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 SECURITIESx 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 0-15815 Krupp Insured Plus Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-2915281 (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 Depositary Receipts representing Units of Limited Partner Interests Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of voting securities held by non-affiliates: Not applicable. Documents incorporated by reference: See Part IV Item 14. The exhibit index is located on pages 9-13. PART I ITEM 1. BUSINESS On December 20, 1985, The Krupp Corporation and The Krupp Company Limited Partnership-IV (the "General Partners") formed Krupp Insured Plus Limited Partnership (the "Partnership"), a Massachusetts Limited Partnership. The Partnership raised approximately $149 million through a public offering of limited partner interests evidenced by units of depositary receipts ("Units") and used the net proceeds primarily to acquire participating insured mortgages ("PIMs") and mortgage backed securities ("MBS"). The Partnership considers itself to be engaged in the industry segment of investment in mortgages. The Partnership's investments in PIMs consist of a securitized first mortgage loan or a sole participation interest in a Department of Housing and Urban Development ("HUD") 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 programs of the Federal National Mortgage Association ("FNMA") or Government National Mortgage Association ("GNMA"), 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 received 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, which provided the borrower with a below market interest rate on the first mortgage loan. The borrower conveyed the participation interests to the Partnership through either a subordinated promissory note and mortgage or a shared income and appreciation agreement. FNMA guarantees the principal and interest payments for the FNMA MBS and GNMA guarantees the timely payment of principal and interest for the GNMA MBS. HUD insures the first mortgage loan underlying the GNMA MBS and any 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 GNMA, FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC guarantee the principal and basic interest of these FNMA and FHLMC MBS, respectively. GNMA guarantees the timely payment of principal and interest of GNMA MBS, and HUD insures the pooled first 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 as early as ten years from the closing dates of the permanent loans. In addition, the Partnership expects to receive a significant portion of the value of its MBS within a ten year holding period. Therefore, dissolution of the Partnership should occur significantly prior to December 31, 2025, the stated termination date of the Partnership. 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 anticipates no adverse effect in the future. As of December 31, 1995, there were no personnel directly employed by the Partnership. ITEM 2. PROPERTIES None. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or to which any of its investments is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK- HOLDER MATTERS There currently is no established trading market for the Units. The number of investors holding Units as of December 31, 1995 was approximately 7,100. One of the objectives of the Partnership is to provide quarterly distributions of cash flow generated by its investments in mortgages. The Partnership 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 1994, the Partnership made a special distribution consisting primarily of principal collections on MBS. The Partnership may make special distributions in the future if PIMs prepay or a sufficient amount of cash is available from MBS and PIM principal collections. The Partnership made the following distributions, in quarterly installments, and special distributions, to its Partners during the two years ended December 31, 1995 and 1994: 1995 1994 Amount Per Unit Amount Per Unit Quarterly Distributions: Limited Partners $9,000,119 $1.20 $ 9,554,686 $1.28 General Partners 187,157 192,551 9,187,276 9,747,237 Special Distributions: Limited Partners - 7,950,105 $1.06 Total Distributions $9,187,276 $17,697,342 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Supplementary Data, which are included in Item 7 and Item 8, (Appendix A) of this report, respectively. 1995 1994 1993 1992 1991 Total revenues $ 7,097,154 $ 7,688,593 $ 7,698,364 $ 8,697,559 $ 9,616,484 Net income 5,247,543 5,682,819 5,642,527 5,413,709 7,719,518 Net income allocated to: Limited Partners 5,090,117 5,512,334 5,473,251 5,251,298 7,487,932 Average Per Unit .68 .73 .73 .70 1.00 General Partners 157,426 170,485 169,276 162,411 231,586 Total assets at December 31 93,784,033 96,561,305 108,566,470 117,967,380 131,567,597 Distributions to: Limited Partners 9,000,119 9,554,686 9,873,378 10,509,149 10,650,140 Quarterly Average per Unit 1.20 1.28 1.32 1.40 1.42 Special - 7,950,105 4,950,065 8,250,090 - Average per Unit - 1.06 .66 1.10 - General Partners 187,157 192,551 203,481 228,198 260,279 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The most significant demands on the Partnership's liquidity are regular quarterly distributions paid to investors of approximately $2.3 million. Funds used for investor distributions come from interest received on the PIMs, MBS, cash and cash equivalents and the principal collections received on the PIMs and MBS and cash reserves. The Partnership funds a portion of the distribution from principal collections and as a result the capital resources of the Partnership will continually decrease. As a result of this decrease, the total cash inflows to the Partnership will also decrease which will result in periodic adjustments to the quarterly distributions paid to investors. During the last half of 1994 and the first nine months of 1995 prepayments on the Partnership's MBS portfolio decreased dramatically as compared to the level of prepayments during 1993 and the beginning of 1994. The high level of MBS prepayments during 1993 and early 1994 caused such an increase in available cash that the Partnership made a special distribution of $1.06 per Unit during 1994. Also during 1994, the Partnership adjusted its distribution to $1.20 per Unit per year to reflect the anticipated cash inflows that would be available to fund distributions in the near term. During the year ended December 31, 1995, the Partnership received MBS principal collections of approximately $1.8 million as compared to $5 million during 1994, reflecting a significantly lower level of prepayments. To date, this decrease in MBS principal collections has not adversely affected the Partnership's liquidity or its ability to maintain the current distribution rate of $1.20 per Unit per year. However, as the portion of distributions funded with principal collections on MBS and PIMs reduces the asset base of the Partnership, future cash inflows will decrease. The General Partners periodically review the distribution rate to determine whether an adjustment to the distribution rate 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 of cash available for distribution. To the extent quarterly distributions do not fully utilize the cash available for distribution and cash balances increase, the General Partners may adjust the distribution rate or distribute such funds through a special distribution. During December 1995, the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Federal National Mortgage Association ("FNMA") mortgage-backed security ("MBS") and increased its participation percentage in income and appreciation from 25% to 30%. During December 1995, the Partnership received its pro-rata share of a $90,644 principal payment and will receive interest only payments on the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum through maturity. Also, the Partnership will receive its pro-rata share of the $250,000 principal payments due on December 1 of each of the next four years. As a result of the modification, the Royal Palm PIM will continue to provide the Partnership with a competitive yield, potential participation in future income and appreciation, and principal and interest from the FNMA MBS will continue to be guaranteed by FNMA. For the first five years of the PIMs the borrowers are prohibited from repaying. For the second five years, the borrower can repay the loans incurring a prepayment penalty. The Partnership has the option to call certain PIMs by accelerating their maturity, if the loans 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 this decision. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by FNMA, the Government National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the Department of Housing and Urban Development ("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. FNMA 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. 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, 1995 and the period from inception through 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, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. (Amounts in thousands, except per Unit amounts) Year Inception Ended Through 12/31/95 12/31/95 Distributable Cash Flow: Income for tax purposes $ 6,072 $ 67,096 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid fees and expenses 134 4,761 Amortization of MBS premiums - 284 Acquisition expenses paid from offering proceeds charged to operations - 1,098 Gain on sale of MBS - (114) Total Distributable Cash Flow ("DCF") $ 6,206 $ 73,125 Limited Partners Share of DCF $ 6,020 $ 70,931 Limited Partners Share of DCF per Unit $ .80 $ 9.46 (c) General Partners Share of DCF $ 186 $ 2,194 Net Proceeds from Capital Transactions: Insurance claim proceeds and principal collections on PIMs $ 549 $ 46,432 Principal collections on MBS 1,785 38,787 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 $ 2,334 $ 44,558 Cash available for distribution (DCF plus Net Proceeds from Capital Transactions) $ 8,540 $117,683 Distributions: (includes special distributions) Limited Partners $ 9,000 (a) $114,837 (b) Limited Partners Average per Unit $ 1.20 (a) $ 15.31 (b)(c) General Partners 186 (a) 2,194 (b) Total Distributions $ 9,186 $117,031 (a) Represents all distributions paid in 1995 except the February 1995 distribution and includes an estimate of the distribution to be paid in February 1996. (b) Includes an estimate of the distribution to be paid in February 1996. (c) Limited Partners average per Unit return of capital as of February 1996 is $5.85 [$15.31 - $9.46]. 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. Operations The following discussion relates to the operation of the Partnership during the years ended December 31, 1995, 1994 and 1993. (Amounts in thousands) 1995 1994 1993 Interest income on PIMs $ 4,471 $ 4,515 $ 4,350 Interest income on MBS 2,473 2,662 3,097 Other interest income 153 262 307 Partnership expenses (891) (1,048) (1,128) Distributable Cash Flow 6,206 6,391 6,626 Participation income receivable - 265 - Amortization of MBS premium - (15) (55) Amortization of prepaid fees and expenses (958) (958) (928) Net income $ 5,248 $ 5,683 $ 5,643 Net income decreased approximately $435,000 in 1995 as compared to 1994 due primarily to lower participation income accrued in 1995, interest income on MBS, and interest income on cash and short-term investments. In general, the income generated by the Partnership's invested assets will decrease in the future as its investments in mortgages amortize and principal proceeds are distributed to investors through quarterly or special distributions. The decline in interest income on MBS from 1994 to 1995 decreased as compared to the decline from 1993 to 1994 due to a lower rate of prepayments on the MBS portfolio during the last half of 1994 and 1995. Net income for 1994 did not change significantly from 1993. Interest income related to PIMs increased approximately $430,000 in 1994 as compared to 1993 as a result of participation income recognized in 1994 and a retroactive interest rate reduction in 1993 that lowered interest income on PIMs in 1993. In November 1993, the Partnership entered into an agreement with the borrower of the FHA PIM reducing the interest rate from 8.875% to 7.375% per annum retroactive to January 1, 1992, which reduced interest income on PIMs in 1993. Interest income on MBS decreased approximately $450,000 in 1994 as compared to 1993 due primarily to significant prepayments of the underlying mortgages as a result of refinancings due to lower interest rates. During 1994, the Partnership's expenses decreased approximately $80,000 as compared to 1993 as a result of lower asset management fees and expense reimbursements to affiliates. The asset management fee will continue to decline as the asset base of the Partnership decreases. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of the Partnership and is a 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 (49) Co-Chairman of the Board George Krupp (51) Co-Chairman of the Board Laurence Gerber (39) President Robert A. Barrows (38) Vice President and Chief Accounting Officer 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 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 the more than $3 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 Director of Berkshire Realty Company, Inc. (NYSE- BRI). 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 $3.0 billion under management for institutional and individual clients. Mr. Krupp attended the University of Pennsylvania and Harvard University. Mr. Krupp serves as Chairman of the Board and Trustee of Krupp Government Income Trust II and Krupp Government Income Trust. 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 a Director of Berkshire Realty Company, Inc. (NYSE-BRI), and President and Trustee of Krupp Government Income Trust and Krupp Government Income Trust II. Robert A. Barrows is Senior Vice President and Chief Financial Officer of Berkshire Mortgage Finance 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 7,499,999 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: La Costa Apartments (10.1) Prospectus for GNMA Pool No. 168416 (PL). [Exhibit 19.1 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].* (10.2) Shared Income and Appreciation Agreement, dated March 18, 1987 between International Plaza Associates, Ltd., A Florida limited partnership, and DRG Funding Corporation, a Delaware corporation. [Exhibit 19.2 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].* (10.3) Multifamily Mortgage, Assignment of Rents and Security Agreement, dated March 18, 1987 between International Plaza Associates, Ltd., a Florida limited partnership, and DRG Funding Corporation, a Delaware corporation. [Exhibit 19.3 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].* (10.4) Assignment of Mortgage, dated March 18, 1987, between DRG Funding Corporation, a Delaware corporation, (Mortgagee) and Krupp Insured Plus Limited Partnership, a Massachusetts limited partnership, (Assignee). [Exhibit 19.4 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].* Mandalay Apartments (10.5) Prospectus for GNMA Pool No. 228812 (PL). [Exhibit 1 to Registrant's Report on Form 8-K dated August 11, 1987 (File No. 0-15815)].* (10.6) Shared Income and Appreciation Agreement, dated July 1, 1987, between First Florida Bank, N.A., as Trustee under Trust No. 48-1990-00 and DRG Funding Corporation. [Exhibit 2 to Registrant's Report on Form 8-K dated August 11, 1987 (File No. 0-15815)].* (10.7) Assignment of Mortgage, dated July 1, 1987, between DRG Funding Corporation (as "Mortgagee") and Krupp Insured Plus Limited Partnership (as "Assignee"). [Exhibit 3 to Registrant's Report on Form 8-K dated August 11, 1987 (File No. 0-15815)].* Greentree Apartments (10.8) Prospectus for GNMA Pool No. 238744-(PL). [Exhibit 1 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].* (10.9) Mortgage Note, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 2 to Registrant's Report on Form 8-K dated December 10, 1987 (File No.0-15815)].* (10.10) Mortgage, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 3 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].* (10.11) Shared Income and Appreciation Agreement, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 4 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].* (10.12) Assignment of Shared Income and Appreciation Agreement, dated October 22, 1987, between DRG Funding Corporation and Krupp Insured Plus Limited Partnership (as "Assignee"). [Exhibit 5 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].* (10.13) Multifamily Mortgage, Assignment of Rents and Security Agreement, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 6 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].* (10.14) Assignment of Mortgage (the Multifamily Mortgage, Assignment of Rents and Security Agreement), dated November 23, 1987, between DRG Funding Corporation (as "Mortgagee") and Krupp Insured Plus Limited Partnership (as "Assignee"). [Exhibit 7 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].* Pine Hills Apartments (10.15) Prospectus for GNMA Pool No. 238825-(PL). [Exhibit 10.27 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0-15815)].* (10.16) Subordinated Promissory Note, dated November 20, 1987, between Pine Hill Partners ("Maker" or "Mortgagor") and York Associates, Inc., ("Holder" or "First-Mortgagee") as assigned to Krupp Insured Plus Limited Partnership. [Exhibit 10.28 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0-15815)].* (10.17) Subordinated Multifamily Mortgage, Assignment of Rents and Security Agreement, dated November 20, 1987, between Pine Hill Partners ("Borrower") and York Associates, Inc., ("Lender"). [Exhibit 10.29 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0-15815)].* (10.18) Assignment of Subordinated Mortgage, dated November 23, 1987 between York Associates, Inc., ("Assignor") and Krupp Insured Plus Limited Partnership ("Assignee"). [Exhibit 10.30 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0-15815)].* (10.19) Modification to the loan and participation workout agreement, dated March 31, 1992, by and between Krupp Insured Plus Limited Partnership and Pine Hill Partners. [Exhibit 10.19 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-15815)].* Vista Montana (10.20) 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)].* (10.21) 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)].* (10.22) 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)].* (10.23) 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)].* (10.24) 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)].* (10.25) 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)].* (10.26) 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)].* (10.27) 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)].* (10.28) 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)].* (10.29) 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 (10.30) Supplement to Prospectus for FNMA Pool No. MB-109057.+ (10.31) 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)].* (10.32) 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").+ (10.33) 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)].* (10.34) 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. + Filed herein. (c) Reports on Form 8-K During the last quarter of the year ended December 31, 1995 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 26th day of February, 1996. KRUPP INSURED PLUS LIMITED PARTNERSHIP By: The Krupp Corporation, a General Partner By: /s/ George Krupp George 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 26th day of February, 1996. Signatures Title(s) /s/ Douglas Krupp Co-Chairman (Principal Executive Officer) Douglas Krupp and Director of The Krupp Corporation, a General Partner of the Registrant. /s/George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of The Krupp Corporation, a General Partner of the Registrant. /s/Laurence Gerber President of The Krupp Corporation, a Laurence Gerber General Partner of the Registrant. /s/ Robert A. Barrows Vice President and Chief Accounting Robert A. Barrows Officer of The Krupp Corporation, a General Partner of the Registrant. APPENDIX A KRUPP INSURED PLUS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 of FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1995 KRUPP INSURED PLUS LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Report of Independent Accountants F-3 Balance Sheets at December 31, 1995 and 1994 F-4 Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 F-5 Statements of Changes in Partners' Equity for the Years Ended December 31, 1995, 1994 and 1993 F-6 Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-7 Notes to Financial Statements F-8 - F-14 Schedule IV - Mortgage Loans on Real Estate F-15 - F-16 All other schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Insured Plus Limited Partnership: We have audited the financial statements and the financial statement schedule of Krupp Insured Plus Limited Partnership (the "Partnership") listed in the index on page F-2 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. 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 financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Krupp Insured Plus Limited Partnership 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 financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Boston, Massachusetts January 27, 1996 KRUPP INSURED PLUS LIMITED PARTNERSHIP BALANCE SHEETS December 31, 1995 and 1994 ASSETS 1995 1994 Participating Insured Mortgages ("PIMs") (Notes B, C and H) $ 59,289,135 $ 59,837,946 Mortgage-Backed Securities and insured mortgage ("MBS") (Notes B, D and H) 29,026,838 29,648,678 Total mortgage investments 88,315,973 89,486,624 Cash and cash equivalents (Notes B and H) 2,394,592 2,931,523 Interest receivable and other assets 871,942 983,130 Prepaid acquisition fees and expenses, net of accumulated amortization of $4,423,897 and $3,658,625, respectively (Note B) 1,696,611 2,461,883 Prepaid participation servicing fees, net of accumulated amortization of $1,895,084 and $1,701,854, respectively (Note B) 504,915 698,145 Total assets $ 93,784,033 $ 96,561,305 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 14,454 $ 14,734 Partners' equity (deficit) (Notes A and E): Limited Partners 92,779,548 96,689,550 (7,500,099 Limited Partner interests outstanding) General Partners (172,710) (142,979) Unrealized gain on MBS (Note B) 1,162,741 - Total Partners' equity 93,769,579 96,546,571 Total liabilities and Partners' equity $ 93,784,033 $ 96,561,305 The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF INCOME For the Years Ended December 31, 1995, 1994 and 1993 1995 1994 1993 Revenues: Interest income - PIMs Base interest $4,470,937 $4,517,722 $4,349,745 Participation Income - 262,069 - Interest income - MBS 2,472,826 2,647,031 3,097,129 Other interest income 153,391 261,771 251,490 Total revenues 7,097,154 7,688,593 7,698,364 Expenses: Asset management fee to an affiliate (Note F) 665,051 686,828 751,490 Expense reimbursements to affiliates (Note F) 107,019 222,785 244,702 Amortization of prepaid expenses and fees (Note B) 958,502 958,502 928,187 General and administrative expenses 119,039 137,659 131,458 Total expenses 1,849,611 2,005,774 2,055,837 Net income (Note G) $5,247,543 $5,682,819 $5,642,527 Allocation of net income (Note E): Limited Partners $5,090,117 $5,512,334 $5,473,251 Average net income per Limited Partner interest $ .68 $ .73 $ .73 (7,500,099 Limited Partner interests outstanding) General Partners $ 157,426 $ 170,485 $ 169,276 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, 1995, 1994 and 1993 Limited General Unrealized Partners' Partners Partners Gain Equity Balance at December 31, 1992 $118,032,199 $ (86,708) $ - $117,945,491 Net income 5,473,251 169,276 - 5,642,527 Quarterly distributions (9,873,378) (203,481) - (10,076,859) Special distributions (4,950,065) - - (4,950,065) Balance at December 31, 1993 108,682,007 (120,913) - 108,561,094 Net income 5,512,334 170,485 - 5,682,819 Quarterly distributions (9,554,686) (192,551) - (9,747,237) Special distributions (7,950,105) - - (7,950,105) Balance at December 31, 1994 96,689,550 (142,979) - 96,546,571 Net income 5,090,117 157,426 - 5,247,543 Quarterly distributions (Note E) (9,000,119) (187,157) - (9,187,276) Unrealized gain on MBS - - 1,162,741 1,162,741 Balance at December 31, 1995 $ 92,779,548 $(172,710) $ 1,162,741 $ 93,769,579 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, 1995, 1994 and 1993 1995 1994 1993 Operating activities: Net income $ 5,247,543 $ 5,682,819 $ 5,642,527 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 958,502 958,502 928,187 Premium amortization on MBS - 14,986 55,441 Changes in assets and liabilities: Decrease (increase) in interest receivable and other assets 111,188 (285,736) 1,449,206 Increase (decrease) in liabilities (280) 9,358 (16,513) Net cash provided by operating activities 6,316,953 6,379,929 8,058,848 Investing activities: Principal collections on PIMs 548,811 484,586 407,385 Principal collections on MBS 1,784,581 4,988,553 9,688,312 Decrease in other investments - - 6,000,000 Investment in PIMs - - (68,757) Investments in MBS - - (6,154,086) Proceeds from insurance claims on PIMs - - 475,727 Net cash provided by investing activities 2,333,392 5,473,139 10,348,581 Financing activities: Quarterly distributions (9,187,276) (9,747,237) (10,076,859) Special distributions - (7,950,105) (4,950,065) Net cash used for financing activities (9,187,276) (17,697,342) (15,026,924) Net increase (decrease) in cash and cash equivalents (536,931) (5,844,274) 3,380,505 Cash and cash equivalents, beginning of period 2,931,523 8,775,797 5,395,292 Cash and cash equivalents, end of period $ 2,394,592 $ 2,931,523 $ 8,775,797 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 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 7,499,999 Units for $149,489,830 net of purchase volume discounts of $510,150 as of January 27, 1987. 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): PIMs The Partnership carries its investments in PIMs at amortized cost as it has the ability and intention to hold these investments. Basic interest is recognized at the stated rate of the Department of Housing and Urban Development ("HUD") insured mortgage (less the servicer's fee) or the stated coupon rate of the Government National Mortgage Association ("GNMA") or Federal National Mortgage Association ("FNMA") MBS. The Partnership recognizes interest related to the participation features as earned and when it deems these amounts as collectible. MBS At December 31, 1995, the Partnership in accordance with the Financial Accounting Standards Board s Special Report on Statement 115, "Accounting for Certain Investments in Debt and Equity Securities", reclassified its MBS portfolio from held-to-maturity to available-for-sale. The Partnership carries its MBS at fair market value and reflects any unrealized gains (losses) as a separate component of Partners' Equity. Prior to December 31, 1995, the Partnership carried its MBS portfolio at amortized cost. The Partnership amortizes purchase premiums or discounts over the life of the underlying mortgages using the effective interest method. 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 deposits and money market funds with a commercial bank and has not experiencedany loss to date on its invested cash. Prepaid Fees and Expenses Prepaid fees and expenses represent prepaid acquisition 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 call date 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 GNMA or FNMA MBS or final endorsement of the FHA loan. Income Taxes The Partnership is not liable for federal or state income taxes because Partnership income is allocated to the partners for income tax purposes. If the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in Partnership taxable income, such change will be reported to the partners. Estimates and Assumptions The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results could differ from those estimates. C. PIMs The Partnership has investments in six PIMs. The Partnership's PIMs consist of (a) a GNMA or FNMA 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"), and (b) participation interests in the revenue stream and appreciation of the underlying property above specified base levels. The borrower conveys these participation features to the Partnership generally through a subordinated promissory note and mortgage (the "Agreement"). The Partnership receives guaranteed monthly payments of principal and interest on the GNMA and FNMA MBS and HUD insures the mortgage loan underlying the GNMA MBS and the FHA mortgage loan. The Partnership may receive interest related to its participation interests in the underlying property, however, these amounts are neither insured nor guaranteed. Generally, the participation features consist of the following: (i) "Minimum Additional Interest" which is at the rate of .5% per annum calculated on the unpaid principal balance of the first mortgage on the underlying property, (ii) "Shared Income Interest" which is 25% of the monthly gross rental income generated by the underlying property in excess of a specified base, but only to the extent that it exceeds the amount of Minimum Additional Interest earned during such month, (iii) "Shared Appreciation Interest" which is 25% of any increase in the value of the underlying property in excess of a specified base. Payment of participation interest from the operations of the property is limited to 50% of net revenue or surplus cash as defined by FNMA or HUD, respectively. The aggregate amount of Minimum Additional Interest, Shared Income Interest and Shared Appreciation Interest payable by the underlying borrower on the maturity date generally cannot exceed 50% of any increase in Value of the property. However, generally any net proceeds from a sale or refinancing of the property will be available to satisfy any accrued but unpaid Shared Income or Minimum Additional Interest. Shared Appreciation Interest is payable when one of the following occurs: (1) the sale of the underlying property to an unrelated third party on a date which is later than five years from the date of the Agreement, (2) the maturity date or accelerated maturity date of the Agreement, or (3) prepayment of amounts due under the Agreement and the insured mortgage. The borrower usually cannot prepay the first mortgage loan during the first five years and may prepay the first mortgage loan thereafter subject to a 9% prepayment penalty in years six through nine, a 1% prepayment penalty in year ten and no prepayment penalty thereafter. Under the Agreement, the Partnership, upon giving twelve months written notice, can accelerate the maturity date of the Agreement to a date not earlier than ten years from the date of the Agreement for (a) the payment of all participation interest due under the Agreement as of the accelerated maturity date, or (b) the payment of all participation interest due under the Agreement plus all amounts due on the first mortgage note on the property. During 1993, the Partnership received an insurance claim on the following PIM and subsequently distributed the net proceeds to the Unitholders of record on the date the net proceeds were received: PIM Date Received Net Proceeds Abbey Terrace March 12, 1993 $ 475,727 The Partnership's PIMs consist of the following at December 31, 1995 and 1994: Issuer Aggregate Range of Range of Investment Basis at Original Number Interest Maturity December 31, Principal of PIMs Rates Dates(a) 1995 1994 GNMA $42,450,020 (b)(c)(d) 4 7 - 8% 4/22-12/22 $39,754,953 $40,178,312 FHA 13,814,400 (e) 1 7.375% 12/33 13,696,501 13,757,653 FNMA 6,021,258 (f) 1 6.25% (g) 4/06 5,837,681 5,901,981 $62,285,678 6 $59,289,135 $59,837,946 (a) The range of maturity dates for PIMs issued by GNMA and FHA represent the stated maturity date of the security or insured mortgage, however, the Partnership anticipates realizing amounts due under these PIMs well before these stated maturity dates. (b) Includes a PIM with a prepayment penalty of 9% in year 6 through 7, 3% in year 8 and 9, with no penalty thereafter. (c) Includes a PIM having an original face value of $17,850,000 that was purchased for $17,403,750 (a $446,250 discount). The prepayment penalty for this PIM is 9% in year 6, declining by 1% each year thereafter through year 9, with no penalty thereafter. (d) On January 1, 1992, the Partnership entered into an agreement which provided for a reduction in the permanent interest rate on a GNMA PIM having an original face value of $4,900,000, which reduced the interest rate from 8.5% to 7% for a period of four years. The reduction in the permanent interest rate was granted in exchange for a reduction of the Shared Appreciation Interest Base from $5,700,000 to $4,900,000. (e) On November 30, 1993, the Partnership entered into an agreement with the underlying borrower of the FHA PIM for a permanent interest rate reduction from 8.875% per annum to 7.375% per annum, retroactive to January 1, 1992. In exchange for the interest rate reduction, the Partnership received an increase in Shared Appreciation Income from 25% in excess of the base amount of $15,410,000 to 25% of the net sales proceeds over the outstanding indebtedness ($13,696,501 as of December 31, 1995). In the event of a refinancing, Shared Appreciation Income is 25% of the appraised value over the outstanding indebtedness. 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. On December 1, 1993, the underlying first mortgage loan received final endorsement. (f) 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. (g) During December 1995, the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Federal National Mortgage Association ("FNMA") mortgage-backed security ("MBS") and increased its participation percentage in income and appreciation from 25% to 30%. During December 1995, the Partnership received its pro- rata share of a $90,644 principal payment and will receive interest only payments on the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum through maturity. Also, the Partnership will receive its pro-rata share of the $250,000 principal payments due on December 1 of each of the next four years. The underlying mortgages of the PIMs are collateralized by multi-family apartment complexes located in five states. The apartment complexes range in size from 103 to 386 units. D. MBS At December 31, 1995, the Partnership's MBS portfolio has an amortized cost of approximately $27,864,000 and gross unrealized gains of approximately $1,163,000. At December 31, 1994, the Partnership s MBS portfolio had a market value of approximately $29,177,000 and gross unrealized gains and losses of approximately $119,000 and $591,000, respectively. The MBS portfolio has maturities ranging from 2004 to 2033. 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 1995, 1994 and 1993, the Partnership made quarterly distributions totaling $1.20, $1.28 and $1.32 per Unit, respectively. The Partnership made special distributions of $1.06 and $.66 per Unit in 1994 and 1993, respectively. As of December 31, 1995, the following cumulative partner contributions and allocations have been made since inception of the Partnership: Corporate Limited General Unitholders Partner Partners Total Capital contributions $149,489,830 $ 2,000 $ 3,000 $149,494,830 Syndication costs (7,906,604) - - (7,906,604) Quarterly distributions (91,436,031) (1,263) (2,148,347) (93,585,641) Special distributions (21,149,978) (282) - (21,150,260) Net income 63,781,016 860 1,972,637 65,754,513 Unrealized gains on MBS - - - 1,162,741 Balance at December 31, 1995 $ 92,778,233 $ 1,315 $ (172,710) $ 93,769,579 F. Related Party Transactions Under the terms of the Partnership Agreement, the General Partners receive an Asset Management Fee equal to .75% per annum of the value of the Partnership's total invested assets payable quarterly. The General Partners may also receive an incentive management fee in an amount equal to .3% per annum on the Partnership's Total Invested Assets providing the Unitholders receive a specified non-cumulative annual return on their Invested Capital. Total fees payable to the General Partners for asset management and incentive management fees shall not exceed 10% of distributable cash flow over the life of the Partnership. Additionally, the Partnership reimburses affiliates of the General Partners for certain expenses incurred in connection with maintaining the books and records of the Partnership and the preparation and mailing of financial reports, tax information and other communications to investors. G. Federal Income Taxes The reconciliation of the net income reported in the accompanying statement of income with the net income reported in the Partnership's 1995 federal income tax return is as follows: Net income from statement of operations $ 5,247,543 Plus: Book to tax difference for amortization of prepaid expenses and fees 824,953 Net income for federal income tax purposes $ 6,072,496 The allocation of the 1995 net income for federal income tax purposes is as follows: Portfolio Income Unitholders $5,890,242 Corporate Limited Partner 79 General Partners 182,175 $6,072,496 For the years Ended December 31, 1995, 1994 and 1993 the average per unit net income to the Unitholders for federal income tax purposes was $.79, $.81 and $.83, 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. PIMs There is no established trading market for these investments. Management estimates the fair value of the PIMs using quoted market prices of MBS having the same stated coupon rate and the estimated value of the participation features. Management estimates the fair value of the participation features using the estimated fair value of the underlying properties. Management does not include in the estimated fair value of the participation features any fair value estimate arising from appreciation of the properties, because Management does not believe it can predict the time of realization of the appreciation 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 $1,628,000 and $148,000 at December 31, 1995, respectively, and unrealized losses of approximately $4,867,000 at December 31, 1994. At December 31, 1995 and 1994, the Partnership estimates fair value of its financial instruments as follows: (Rounded to $1,000) 1995 1994 Cash and cash equivalents $ 2,395 $ 2,932 MBS 29,027 29,177 PIMs 60,769 54,971 $92,191 $87,080 KRUPP INSURED PLUS LIMITED PARTNERSHIP SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE PIMs (a)(b) Interest Maturity Normal Original Current Carrying Rate Date(d) Monthly Face Amount Face Amount Amount at (c) Maturity Payment 12/31/95 (e)(f) (j) GNMA La Costa Apts. Miami, FL 7.5% 4/15/22 $ 74,500 $11,050,000 $10,294,142 $10,294,142 Mandalay Apts. Clearwater Beach, FL 7.25% 8/15/22 117,200 17,850,000 16,634,032 16,218,181 Greentree Apts. Hoover, AL 8% 11/15/22 64,600 9,096,270 8,587,974 8,587,974 Pine Hills Apts. Howell, MI 7% (h) 12/15/22 36,600 4,900,000 4,654,656 4,654,656 42,896,270 40,170,804 39,754,953 FHA Vista Montana Apts. Val Vista Lakes, AZ 7.375% (i) 12/1/33 86,000 13,814,400 13,696,501 13,696,501 FNMA Royal Palm Place (g) Kendall, FL 6.25% (k) 4/1/06 (k) 6,021,258 5,837,681 5,837,681 $62,731,928 $59,704,986 $59,289,135 (a) The Participating Insured Mortgages ("PIMs") consist of either a mortgage-backed security ("MBS") issued and guaranteed by the Federal National Mortgage Association ("FNMA"), a securitized mortgage loan insured by the Department of Housing and Urban Development ("HUD") issued and guaranteed as to the timely payment of principal and interest by the Government National Mortgage Association ("GNMA") or a first mortgage issued by the Federal Housing Authority ("FHA") and insured by HUD, and a subordinated promissory note and mortgage or shared income and appreciation agreement with the underlying borrower that conveys participation interests in the revenue stream and appreciation of the underlying property above certain base levels. (b) The GNMA MBS, FNMA MBS and FHA mortgage loans may not be prepaid during the first five years and may generally be prepaid subject to a 9% prepayment penalty in years six through nine, a 1% prepayment penalty in year ten and no prepayment penalty after year ten. (c) Represents only the stated interest rate of the GNMA or FNMA MBS or the stated interest rate of the FHA mortgage loan less the servicing fee. In addition, the Partnership may receive participation interest, consisting of (i) Minimum Additional Interest based on a percentage of the unpaid principal balance of the first mortgage on the property, (ii) Shared Income Interest based on a percentage of monthly gross income generated by the underlying property in excess of a specified base amount (but only to the intent it exceeds the amount of Minimum Additional Interest received during such month) and (iii) Shared Appreciation Interest based on a percentage of any increase in the value of the underlying property in excess of a specified base value. Minimum Additional Interest is at a rate of .5% per annum calculated on the unpaid principal balance of the first mortgage note. Shared Income Interest is generally based on 25% of the monthly gross rental income generated by the underlying property in excess of a specified base, but only to the extent it exceeds the amount of Minimum Additional Interest earned during the month. Shared Appreciation Interest is generally based on 25% of any increase in the value of the project over the base value. (d) The Partnership's GNMA MBS and FHA mortgage loan have call provisions, which allow the Partnership to accelerate their respective maturity dates to as early as ten years from the date of the loan. (e) The normal monthly payment consisting of principal and interest is payable monthly at level amounts over the term of the GNMA MBS and the FHA direct mortgages. (f) The normal monthly payment consisting of principal and interest for FNMA MBS is payable at level amounts based on a 35-year amortization. All unpaid principal and accrued interest is due at maturity. (g) The total PIM on the underlying property is $22,000,000 of which 72.63% or $15,978,742 is held by Krupp Insured Plus-III Limited Partnership. The Partnership's share of the principal balance due at maturity for the Royal Palm PIM is approximately $5,564,000. (h) On January 1, 1992, the Partnership entered into an agreement which provided for a reduction in the permanent interest rate from 8% to 7% per annum for a period of four years. The reduction in the permanent interest rate was granted in exchange for a reduction of the Shared Appreciation Interest Base from $5,700,000 to $4,900,000. (i) On November 30, 1993, the Partnership entered into an agreement with the underlying borrower for a permanent interest rate reduction from 8.75% per annum to 7.375% per annum retroactive to January 1, 1992. In exchange for the interest rate reduction, the Partnership received an increase in Shared Appreciation Income from 25% in excess of the base amount of $15,410,000 to 25% of the net sales proceeds over the outstanding indebtedness ($13,696,501 at December 31, 1995). In the event of a refinancing, Shared Appreciation Income is 25% of the appraised value over the outstanding indebtedness. 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. (j) The aggregate cost of PIMs for federal income tax purposes is $59,289,135. (k) During December 1995, the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Federal National Mortgage Association ("FNMA") mortgage-backed security ("MBS") and increased its participation percentage in income and appreciation from 25% to 30%. During December 1995, the Partnership received its pro- rata share of a $90,644 principal payment and will receive interest only payments on the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum through maturity. Also, the Partnership will receive its pro-rata share of the $250,000 principal payments due on December 1 of each of the next four years. A reconciliation of the carrying value of Mortgages for each of the three years in the period ended December 31, 1995 is as follows: 1995 1994 1993 Balance at beginning of period $ 59,837,946 $ 60,322,532 $61,136,887 Additions during period: Investments in PIMs - - 68,757 Deductions during period: Proceeds from insurance claims - - (475,727) Principal collections (548,811) (484,586) (407,385) Balance at end of period $ 59,289,135 $ 59,837,946 $60,322,532