UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15815
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Krupp Insured Plus Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2915281
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 523-0066
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Depositary
Receipts representing Units of Limited Partner Interests.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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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 8-10.
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
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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 insured mortgage. 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, 2000, there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
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None.
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings to which the Partnership is a
party or to which any of its investments is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 2000 was approximately
5,800. 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 November 2000, the Partnership made a special distribution of $.33 per
Limited Partner interest from the principal proceeds and prepayment premium
received from the Chateau Bijou MBS.
During January 2000, the Partnership made a special distribution of $1.30 per
Limited Partner interest from the principal proceeds from the LaCosta PIM. The
Partnership may make special distributions in the future if MBS or 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,
2000 and 1999:
2000 1999
Amount Per Unit Amount Per Unit
Distributions:
Limited Partners $ 5,700,076 $ .76 $ 5,700,076 $ .76
General Partners 97,014 - 112,626 -
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5,797,090 5,812,702
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Special Distributions:
Limited Partners 12,225,162 $ 1.63 - -
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Total Distributions $ 18,022,252 $ 5,812,702
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ITEM 6. SELECTED FINANCIAL DATA
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The following table sets forth selected financial information regarding the
Partnership's financial position and operating results. This information should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements and
Supplementary Data, which are included in Item 7 and Item 8, (Appendix A) of
this report, respectively.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total revenues $ 3,587,833 $ 4,215,833 $ 4,823,813 $ 6,078,663 $ 7,216,716
Net income 3,038,185 3,610,232 4,171,014 4,743,768 5,329,348
Net income allocated to:
Limited Partners 2,947,039 3,501,925 4,045,884 4,601,455 5,169,468
Average Per Unit .39 .47 . 54 . 61 . 69
General Partners 91,146 108,307 125,130 142,313 159,880
Total assets at:
December 31 39,651,355 54,564,577 57,367,612 67,795,436 73,273,523
Distributions to:
Limited Partners 5,700,076 5,700,076 5,700,075 5,700,093 9,000,119
Average per Unit .76 .76 .76 .76 1.20
Special to
Limited Partners 12,225,162 - 8,400,111 4,575,060 16,500,218
Average per Unit 1.63 - 1.12 .61 2.20
General Partners 97,014 112,626 137,665 172,798 181,178
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Liquidity and Capital Resources
At December 31, 2000 the Partnership had liquidity consisting of cash and cash
equivalents of approximately $1.5 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.
The most significant demand on the Partnership's liquidity is quarterly
distributions paid to investors. 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 collections and cash reserves 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 have determined that the Partnership will adjust the current
distribution rate beginning with the distribution payable in February 2001 to
.10 per Limited Partner interest per quarter. This will result in a payment of
approximately $750,000 each quarter.
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.
The Partnership received a payoff from the Chateau Bijou MBS on September 19,
2000 for $2,266,064. During October the Partnership received a 9% prepayment
premium of $203,946 from this payoff. The Partnership paid a special
distribution in November of $.33 per Limited Partner interest from the proceeds
received.
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 as GNMA guaranteed those
payments to the Partnership. The Partnership did not receive any participation
interest as a result of this default. However, the Partnership received $10,000
from the Borrower to release the subordinated promissory note. This payment was
classified as Shared Appreciation Interest. On January 11, 2000, the Partnership
paid a special distribution to the investors of $1.30 per Limited Partner
interest.
In July 1997, the borrower on the Greentree PIM defaulted on the first mortgage
obligation. The Partnership continued to receive its full principal and basic
interest payments as GNMA guaranteed those payments. In March 1998, the GNMA
mortgagee 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. In July 1998, the Partnership
received $250,000.
The General Partners currently do not expect either of the remaining PIMs still
held in the Partnership's portfolio to pay off during 2001. 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 will receive basic interest-only payments on the
Fannie Mae MBS at the rate of 8.375% per annum during 2001. Thereafter, the
interest rate will range from 8.375% 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 2000. Although occupancy at
Royal Palm averaged in the low 90% range through 2000, 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 change the original participation terms and to
permanently reduce the rate on the Vista Montana first mortgage loan to 7.375%
per annum when construction was significantly delayed. The borrower also raised
additional equity at the time of the modification by selling investment tax
credits, that have been held in escrow and are used to fund operating deficits.
Although the property, located in a suburb of Phoenix, maintains occupancy in
the 90% range, revenues generally do not cover all operating and capital costs
and the shortfalls are covered by the escrow.
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 GNMA,
Fannie Mae, FHLMC or HUD and therefore the certainty of their cash flows and the
risk of material loss of the amounts invested depends on the creditworthiness of
these entities.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and is
wholly-owned by the twelve Federal Home Loan Banks. These obligations are not
guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA
guarantees the full and timely payment of principal and basic interest on the
securities it issues, which 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 $1.1 million
of commercial paper, which is issued by entities with a credit rating equal to
one of the top two rating categories of a nationally recognized statistical
rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
December 31, 2000, the Partnership's PIMs and MBS comprise the majority of the
Partnership's assets. As such decreases in interest rates may accelerate the
prepayment of the Partnership's investments. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the fund forecasts prepayments based on trends in similar
securities as reported by statistical reporting entities such as Bloomberg. For
PIMs, the Partnership incorporates prepayment assumptions into planning as
individual properties notify the Partnership of the intent to prepay or as they
mature.
The table below provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates ("WAIR") by expected maturity dates. The expected
maturity date is contractual maturity adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands)
2001 2002 2003 2004 2005 Thereafter Total Fair
Face Value
Value
Interest-sensitive assets:
MBS $ 478 $ 410 $ 358 $ 320 $ 292 $ 16,678 $ 18,536 $ 19,216
WAIR 8.58% 8.58% 8.58% 8.58% 8.58% 8.58%
PIMs 96 104 112 121 130 18,312 18,875 18,617
WAIR 7.67% 7.79% 7.79% 7.79% 7.72% 7.72%
------ ------ ------ ----- ------ ------------- ----------- ------------
Total Interest-
sensitive assets $ 574 $ 514 $ 470 $ 441 $ 422 $ 34,990 $ 37,411 $ 37,833
======= ====== ====== ===== ====== ============= =========== ============
Results of Operations
The following discussion relates to the operation of the Partnership during the
years ended December 31, 2000, 1999 and 1998.
(Amounts in thousands)
2000 1999 1998
---- ---- ----
Interest income on PIMs:
Basic interest $ 1,423 $ 2,085 $ 2,257
Participation interest 214 - 250
Interest income on MBS 1,702 1,900 2,048
Other interest income 249 231 268
Partnership expenses (449) (505) (551)
Amortization of prepaid fees
and expenses (101) (101) (101)
------- -------- --------
Net income $ 3,038 $ 3,610 $ 4,171
======= ======== ========
Net income decreased for 2000 when compared with 1999 due primarily to the
decrease in interest income on PIMs and MBS. Basic interest on PIMs decreased in
2000 as compared to 1999 due primarily to the repayment of the LaCosta PIM in
December 1999. MBS interest income decreased in 2000 as compared to 1999
primarily due to principal collections received on the remaining MBS investments
and the Chateau Bijou payoff in September 2000. Participation interest increased
in 2000 compared with 1999 due to the Chateau Bijou prepayment premium and
Shared Appreciation Interest from the LaCosta payoff received in 2000. Expenses
decreased in 2000 as compared with 1999 due primarily to lower asset management
fees caused by a declining asset base.
Net income decreased in 1999 as compared to 1998 due primarily to decreases in
interest income on PIMs and MBS. Basic interest on PIMs decreased in 1999 as
compared to 1998, primarily as a result of the repayment of the Greentree PIM
in March 1998. Participation interest on PIMs in 1998 was a result of the
Greentree payoff. Interest income on MBS declined when comparing 1999 to 1998,
due to principal collections reducing the outstanding MBS portfolio.
Partnership expenses decreased in 1999 as compared to 1998 primarily due to
lower asset management fees caused by a declining asset base.
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
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None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------
The Partnership has no directors or executive officers. Information as to the
directors and executive officers of 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:
Position with
Name and Age The Krupp Corporation
Douglas Krupp (54) Co-Chairman, President and Director
George Krupp (56) Co-Chairman, President and Director
Robert A. Barrows (43) 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. He is a graduate of Bryant College where he
received an honorary Doctor of Science in Business Administration in 1989.
George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group, an
integrated real estate financial services firm engaged in real estate
acquisitions, property management, investment sponsorship, venture capital
investing, mortgage banking and financial management, and ownership of three
operating companies through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish
High School in Waltham, Massachusetts since September of 1997. Mr. Krupp
attended the University of Pennsylvania and Harvard University and holds a
Master's Degree in History from Brown University. Douglas and George Krupp are
brothers.
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
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The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------
As of December 31, 2000 no person 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, 2000 the
Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 9th day of March,
2001.
KRUPP INSURED 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, 2001.
Signatures Title(s)
- ---------- --------
/s/ Douglas Krupp Co-Chairman (Principal Executive Officer),
- ----------------------------- President and Director of The Krupp Corporation,
Douglas Krupp a General Partner of the Registrant.
/s/ George Krupp Co-Chairman (Principal Executive Officer)
- ----------------------------- and Director of The Krupp Corporation,
George Krupp a General Partner of the Registrant
/s/ Robert A. Barrows Vice President and Chief Accounting Officer
- ----------------------------- of The Krupp Corporation,
Robert A. Barrows 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, 2000
KRUPP INSURED PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 2000 and 1999 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 2000, 1999 and 1998 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 2000, 1999 and 1998 F-6
Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998 F-7
Notes to Financial Statements F-8 - F-15
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 financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Krupp
Insured Plus Limited Partnership (the "Partnership") at December 31, 2000 and
1999 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 23, 2001
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
---- ----
Participating Insured Mortgages
("PIMs") (Notes B, C and H) $ 18,875,248 $ 19,032,999
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, D and H) 18,864,480 21,918,397
------------- -------------
Total mortgage investments 37,739,728 40,951,396
Cash and cash equivalents (Notes B, C and H) 1,460,786 13,002,087
Interest receivable and other assets 260,797 319,994
Prepaid acquisition fees and expenses, net of
accumulated amortization of $725,937 and
$657,985, respectively (Note B) 118,315 186,267
Prepaid participation servicing fees, net of
accumulated amortization of $259,323 and
$226,219, respectively (Note B) 71,729 104,833
------------- -------------
Total assets $ 39,651,355 $ 54,564,577
============= ==============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 17,650 $ 19,550
------------- -------------
Partners' equity (deficit) (Notes A, C and E):
Limited Partners 39,544,329 54,522,528
(7,500,099 Limited Partner interests
outstanding)
General Partners (247,215) (241,347)
Accumulated Comprehensive Income (Note B) 336,591 263,846
------------- -------------
Total Partners' equity 39,633,705 54,545,027
------------- -------------
Total liabilities and Partners' equity $ 39,651,355 $ 54,564,577
============= =============
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, 2000, 1999 and 1998
2000 1999 1998
---------------- ---------------- -----------------
Revenues:
Interest income - PIMs
Basic interest $ 1,422,912 $ 2,085,273 $ 2,257,069
Participation interest 213,946 - 250,000
Interest income - MBS 1,701,993 1,899,734 2,048,263
Other interest income 248,982 230,826 268,481
------------ ------------ ------------
Total revenues 3,587,833 4,215,833 4,823,813
------------ ------------ ------------
Expenses:
Asset management fee to an affiliate (Note F) 295,192 376,755 407,132
Expense reimbursements to affiliates (Note F) 56,015 42,279 27,413
Amortization of prepaid fees and expenses (Note B) 101,056 101,059 101,057
General and administrative 97,385 85,508 117,197
------------ ------------ ------------
Total expenses 549,648 605,601 652,799
------------ ------------ ------------
Net income (Note G) 3,038,185 3,610,232 4,171,014
Other Comprehensive Income:
Net change in unrealized gain on MBS 72,745 (599,917) (360,068)
------------ ------------ ------------
Total Comprehensive Income $ 3,110,930 $ 3,010,315 $ 3,810,946
============ ============ ============
Allocation of net income (Notes E and G):
Limited Partners $ 2,947,039 $ 3,501,925 $ 4,045,884
============ ============ ============
Average net income per Limited Partner Interest $ .39 $ .47 $ .54
============ ============ ============
(7,500,099 Limited Partner interests outstanding)
General Partners $ 91,146 $ 108,307 $ 125,130
============ ============ =============
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, 2000, 1999 and 1998
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
------------- ---------- ------------ ------------
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
Net income 2,947,039 91,146 - 3,038,185
Quarterly distributions (5,700,076) (97,014) - (5,797,090)
Special distributions (12,225,162) - - (12,225,162)
Change in unrealized gain
on MBS - - 72,745 72,745
------------- ---------- ------------ -------------
Balance at December 31, 2000 $ 39,544,329 $ (247,215) $ 336,591 $ 39,633,705
============= ========== ============ =============
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, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Operating activities:
Net income $ 3,038,185 $ 3,610,232 $ 4,171,014
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 101,056 101,059 101,057
Shared Appreciation Interest and prepayment premiums (213,946) - (250,000)
Premium amortization 52,528 6,630 -
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 59,197 47,786 166,398
Decrease in liabilities (1,900) (648) (919)
------------ ------------ -----------
Net cash provided by operating activities 3,035,120 3,765,059 4,187,550
------------ ------------ -----------
Investing activities:
Principal collections and prepayments on PIMs
including Shared Appreciation Interest of $10,000 in 2000
and a prepayment premium of $250,000 in 1998. 167,751 10,041,106 8,945,730
Principal collections on MBS including a prepayment premium
of $203,946 in 2000 3,278,080 1,355,494 1,657,086
------------ ------------ -----------
Net cash provided by investing activities 3,445,831 11,396,600 10,602,816
------------ ------------ -----------
Financing activities:
Quarterly distributions (5,797,090) (5,812,702) (5,837,740)
Special distributions (12,225,162) - (8,400,111)
------------ ------------ ------------
Net cash used for financing activities (18,022,252) (5,812,702) (14,237,851)
------------ ------------- -----------
Net increase (decrease) in cash and cash equivalents (11,541,301) 9,348,957 552,515
Cash and cash equivalents, beginning of period 13,002,087 3,653,130 3,100,615
------------ ------------- -----------
Cash and cash equivalents, end of period $ 1,460,786 $ 13,002,087 $ 3,653,130
============ ============= ============
Non cash activities:
Increase (decrease) in Fair Value of MBS $ 72,745 $ (599,917) $ (360,068)
============ ============= ============
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 Corporation 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):
Basis of Presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
MBS
The Partnership, in accordance with Financial Accounting Standards
Board's Statement 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115), classifies its MBS portfolio as
available-for-sale. As such the Partnership carries its MBS at fair
market value and reflects any unrealized gains (losses) as a separate
component of Partners' Equity. The Partnership amortizes purchase
premiums or discounts over the life of the underlying mortgages using
the effective interest method.
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 it is 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.
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.
Upon the repayment of a PIM, any unamortized acquisition fees and
expenses and unamortized participation servicing fees related to such
loan are expensed.
Income Taxes
The Partnership is not liable for federal or state income taxes 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, 2000 and 1999, the Partnership had investments in two
PIMs. The Partnership's PIMs consist of either a Fannie Mae MBS
representing the securitized first mortgage loan on the underlying
property or a sole participation interest in a first mortgage loan
originated under the FHA lending program on the underlying property
(collectively the "insured mortgages"). The Partnership also has
participation interests in the revenue stream and appreciation of the
underlying properties above specified thresholds. The borrower conveys
these participation features to the Partnership generally through a
subordinated promissory note and mortgage (the "Agreement").
The Partnership receives monthly payments of principal and basic
interest that are guaranteed by Fannie Mae on the MBS and insured by HUD
on 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, limited to the extent that it exceeds the
amount of Minimum Additional Interest earned during such month or 25% of
distributable surplus cash and (iii) "Shared Appreciation Interest"
which is 30% of any increase in the value of the underlying property in
excess of a specified base or 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 over certain
thresholds.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
Shared Appreciation Interest is payable when one of the following
occurs: (1) the sale of the underlying property to an unrelated third
party on a date which is later than five years from the date of the
Agreement, (2) the maturity date or accelerated maturity date of the
Agreement, or (3) prepayment of amounts due under the Agreement and the
insured mortgage.
The 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, upon giving twelve months written notice, the
Partnership 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. Subsequent to the payoff, the
Partnership received $10,000 from the Borrower to release the
Subordinated Promissory Note. This payment has been classified as Shared
Appreciation Interest. 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. However, the Partnership continued to receive its
full principal and basic interest payments as 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, 2000 and 1999 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, 2000
and 1999:
Approximate
Original Interest Maturity Monthly Investment Basis at
PIMs Face Amount Rates (a) Dates Payment December 31,
- ---- ----------- --------- ----------- ----------- -------------------------------------------
2000 1999
FHA
Vista Montana
Apts.
Val Vista Lakes, Az. 13,814,400 7.375% 12/1/33 90,000 $ 13,311,717 $13,400,589
(b)
Fannie Mae
Royal Palm Place
Kendall, Fl. 6,021,258 7.875% 4/1/06 37,000 5,563,531 5,632,410
------------ ------------
(c) (d)
------------
$19,835,658 $ 18,875,248 $ 19,032,999
============ ============= ============
(e)
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
C. PIMs, continued
(a) Represents only the stated interest rate of the Fannie Mae 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 Interest 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 Interest 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 Fannie
Mae MBS at interest rates ranging from 8.375% to 8.775% per annum through
maturity.
(e) The aggregate cost of PIMs for federal income tax purposes is $18,875,248.
A reconciliation of the carrying value of Mortgages for each of the three years
in the period ended December 31, 2000 is as follows:
2000 1999 1998
---- ---- ----
Balance at beginning of period $ 19,032,999 $ 29,074,105 $ 37,769,835
Deductions during period:
Prepayment and principal collections (157,751) (10,041,106) (8,695,730)
------------- --------------- --------------
Balance at end of period $ 18,875,248 $ 19,032,999 $ 29,074,105
============= ============== ==============
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in two states. The apartment complexes range
in size from 341 to 377 units.
D. MBS
---
The Partnership received a payoff from the Chateau Bijou MBS on September
19, 2000 for $2,266,064. During October, the Partnership received a 9%
prepayment premium of $203,946 from this payoff. The Partnership paid a
special distribution in November of $.33 per Limited Partner interest from
the proceeds received.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
D. MBS, continued
---
At December 31, 2000, the Partnership's MBS portfolio had an amortized
cost of $9,458,992 and gross unrealized gains and losses of $338,073 and
$1,482 respectively. At December 31, 2000, the Partnership's insured
mortgage had an amortized cost of $9,068,897 and an unrealized gain of
$351,420. 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, 1999, the Partnership's
insured mortgage had an amortized cost of $9,113,516 and an unrealized
gain of $325,444. The portfolio has maturities ranging from 2006 to 2032.
Unrealized
Maturity Date Fair Value Gain/(Loss)
------------- ---------- ----------
2001 - 2005 $ - $ -
2006 - 2010 672,072 37,196
2011 - 2032 18,543,828 650,815
------------- ------------
Total $ 19,215,900 $ 688,011
============= ===========
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 2000, 1999 and 1998, the Partnership made quarterly distributions
totaling $.76 per Unit annually. The Partnership made special
distributions of $1.63 and $1.12 per Unit in 2000 and 1998, respectively.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
E. Partners' Equity, continued
As of December 31, 2000, the following cumulative partner contributions
and allocations have been made since inception of the Partnership:
Corporate Accumulated
Limited General Comprehensive
Unitholders Partner Partners Income Total
---------------- ----------- --------------- ---------------- -------------------
Capital $ 149,489,830 $ 2,000 $ 3,000 $ - $ 149,494,830
contributions
Syndication (7,906,604) - - - (7,906,604)
costs
Quarterly
distributions (123,236,046) (1,687) (2,849,628) - (126,087,361)
Special
distributions (62,849,973) (838) - - (62,850,811)
Net income 84,046,517 1,130 2,599,413 - 86,647,060
Unrealized
gains on MBS - - - 336,591 336,591
---------------- ------------ --------------- --------------- ------------------
Balance at
December 31, 2000 $ 39,543,724 $ 605 $ (247,215) $ 336,591 $ 39,633,705
================ ============ =============== =============== ==================
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, the preparation and mailing of
financial reports, tax information and other communications to investors
and legal fees and expenses.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
G. Federal Income Taxes
The reconciliation of the net income reported in the accompanying
statement of income with the net income reported in the Partnership's
2000 federal income tax return is as follows:
Net income from statement of operations $ 3,038,185
Add: Book to tax difference due to timing of
income recognition 277
Add: Book to tax difference for amortization of
prepaid fees and expenses 72,380
--------------
Net income for federal income tax purposes $ 3,110,842
=============
The allocation of the 2000 net income for federal income tax purposes is
as follows:
Portfolio
Income
Unitholders $ 3,023,895
Corporate Limited Partner 40
General Partners 86,907
------------- -
$ 3,110,842
For the years ended December 31, 2000, 1999 and 1998 the average per
unit net income to the Unitholders for federal income tax purposes was
$.40, $.40 and $.48, respectively.
The basis of the Partnership's assets for financial reporting purposes
is less than its tax basis by approximately $343,000 and $343,000 at
December 31, 2000 and 1999, respectively. The basis of the Partnership's
liabilities for financial reporting purposes are the same as its tax
basis at December 31, 2000 and 1999, respectively.
H. Fair Value 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.
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 $689,000 and $1,000 at December 31, 2000 and $591,000
and $2,000 at December 31, 1999.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
H. Fair Value Disclosures of Financial Instruments, continued
-----------------------------------------------
PIMs
As there is no active trading market for these investments, management
estimates the fair value of the PIMs using quoted market prices of MBS
having a similar interest rate. Management does not include any
participation interest in the Partnership's estimated fair value arising
from the properties, as Management does not believe it can predict the
time of realization of the feature with any certainty. Based on the
estimated fair value determined using these methods and assumptions, the
Partnership's investments in PIMs had gross unrealized gains and losses
of approximately $42,000 and $300,000 at December 31, 2000, and gross
unrealized losses of approximately $409,000 at December 31, 1999.
At December 31, 2000 and 1999, the Partnership estimates the fair value
of its financial instruments as follows (amounts rounded to the nearest
thousand):
2000 1999
----- -----
Fair Carrying Fair Carrying
Value Value Value Value
----------- ----------- --------- ---------
Cash and cash equivalents $ 1,461 $ 1,461 $ 13,002 $ 13,002
MBS and insured mortgage 19,216 18,864 22,244 21,918
PIMs 18,617 18,875 18,624 19,033
---------- ---------- --------- =========
$ 39,294 $ 39,200 $ 53,870 $ 53,953
========== ========== ========= =========
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,
2000 and the period from inception through December 31, 2000. The General
Partners provide certain of the information below to meet requirements of the
Partnership Agreement and because they believe that it is an appropriate
supplemental measure of operating performance. However, Distributable Cash Flow
and Net Cash Proceeds from Capital Transactions should not be considered by the
reader as a substitute to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.
Year Inception
Ended Through
12/31/00 12/31/00
(Amounts in thousands, except per Unit amounts)
Distributable Cash Flow:
- -----------------------
Income for tax purposes $ 3,111 $ 87,327
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid fees and expenses 29 7,700
Shared Appreciation Interest and prepayment premiums (214) (716)
Amortization of MBS premiums 53 453
Acquisition expenses paid from offering proceeds
charged to operations - 1,098
Gain on sale of MBS - (114)
--------- ---------- -
Total Distributable Cash Flow ("DCF") $ 2,979 $ 95,748
========== ===========
Limited Partners Share of DCF $ 2,890 $ 92,876
========= ===========
Limited Partners Share of DCF per Unit $ 0.38 $ 12.38(c)
========= ===========
General Partners Share of DCF $ 89 $ 2,872
========= ==========
Net Proceeds from Capital Transactions:
- --------------------------------------
Insurance claim proceeds, prepayment proceeds and PIM
principal collections including Shared Appreciation
Interest and prepayment premiums $ 168 $ 87,357
Principal collections on MBS including prepayment premiums 3,278 48,267
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 $ 3,446 $ 94,963
========= ===========
Cash available for distribution
(DCF plus Proceeds from Capital Transactions) $ 6,425 $ 190,711
========= ===========
Distributions:
- -------------
Limited Partners $ 7,501(a) $ 186,839(b)
========= ==========
Limited Partners Average per Unit $ 1.00(a) $ 24.91(b)(c)
========= =========
General Partners $ 92(a) $ 2,872(b)
========= ==========
Total Distributions $ 7,593 $ 189,711
========= ===========
(a) Represents all distributions paid in 2000 except the January 2000
special distribution and the February 2000 quarterly distribution and
includes an estimate of the quarterly distribution to be paid in
February 2001.
(b) Includes an estimate of the quarterly distribution to be paid in
February 2001.
(c) Limited Partners average per Unit return of capital as of February
2001 is $12.53 [$24.91- $12.38]. 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.