,021,464 $ 840,798 Supplemental schedule of noncash investing and financing activities: The Partnership sold Westbrook on July 1, 1993 for net proceeds of $75,000 and retirement of all related debt as shown below: First mortgage and accrued interest payable $3,799,398 Second mortgage payable 1,600,000 Cash proceeds 75,000 Net book value of property sold (4,631,030) Gain on sale of Westbrook $ 843,368 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ______________ A. Organization Krupp Realty Limited Partnership-VII ("KRLP-VII") was formed on August 21, 1984 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-VII terminates on December 31, 2025 unless earlier terminated upon the occurrence of certain events as set forth in the Partnership Agreement. KRLP-VII has issued all of the General Partner Interests to two General Partners, The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership, in exchange for capital contributions aggregating $1,000. In addition, the General Partners were required to make additional capital contributions of $135,891 which were used to pay organization and offering costs in excess of 5% of the gross proceeds of the offering. Except under certain limited circumstances upon termination of KRLP- VII, the General Partners are not required to make any other additional capital contributions. KRLP-VII has also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II in exchange for a capital contribution of $4,000. On November 2, 1984, KRLP-VII commenced an offering of up to 40,000 units of Investor Limited Partner Interest (the "Units") for $1,000 per Unit. The public offering was closed on April 25, 1986, at which time 27,184 Units had been sold for $27,184,000. On December 19, 1984 the General Partners formed Krupp Realty Courtyards Limited Partnership ("Realty-VII") as a prerequisite for the refinancing of Courtyards Village East Apartments ("Courtyards"). At the same time, the General Partners transferred ownership of Courtyards to Realty-VII. The General Partner of Realty-VII is the Krupp Corporation ("Krupp Corp."). The Limited Partner of Realty-VII is KRLP-VII. Krupp Corp. has beneficially assigned its interest in Realty-VII to KRLP-VII. On March 31, 1994, the General Partners formed Windsor Partners Limited Partnership ("Windsor L.P.") as a prerequisite for the refinancing of Windsor Apartments. At the same time, the General Partners transferred ownership of the property to Windsor L.P. In exchange for the property, KRLP-VII received 99% Limited Partnership interest in Windsor L.P.. The General Partner of Windsor L.P. is ST. Windsor Corporation which has a 1% interest in Windsor L.P. and is 100% owned by KRLP-VII. KRLP-VII, Realty-VII and Windsor L.P. are collectively known as Krupp Realty Limited Partnership-VII and Subsidiaries (collectively referred to herein as the "Partnership"). 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 (Note J): Basis of Presentation The consolidated financial statements present the consolidated assets, liabilities and operations of the Partnership. All intercompany balances and transactions have been eliminated. Risks and Uncertainties The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Partnership includes all short-term investments with original maturities of three months or less at the date of acquisition in cash and cash equivalents. The cash investments are recorded at cost, which approximates market values. Rental Revenues Residential and commercial leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Commercial leases generally contain provisions for additional rent based on a percentage of tenant sales and other provisions which are also recorded on the accrual basis, but are billed in arrears. Depreciation Depreciation is provided for by the use of the straight-line method over estimated useful lives of the related assets as follows: Buildings and improvements 2 to 39 years Equipment, furnishings and fixtures 3 to 5 years Impairment of Long-Lived Assets In accordance with Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which is effective for fiscal years beginning after December 15, 1995, the Partnership has implemented policies and practices for assessing impairment of its real estate assets. The investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a significant impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are significantly impaired. Leasing Commissions Leasing commissions on commercial properties are deferred and amortized over the life of the related lease. Deferred Expenses Costs incurred to obtain the mortgages on the properties are being amortized over the term of the mortgage notes using the straight line method. Income Taxes The Partnership is not liable for federal or state income taxes as the Partnership income or loss 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 the Partnership taxable income or loss, such change will be reported to the Partners. Reclassifications Certain prior year balances have been reclassified to conform with current year consolidated financial statement presentation. C. Sale of Westbrook Place/Willow Cove Apartments On July 13, 1993 and effective July 1, 1993, the Partnership sold Westbrook to the holder of the non-recourse first mortgage note on Westbrook, MXM Mortgage Corporation ("MXM"), subject to all mortgage debt collateralized by these properties. This sale was coincident with the sales to MXM of five additional properties in partnerships affiliated with the General Partners of the Partnership for which MXM was also the mortgage note holder. The sale was the ultimate resolution to two years of continued negotiations with MXM on potential refinancing options on the properties. MXM was unwilling to accept any proposals or negotiate any favorable terms. MXM alleged that a default existed regarding the mortgage note and threatened litigation. The General Partners felt it was in the best interest of the Partnership to negotiate a sale given the expense of litigation and, more significantly, that the total debt on Westbrook exceeded the value of the property. This situation was not expected to improve by 1995 when the MXM mortgage note was due. Willow Cove adjoins Westbrook and the Partnership operated these properties as one, therefore, the Partnership included Willow Cove in the negotiations as Willow Cove would no longer benefit from the savings allowed by shared amenities. The net book value of the properties was $4,631,030 at the date of the sale which resulted in a gain of $843,368 for financial reporting purposes. D. Mortgage Notes Payable Substantially, all of the properties owned by the Partnership is pledged as collateral for the mortgage notes payable outstanding at December 31, 1995 and 1994. Mortgage notes payable consist of the following: Annual Interest Principal Rate Property 1995 1994 1995 1994 Maturity Date Courtyards Village East Apartments $ 3,309,098 $ 3,392,345 7% 7% September, 2014 Nora Corners Shopping Center 4,194,262 4,242,390 9% 9% October, 2004 Windsor Apartments 5,240,831 5,277,417 9.25% 9.25% May, 2001 $12,744,191 $12,912,152 Courtyards Village East Apartments The non-recourse mortgage note payable requires equal monthly installments of $26,506, consisting of principal and interest. In addition, the Partnership is required to pay a monthly deposit of $2,000 to an escrow account to be used for future property replacements and improvements, and a mortgage insurance premium equal to .5% per annum of the outstanding principal balance. As of December 31, 1995, the mortgage provides for prepayment subject to a penalty equal to 1/8 of 1% of the excess prepaid above 15% of the original principal amount. The prepayment percentage shall decrease by 1/8 of 1% annually each year on December 1st. After December 1, 1996, the mortgage may be prepaid without penalty. Under the terms of the loan, HUD restricts the distribution of funds to Surplus Cash, as defined by HUD in the regulatory agreement. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $3,000,000. Nora Corners Shopping Center On October 6, 1994, the Partnership refinanced Nora Corners mortgage note for $4,250,000. The non-recourse mortgage note is payable, based on a 25-year amortization, in equal monthly installments of $35,666, consisting of principal and interest. At maturity, all unpaid principal (approximately $3,526,000) and any accrued interest is due. After October 1, 1998, the note may be prepaid subject to a prepayment penalty. The Partnership paid refinancing costs of $123,175. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $4,400,000. Windsor Apartments On April 13, 1994, the Partnership refinanced Windsor Apartments mortgage note for $5,300,000. The non-recourse mortgage note is payable, based on a 30-year amortization, in equal monthly installments of $43,602, consisting of principal and interest. At maturity, all unpaid principal (approximately $5,021,000) and any accrued interest is due. After October 13, 1997, the note may be prepaid subject to a prepayment penalty. The Partnership paid refinancing costs of $164,115. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $5,500,000. The aggregate principal amounts of borrowings due during the five years ending December 31, 2000 are $180,809, $195,968, $212,423, $230,284 and $249,674. The Partnership paid interest on its borrowings in the amounts of $1,101,325, $1,210,975 and $1,366,046 during the years ended December 31, 1995, 1994 and 1993, respectively. E. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following at December 31, 1995 and 1994: 1995 1994 Accrued real estate taxes $419,964 $392,338 Other liabilities 262,456 257,155 Tenant security deposits 84,091 88,303 Accounts payable 48,530 25,192 $815,041 $762,988 F. Partners' Equity Under the terms of the Partnership Agreement, losses from operations are allocated 99% to the Investor Limited Partners and 1% to the General Partners and profits from operations are allocated 90% to the Investor Limited Partners, 8% to the Original Limited Partner and 2% to the General Partners until such time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum cumulative return thereon and thereafter, 69% to the Investor Limited Partners, 25% to the Original Limited Partner and 6% to the General Partners. Under the terms of the Partnership Agreement, cash distributions are generally made on the same basis as the allocations of profits described above. Distributions from a sale, exchange, refinancing, or other disposition of a property or upon the termination of the Partnership are to be allocated differently than that described above and will be made in part after payment by the Partnership of a certain subordinated financial consulting fee as described below. The Partnership entered into a sales agent agreement for the public offering of Units. Under that Agreement, the Partnership was required to pay to the sales agent underwriting commissions and related financial consulting fees equal to 9% of the gross proceeds from the offering. In addition, the sales agent will be entitled to receive, over the life of the Partnership, a subordinated financial consulting fee based upon the net cash proceeds received by the Partnership as a result of sales and refinancings of Partnership properties, which fee shall be in an amount not exceeding 1.5% of the gross proceeds of the offering of Units. No such fees will, however, be payable unless and until all Partners have received their Invested Capital and the Investor Limited Partners have received a 9% per annum cumulative return. As of December 31, 1995, the following cumulative partner contributions and allocations have been made since the inception of the Partnership: Investor Original Total Limited Limited General Partners' Partners Partner Partners Equity Capital contributions $ 27,184,000 $ 4,000 $ 136,891 $ 27,324,891 Syndication costs (3,697,375) - (135,891) (3,833,266) Cash distributions (3,841,456) (341,462) (85,363) (4,268,281) Net loss from Capital Transactions (816,767) - (8,250) (825,017) Net loss from operations (14,221,522) - (143,651) (14,365,173) Total $ 4,606,880 $(337,462) $(236,264) $ 4,033,154 G. Future Base Rents Due Under Commercial Operating Leases Future base rents due under non-cancelable commercial operating leases in the five years 1996 through 2000 and thereafter are as follows: 1996 $ 840,500 1997 754,300 1998 688,700 1999 592,500 2000 485,900 Thereafter 1,618,600 H. Leases Nora Corners is situated on 11.21 acres. Seven acres are owned by certain parties having no affiliation with the Partnership and are leased to the Partnership subject to a 99-year land lease which expires in 2061. The land lease requires annual rental payments of $17,280 from 1987 through 2012, $20,180 from 2012 through 2037, and $23,040 from 2037 through 2061. Under the terms of the land lease, the lessee may assign its rights to a subsequent purchaser of the property. Total rental expense related to the land lease charged to operations for each of the years ended December 31, 1995, 1994 and 1993 was $17,280. I. Related Party Transactions Commencing with the date of acquisition of the Partnership's properties, the Partnership entered into agreements under which property management fees are paid to an affiliate of the General Partners for services as management agent. Such agreements provide for management fees payable monthly at a rate of 4% of the gross receipts, net of leasing commissions from commercial properties under management and 5% of the gross receipts from residential properties under management. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership and its properties including accounting, computer, insurance, travel, legal and payroll, and with the preparation and mailing of reports and other communications to the Limited Partners. Amounts accrued or paid to the General Partners or their affiliates during the years ended December 31, 1995, 1994 and 1993 were as follows: 1995 1994 1993 Management fees $192,572 $176,871 $208,563 Expense reimbursements 129,445 209,994 254,221 Charged to operations $322,017 $386,865 $462,784 In addition to the amounts above, the following amounts relating to refinancing and disposition activities were paid to the General Partners or their affiliates: 1995 1994 1993 Cost reimbursements $ 3,793 $ 45,814 $ 7,568 J. Federal Income Taxes For federal income tax purposes, the Partnership is depreciating property using the Accelerated Cost Recovery System ("ACRS") and the modified accelerated cost recovery system ("MACRS") depending on which is applicable. The reconciliation of the net income (loss) reported in the accompanying Consolidated Statement of Operations with the net loss reported in the Partnership's federal income tax return for the years ended December 31, 1995, 1994 and 1993 are as follows: 1995 1994 1993 Net income (loss) per Consolidated Statement of Operations $(24,601) $(409,938) $ 53,862 Add: Difference in book to tax depreciation and amortization (64,375) (73,351) (124,093) Difference in book to to tax gain on sale of Westbrook - - (95,626) Less: Rental adjustment required by Generally Accepted Accounting Principles 3,467 3,344 (21,494) Net loss for federal income tax purposes $(85,509) $(479,945) $(187,351) The allocation of the net loss for federal income tax purposes for the year ended December 31, 1995 is as follows: Portfolio Passive Income Loss Total General Partners $ 670 $ (1,526) $ (856) Original Limited Partner - - - Investor Limited Partners 66,370 (151,023) (84,653) $67,040 $(152,549) $(85,509) For the years ended December 31, 1995, 1994 and 1993, the per Unit net loss to the Investor Limited Partners for federal income tax purposes was $3.11, $17.48 and $6.82, respectively. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995 Costs Capitalized Subsequent to Initial Cost to Partnership Acquisition Buildings & Buildings & Depreciable Description Encumbrances Land Improvements Improvements Life Courtyards Village East Apartments Naperville, Illinois $ 3,309,098 $ 487,529 $ 6,486,198 $1,179,522 3 to 25 Years Nora Corners Shopping Center Indianapolis, Indiana 4,194,262 775,345 8,240,342 646,158 2 to 39 Years Windsor Apartments Garland, Texas 5,240,831 696,362 9,251,669 450,610 3 to 25 Years Total $12,744,191 $1,959,236 $23,978,209 $2,276,290 Gross Amounts Carried at End of Year Buildings Year and Accumulated Construction Date Description Land Improvements Total Depreciation Completed Acquired Courtyards Village East Apartments Naperville, Illinois $ 487,529 $ 7,665,720 $ 8,153,249 $ 4,206,015 1973 4/1/85 Nora Corners Shopping Center Indianapolis, Indiana 775,345 8,886,500 9,661,845 3,285,620 1985 9/24/86 Windsor Apartments Garland, Texas 696,362 9,702,279 10,398,641 5,315,586 1984 12/27/84 Total $1,959,236 $26,254,499 $28,213,735 $12,807,221 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) December 31, 1995 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1995: 1995 1994 1993 Real Estate Balance at beginning of year $27,951,394 $27,729,445 $35,690,227 Acquisition and improvements 262,341 221,949 333,791 Sales, foreclosure and retirements - - (8,294,573) Balance at end of year $28,213,735 $27,951,394 $27,729,445 1995 1994 1993 Accumulated Depreciation Balance at beginning of year $11,561,799 $10,333,495 $12,646,631 Depreciation expense 1,245,422 1,228,304 1,336,628 Sales, foreclosure and retirements - - (3,649,764) Balance at end of year $12,807,221 $11,561,799 $10,333,495 The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost of the Partnership's real estate for federal income tax purposes is $28,189,197 and the aggregate accumulated depreciation for federal income tax purposes is $16,943,630.