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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17690
Krupp Insured Mortgage Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3021395
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 8-13.
PART I
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
ITEM 1. BUSINESS
Krupp Insured Mortgage Limited Partnership (the "Partnership") is a
Massachusetts limited partnership which was formed on March 21, 1988. The
Partnership raised approximately $299 million through a public offering of
limited partner interests evidenced by units of depositary receipts
("Units"), and used the proceeds available for investment primarily to
acquire participating insured mortgages ("PIMs") and mortgage-backed
securities ("MBS"). The Partnership considers itself to be engaged only in
the industry segment of investment in mortgages.
The Partnership's investments in PIMs on multi-family residential
properties consist of a MBS or an insured mortgage loan (collectively, the
"insured mortgage") guaranteed or insured as to principal and basic
interest. These insured mortgages were issued or originated under or in
connection with the housing programs of the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") or the
Department of Housing and Urban Development ("HUD"). PIMs provide the
Partnership with monthly payments of principal and basic interest and also
may provide the Partnership with participation in the current revenue
stream and in residual value, if any, from the sale or other realization of
the underlying property. The borrower conveys these rights to the
Partnership through a subordinated promissory note and mortgage.
The participation features are neither insured nor guaranteed.
The Partnership also acquired MBS collateralized by single-family
mortgage loans issued or originated by FNMA or the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA and FHLMC guarantee the principal and
basic interest of the Partnership's FNMA and FHLMC MBS, respectively.
Prior to May 23, 1995 the Partnership could reinvest or commit for
reinvestment principal proceeds or other realization of the mortgages in
new mortgages. Subsequently, proceeds received from prepayments or other
realizations of mortgage assets have been and will continue to be
distributed by the Partnership to investors through quarterly or possibly
special distributions.
Although the Partnership will terminate no later than December 31, 2028,
the value of the PIMs may be realized by the Partnership through repayment
or sale as early as ten years from the dates of the closing of the
permanent loans and the Partnership may realize the value of all its other
investments within that time frame. Therefore, it is anticipated that
dissolution of the Partnership could occur significantly prior to December
31, 2028.
The Partnership's investments are not expected to be subject to seasonal
fluctuations. However, the future performance of the Partnership will
depend upon certain factors which cannot be predicted. In addition, any
ultimate realization of the participation features of the PIMs will be
subject to similar risks associated with equity real estate investments,
including: reliance on the owner's operating skills, ability to maintain
occupancy levels, control operating expenses, maintain the property and
provide adequate insurance coverage; adverse changes in general economic
conditions, adverse local conditions, and changes in governmental regula-
tions, real estate zoning laws, or tax laws; and other circumstances over
which the Partnership may have little or no control.
The requirements for compliance with federal, state and local
regulations to date have not had an adverse effect on the Partnership's
operations, and the Partnership does not presently anticipate adverse
effect in the future.
As of December 31, 1997, there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership
is a party or to which any of its securities is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1997 was
approximately 14,600. One of the objectives of the Partnership is to
provide quarterly distributions of cash flow generated by its investments
in mortgages. The Partnership presently anticipates that future operations
will continue to generate cash available for distribution.
During 1997, the Partnership made special distributions consisting
primarily of principal proceeds from the Rock Creek, Silver Spring, and
Hampton Ridge Apartments PIM prepayments. The Partnership will make special
distributions in the future as PIMs prepay or a sufficient amount of cash
is available from MBS and PIM principal collections.
During 1996, the Partnership made a special distribution consisting
primarily of principal proceeds from the Water View and Tarnhill Apartments
PIM prepayments.
The Partnership made distributions to its Partners during the two years
ended December 31, 1997 as follows:
-4-
1997 1996
Amount Per Unit Amount Per Unit
Limited Partners $ 17,948,156 $1.20 $17,948,153 $1.20
General Partners 386,086 431,074
18,334,242 18,379,227
Special Distributions
Limited Partners $ 28,717,048 $1.92 25,426,553 $1.70
$ 47,051,290 $43,805,780
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Partnership's financial position and operating results. This
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements and Supplementary Data, which are included in Items 7 and 8
(Appendix A) of this report, respectively.
Year Ended December 31,
1997 1996 1995 1994 1993
Total revenues $ 16,679,293 $ 16,039,711 $ 17,325,924 $ 17,333,146 $ 18,870,977
Net income 12,188,074 11,372,365 13,270,482 13,039,155 14,465,397
Net income allocated
to Partners:
Limited Partners 11,822,432 11,031,194 12,872,368 12,647,980 14,031,435
Average per Unit .79 .74 .86 .85 .94
General Partners 365,642 341,171 398,114 391,175 433,962
Total assets at
December 31 161,358,290 195,755,977 228,653,458 232,892,400 245,176,200
Distributions to
Partners:
Limited Partners 17,948,156 17,948,153 17,948,156 24,879,313 24,811,193
Average per Unit 1.20 1.20 1.20 1.66 1.66
General Partners 386,086 431,074 455,696 450,239 473,002
Special Distribution
Limited Partners 28,717,048 25,426,553 - - -
Average Per Unit 1.92 1.70 - - -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management s Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements including those
concerning Management s expectations regarding the future financial
performance and future events. These forward-looking statements involve
significant risks and uncertainties, including those described herein.
Actual results may differ materially from those anticipated by
such forward-looking statements.
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are regular
quarterly distributions paid to investors of approximately $4.5 million.
Funds used for investor distributions are generated from interest income
received on the PIMs, MBS, cash and short-term investments, and
the principal collections received on the PIMs and MBS. 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 distributions paid to investors.
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.
Four properties with loans underlying the Partnership's PIM investments
were either sold or refinanced during 1997. A fifth PIM was converted to
an insured mortgage when the participation feature was released. A sixth
PIM was paid off after the borrower defaulted on its first mortgage
obligations. One property that was sold had increased in value since the
Partnership made its initial investment in the PIM and paid Shared
Appreciation Interest based on that increase in value. The other three
properties that were sold or refinanced did not increase in value
sufficiently to reach the threshold necessary for the Partnership to earn
Shared Appreciation Interest when they were sold or refinanced. However,
the payoff transactions on two of these three properties generated enough
value so that the Partnership received all accrued Additional Interest
earned on property operations in prior years and full prepayment penalties
equal to 9% of the principal repayment in lieu of Shared Appreciation
Interest. The General Partners accepted negotiated settlements on the
other two properties that were sold or refinanced because of value
constraints.
During the first quarter of 1997, the Partnership received the full $11.1
million principal repayment of the Rock Creek Springs PIM. Fannie Mae, as
the guarantor of the MBS underlying the Partnership's PIM, exercised its
right to retire the security when the first mortgage went into default.
The Partnership made a $.75 per unit special distribution on March 21, 1997
with the proceeds from the PIM repayment.
During the second quarter of 1997, the Partnership received a $7.2 million
principal repayment of the Silver Spring PIM when the property was sold.
In addition to the principal repayment, the Partnership received $41,000 of
accrued Additional Interest and a $652,000 prepayment penalty. The
Partnership made a $.53 per unit special distribution on May 23, 1997 with
the proceeds of the PIM repayment. In addition during the quarter, The
Patrician was sold, and the value of the property failed to appreciate
beyond the threshold above which the Partnership would have earned Shared
Appreciation Interest. In order to facilitate the sale transaction, the
General Partners agreed to the assumption of the first mortgage loan by the
purchaser and required a $100,000 settlement to release the participation
features of the PIM and convert its investment into an insured mortgage.
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During the fourth quarter of 1997, the Partnership received a $9.1 million
principal repayment of the Hampton Ridge PIM when the owner refinanced the
property. In addition to the principal repayment, the Partnership received
$249,000 of accrued Additional Interest and a $508,000 prepayment penalty.
The value of the property had not increased beyond the base threshold above
which the Partnership would earn any Shared Appreciation Interest.
Consequently, the General Partners accepted the repayment of the loan in
1997 while the interest rate environment facilitated a favorable
refinancing of the property and agreed to a 5% prepayment penalty. The
Partnership made a $.64 per unit special distribution on November 21, 1997
with the proceeds of the PIM repayment.
During the fourth quarter of 1997, the Partnership also received the
principal repayments of the Paddock Club and Southland Station PIM's
together totaling $15.2 million when those properties were sold. In
addition to the principal repayments, the Partnership received a total of
$380,000 of accrued Additional Interest from both properties and $565,000
of Shared Appreciation Interest on Southland Station and a $895,000
prepayment penalty on Paddock Club. The Partnership paid a $1.12 per unit
special distribution in January 1998 with the proceeds of these two PIM
repayments.
During 1996 and 1997, the Partnership received significant prepayments on
its PIMs. Due to this, the General Partners reviewed the Partnership's
liquidity needs and determined that the regular distribution rate should be
adjusted to $.84 per Unit per year (approximately $12.5 million per year
and $3.14 million per quarter) commencing with the May 1998 distribution.
The General Partners expect to periodically adjust the distribution rate as
mortgage proceeds are received and subsequently distributed to the Limited
Partners while also maintaining sufficient liquidity to meet the
Partnership's anticipated needs. The General Partners will continue to
monitor the appropriateness of this distribution rate in the future and
will adjust it as necessary.
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, GNMA, FHLMC or HUD and therefore the certainty of their cash flows
and the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
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 represent interests in pooled
mortgages insured by HUD. Obligations insured by HUD, an agency of the
U.S. Government, are backed by the full faith and credit of the U.S.
Government.
-7-
Operations
The following discussion relates to the operation of the Partnership
during the years ended December 31, 1997, 1996 and 1995.
(Amounts in thousands) 1997 1996 1995
Interest income on PIMs:
Base interest $10,887 $ 12,953 $14,555
Participation interest 3,710 1,176 677
Interest income on MBS 1,493 1,498 1,778
Other interest income 589 413 316
Partnership expenses (1,574) (1,655) (2,073)
Amortization of prepaid fees and
expenses (2,917) (3,013) (1,983)
Net income $12,188 $11,372 $13,270
Net income increased during 1997 as compared to 1996 by approximately
$816,000 due primarily to prepayment penalty income and participation
interest received from the Hampton Ridge, Silver Spring, Paddock Club and
Southland Station Apartment PIMs. As a result of the four above mentioned
repayments and the Rock Creek PIM prepayment by FNMA, base interest
decreased approximately $2,066,000 or 16%. An increase in Participation
Income of $2,534,000 was primarily a result of receiving shared
appreciation income, accrued additional interest and prepayment penalties
from the prepayment of the Silver Springs, Hampton Ridge, Southland and
Paddock Club Apartment PIMs totaling $3,389,000 and $321,000 of additional
interest from five of the Partnerships other PIMs. Other interest income
increased in 1997 as compared to 1996 due to the short-term investment of
the proceeds from the prepayments until such funds were ultimately
distributed to the investors. Partnership expenses have decreased when
comparing 1997 to 1996 and 1996 to 1995, due primarily to lower asset
management fees.
Net income decreased during 1996 as compared to 1995 by approximately
$1,898,000 due primarily to a reduction in base interest in PIMs as a
result of prepayments of the Water View and Tarnhill Apartments PIMs and
interest rate reductions on the Crosscreek Apartments and Remington Place
Apartments PIMs. Interest income on MBS decreased $280,000 in 1996 as
compared to 1995, because principal collections reduced the outstanding
principal balance of the Partnership s MBS investments. These items were
offset by an increase in participation income of $499,000 which was
primarily the result of receiving shared appreciation income from the
prepayment of the Tarnhill Apartments PIM of $983,000, net of a decrease in
shared income and minimal additional interest recorded in 1996 as compared
to 1995 of $484,000. Other interest income increased in 1996 as compared
to 1995 due to the short-term investment of the proceeds from the
prepayments until such funds were ultimately distributed to the investors.
Amortization expense increased for 1996 as compared to 1995 because the
Partnership fully amortized the remaining balances of prepaid fees and
expenses associated with the Water View and Tarnhill Apartments PIM.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
-8-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to
the directors and executive officers of Krupp Plus Corporation which is a
General Partner of the Partnership and is the general partner of Mortgage
Services Partners Limited Partnership which is the other General Partner of
the Partnership, is as follows:
Position with
Name and Age Krupp Plus Corporation
Douglas Krupp (51) President, Co-Chairman
of the Board and Director
George Krupp (53) Co-Chairman of the Board
and Director
Peter F. Donovan (44) Senior Vice President
Robert A. Barrows (40) Vice President and Treasurer
Douglas Krupp and George Krupp are Co-Founders of The Berkshire
Group. Established in 1969 as the Krupp Companies and headquartered in
Boston, the Berkshire Group is a privately held real estate-based firm that
has expanded over the years within its areas of expertise including
investment program sponsorship, property and asset management, mortgage
banking and healthcare facility management. The Berkshire Group s interests
include ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition, The
Berkshire Group has a majority ownership interest in Harborside Healthcare
(NYSE-HBR), a long-term and subacute care company and a significant
ownership interest in Berkshire Realty Company, Inc. (NYSE-BRI), a real
estate investment trust specializing in apartment investments.
Douglas 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. Douglas Krupp is Chairman of
The Berkshire Group, Chairman of the Board and a Director of both Berkshire
Realty Company, Inc. and Harborside Healthcare. Mr. Krupp also serves as
Chairman of the Board and Trustee of both Krupp Government Income Trust and
Krupp Government Income Trust II.
George Krupp received his undergraduate education from the
University of Pennsylvania and Harvard University Extension School and
holds a Master s Degree in History from Brown University.
Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage
Finance and oversees the strategic growth plans of this mortgage banking
firm which is the 12th largest in the United States based on servicing and
asset management of a $4.4 billion loan portfolio. Previously he served as
President of Berkshire Mortgage Finance and directed the production,
underwriting and servicing and asset management activities of the firm.
Prior to that, he was Senior Vice President of Berkshire Mortgage Finance
and was responsible for all participating mortgage originations. Before
joining the firm in 1984, he was Second Vice President, Real Estate Finance
for Continental Illinois National Bank & Trust, where he managed a $300
million construction loan portfolio of commercial properties. Mr. Donovan
received a B.A. from Trinity College and an M.B.A. degree from Northwestern
University.
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,
management information systems and loan closing and servicing for Berkshire
Mortgage Finance. Prior to joining The Berkshire Group, he was an audit
supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S.
degree from Boston College and is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1997, no person of record owned or was known by
the General Partners to own beneficially more than 5% of the Partnership's
14,956,796 outstanding Units. The only interests held by management or its
affiliates consist of its General Partner and Corporate Limited Partner
Interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in Note F to the
Partnership's Financial Statements presented in Appendix A to this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements and
Schedule included under Item 8, Appendix A, on page F-2 of
this report.
2. Financial Statement Schedule - see Index to Financial
Statements and Schedule included under Item 8, Appendix A,
on page F-2 of this report. All other schedules are omitted
as they are not applicable, not required or the information
is provided in the Financial Statements or the Notes
thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item
601 of Regulation S-K:
(4) Instruments defining the rights of security holders including
indentures:
(4.1) Agreement of Limited Partnership dated as of July
19, 1988 [Exhibit A included in Amendment No. 1 of
Registrant's Registration Statement on Form S-11
dated July 20, 1988 (File No. 33-21201)].*
(4.2) Subscription Agreement whereby a subscriber agrees
to purchase Units and adopts the provisions of the
Agreement of Limited Partnership [Exhibit D
included in Amendment No. 1 of Registrant's
Registration Statement on Form S-11 dated July 20,
1988 (File No. 33-21201)].*
(4.3) Copy of First Amended and Restated Certificate of
Limited Partnership filed with the Massachusetts
Secretary of State on July 1, 1988. [Exhibit 4.4
to Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated July 20, 1988 (File
No. 33-21201)].*
(10) Material Contracts:
(10.1) Form of agreement between the Partnership and
Krupp Mortgage Corporation [Exhibit 10.2 to
Registrant's Registration Statement on Form S-11
dated April 20, 1988 (File No. 33-21201)].*
Richmond Park Apartments
(10.2) Prospectus for GNMA Pool No. 260865 (PL) [Exhibit
1 to Registrant's report on Form 8-K dated August
30, 1989 (File No. 0-17690)].*
(10.3) Subordinated Multifamily Open-End Mortgage
(including Subordinated Promissory Note) dated
July 14, 1989 between Carl Milstein, Trustee,
Irwin Obstgarten, Al Simmon and Krupp Insured
Plus-II Limited Partnership. [Exhibit 2 to
Registrant's report on Form 8-K dated August 30,
1989 (File No. 0-17690)].*
(10.4) Participation Agreement dated July 31, 1989
between Krupp Insured Mortgage Limited Partnership
and Krupp Insured Plus-II Limited
Partnership[Exhibit 3 to Registrant's report
on Form 8-K dated August 30, 1989
(File No. 0-17690)].*
Saratoga Apartments
(10.5) Prospectus for GNMA Pool No. 280643 (PL) [Exhibit
4 to Registrant's report on Form 8-K dated August
30, 1989 (File No. 0-17690)].*
(10.6) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated July 27, 1989
between American National Bank and Trust Company
of Chicago, as Trustee and Krupp Insured Mortgage
Limited Partnership. [Exhibit 5 to Registrant's
report on Form 8-K dated August 30, 1989
(File No.0-17690)].*
(10.7) Participation Agreement dated July 31, 1989
between Krupp Insured Plus-II Limited Partnership
and Krupp Insured Mortgage Limited Partnership
[Exhibit 6 to Registrant's report on Form 8-K
dated August 30, 1989 (File No. 0-17690)].*
Valley Manor Apartments
(10.8) Prospectus for GNMA Pool No. 272541 (PL) [Exhibit
7 to Registrant's report on Form 8-K dated
August30, 1989 (File No. 0-17690)].*
(10.9) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated June 28, 1989
between New Valley Manor Associates and Krupp
Insured Mortgage Limited Partnership [Exhibit 8 to
Registrant's report on Form 8-K dated August 30,
1989 (File No. 0-17690)].*
Remington Place Apartments
(10.10) Prospectus to GNMA Pool No. 280644(PL) [Exhibit
10.14 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File
No. 0-17690)].*
(10.11) Subordinated Promissory Note dated September 21,
1989 between Brinkley Towers Associates Limited
Partnership and Krupp Insured Mortgage Limited
Partnership [Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-17690)].*
(10.12) Subordinated Multifamily Deed of Trust dated
September 21, 1989 between Brinkley Towers
Associates Limited Partnership and Krupp Insured
Mortgage Limited Partnership [Exhibit 10.16 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No. 0-
17690)].*
(10.13) Workout Agreement and Subordinated Promissory Note
Modification Agreement for the interest rate
reduction dated December 23, 1993 by and between
Berkshire Mortgage Finance Corporation, Krupp
Insured Mortgage Limited Partnership and Brinkly
Towers Associates Limited Partnership. [Exhibit
10.16 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (File
No. 0-17690)].*
The Patrician
(10.14) Supplement to Prospectus dated November 1, 1989
for FNMA Pool No MX-073008 [Exhibit 10.20 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No. 0-
17690)].*
Cross Creek Apartments
(10.15) Prospectus for GNMA Pool No. 280650(CS) and
280651(PL) [Exhibit 10.25 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-17690)].*
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(10.16) Subordinated Multifamily Deed of Trust dated
November 30, 1989 between Cross Creek Associates
and Krupp Insured Mortgage Limited Partnership
[Exhibit 10.26 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989 (File No. 0-17690)].*
(10.17) Subordinated Promissory Note dated November 30,
1989 between Cross Creek Associates and Krupp
Insured Mortgage Limited Partnership [Exhibit
10.27 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989
(File No. 0-17690)].*
(10.18) Workout Structure/Loan and Participation
Modification Dated January 29, 1994 by and between
Krupp Insured Mortgage Limited Partnership, Krupp
Mortgage Corporation and Cross Creek Associates
[Exhibit 10.29 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-17690)].*
Wildflower Apartments
(10.19) Prospectus for GNMA Pool No. 280652(PL) [Exhibit
10.30 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File
No. 0-17690)].*
(10.20) Subordinated Multifamily Deed of Trust dated
December 12, 1989 (including Subordinated
Promissory Note) between Lincoln Wildflower
Limited Partnership and Krupp Insured Mortgage
Limited Partnership [Exhibit 10.31 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 (File No. 0-17690)].*
Brookside Apartments
(10.21) Supplement to Prospectus dated November 1, 1989
for Federal National Mortgage Association Pool
Number MX-073009 [Exhibit 19.1 to Registrant's
report on Form 10-Q for the quarter ended March
31, 1990 (File No. 0-17690)].*
(10.22) Subordinated Multifamily Deed of Trust dated
January 30, 1990 between Brookside Manzanita and
Krupp Insured Mortgage Limited Partnership
[Exhibit 19.2 to Registrant's report on Form 10-Q
for the quarter ended March 31, 1990 (File No. 0-
17690)].*
(10.23) Subordinated Promissory Note dated January 30,
1990 between Brookside Manzanita and Krupp Insured
Mortgage Limited Partnership [Exhibit 19.3 to
Registrant's report on Form 10-Q for the quarter
ended March 31, 1990 (File No. 0-17690)].*
Bell Station Apartments
(10.24) Supplement to Prospectus dated April 1, 1990 for
Federal National Mortgage Association Pool Number
MX-073011 [Exhibit 19.4 to Registrant's report on
Form 10-Q for the quarter ended June 30, 1990
(File No. 0-17690)].*
(10.25) Subordinated Multifamily Mortgage dated March 28,
1990 between Bell Station Associates, L.P. and
Krupp Insured Mortgage Limited Partnership
[Exhibit 19.4 to Registrant's report on Form 10-Q
for the quarter ended March 31, 1990 (File No. 0-
17690)].*
(10.26) Subordinated Promissory Note dated March 28, 1990
between Bell Station Associates, L.P. and Krupp
Insured Mortgage Limited Partnership [Exhibit 19.5
to Registrant's report on Form 10-Q for the
quarter ended March 31, 1990 (File No. 0-17690)].*
The Enclave Apartments
(10.27) Supplement to Prospectus dated April 1, 1990
forFederal National Mortgage Association Pool
Number MX-073013 [Exhibit 19.1 to Registrant's
report on Form 10-Q for the quarter ended
June 30, 1990 (File No. 0-17690)].*
(10.28) Subordinated Multifamily Open-End Mortgage dated
April 26, 1990 between Beavercreek Associates and
Krupp Insured Mortgage Limited Partnership
[Exhibit 19.2 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1990 (File No. 0-
17690)].*
(10.29) Subordinated Promissory Note dated April 26, 1990
between Beavercreek Associates and Krupp Insured
Mortgage Limited Partnership [Exhibit 19.3 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1990 (File No. 0-17690)].*
Creekside Apartments
(10.30) Subordinated Promissory Note dated June 28, 1990
between Creekside Associates Limited Partnership
and Krupp Insured Mortgage Limited Partnership
[Exhibit 19.6 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1990 (File No. 0-
17690)].*
(10.31) Subordinated Multifamily Deed of Trust dated June
28, 1990 between Creekside Associates Limited
Partnership and Krupp Insured Mortgage Limited
Partnership [Exhibit 19.7 to Registrant's report
on Form 10-Q for the quarter ended June 30, 1990
(File No. 0-17690)].*
(10.32) Participation Agreement dated June 28, 1990
between Krupp Mortgage Corporation and Krupp
Insured Mortgage Limited Partnership [Exhibit 19.1
to Registrant's report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 0-
17690)].*
-14-
Salishan Apartments
(10.33) Supplement to Prospectus dated July 1, 1990 for
Federal National Mortgage Association Pool Number
MX-073017 [Exhibit 19.2 to Registrant's report on
Form 10-Q for the quarter ended September 30, 1990
(File No. 0-17690)].*
(10.34) Subordinated Promissory Note dated June 20, 1990
between Dale A. Williams and D.R. Salishan (the
"Mortgagor") and Krupp Insured Mortgage Limited
Partnership (the "Holder") [Exhibit 19.3 to
Registrant's report on Form 10-Q for the quarter
ended September 30, 1990 (File No. 0-17690)].*
(10.35) Subordinated Multifamily Deed of Trust dated June
20, 1990 between Dale A. Williams and D.R.
Salishan (the "Borrower") and Krupp Insured
Mortgage Limited Partnership (the "Lender")
[Exhibit 19.4 to Registrant's report on Form 10-Q
for the quarter ended September 30, 1990 (File No.
0-17690)].*
Marina Shores Apartments
(10.36) Participation Agreement dated June 29, 1990 by and
between Krupp Insured Plus-III Limited Partnership
and Krupp Insured Mortgage Limited Partnership
[Exhibit 19.9 to Registrant's report on Form 10-Q
for the quarter ended September 30, 1990 (File No.
0-17690)].*
Deering Place
(10.37) Subordinated promissory note dated February 7,
1991 between Deering Place on Colony Apartments,
Limited Partnership (the "Mortgagor") and Krupp
Insured Mortgage Limited Partnership (the
"Holder"). [Exhibit 19.1 to Registrant's report on
Form 10-Q for the quarter ended March 31, 1991
(File No. 0-17690.].*
(10.38) Subordinated Multifamily Deed of Trust dated
February 7, 1991 between Deering Place on Colony
Apartments, Limited Partnership (the "Borrower")
and Krupp Insured Mortgage Limited Partnership
(the "Lender"). [Exhibit 19.2 to Registrant's
report on Form 10-Q for the quarter ended March
31, 1991 (File No. 0-17690.].*
(10.39) Supplement to Prospectus dated November 1, 1990
for Federal National Mortgage Association Pool
Number MX-073022. [Exhibit 19.3 to Registrant's
report on Form 10-Q for the quarter ended
March31, 1991 (File No. 0-17690.].*
Pope Building
(10.40) Subordinated Promissory Note dated May 30, 1991
between Pope Building Associates Limited
Partnership (the "Mortgagor") and Krupp Insured
Mortgage Limited Partnership (the "Holder")
[Exhibit 19.1 to Registrant's report on Form 10-Q
for the quarter ended September 30, 1991 (File No.
0-17690)].*
(10.41) Subordinated Multi-family Mortgage dated May 31,
1991 between American National Bank and Trust
Company of Chicago (the "Borrower") and Krupp
Insured Limited Partnership (the "Mortgagee").
[Exhibit 19.2 to Registrant's report on Form 10-Q
for the quarter ended September 30, 1991 (File No.
0-17690)].*
(10.42) Supplement to Prospectus for Government National
Mortgage Association Pool Number 280842. [Exhibit
19.3 to Registrant's report on Form 10-Q for the
quarter ended September 30, 1991 (File No. 0-
17690)].*
* Incorporated by reference.
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1997,
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 2nd day of February, 1998.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
By: Krupp Plus Corporation, a General
Partner
By: /s/ Douglas Krupp
Douglas Krupp, President, Co-Chairman (Principal Executive Officer)
, and Director of Krupp Plus Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated, on the 2nd day of
February, 1998.
Signatures Title(s)
/s/ Douglas Krupp President, Co-Chairman (Principal Executive
Douglas Krupp Officer), and Director of Krupp Plus
Corporation, a General Partner
/s/ George Krupp Co-Chairman (Principal Executive Officer)
George Krupp and Director of Krupp Plus Corporation, a
General Partner
/s/ Peter F. Donovan Senior Vice President of Krupp Plus
Peter F. Donovan Corporation, a General Partner
/s/ Robert A. Barrows Vice President and Treasurer of Krupp Plus
Robert A. Barrows Corporation, a General Partner
-17-
APPENDIX A
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1997
F-1
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Income for the Years Ended December 31, 1997,
1996 and 1995 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 F-7
Notes to Financial Statements F-8 - F-15
Schedule IV - Mortgage Loans on Real Estate F-16 - F-18
All other schedules are omitted as they are not applicable or not
required, or the information is provided in the financial statements or
the notes thereto.
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Insured Mortgage Limited Partnership:
We have audited the financial statements and the financial
statement schedule of Krupp Insured Mortgage 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
audits to obtain reasonable assurance about whether these 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, these financial statements referred to above
present fairly, in all material respects, these financial position of
Krupp Insured Mortgage Limited Partnership as of December 31, 1997 and
1996,and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 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
February 2, 1998
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
Participating Insured Mortgages ("PIMs")
(Notes B, C and H) $113,051,723 $164,942,921
Mortgage-Backed Securities ("MBS")
(Notes B, D and H) 23,700,858 17,358,307
Total mortgage investments 136,752,581 182,301,228
Cash and cash equivalents (Notes B and H) 20,480,666 6,057,077
Interest receivable and other assets 936,883 1,292,834
Prepaid acquisition fees and expenses, net of accumulated amortization of $6,944,814 and
$8,125,626, respectively (Note B) 2,393,273 4,544,255
Prepaid participation servicing fees, net of
accumulated amortization of $2,293,034 and
$2,629,028, respectively (Note B) 794,887 1,560,583
Total assets $161,358,290 $195,755,977
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 120,966 $ 18,973
Partners' equity (deficit) (Notes A and E):
Limited Partners 160,722,004 195,564,776
(14,956,896 Limited Partner interests outstanding)
General Partners (274,985)
(254,541)
Unrealized gain on MBS (Note B) 790,305 426,769
Total Partners' equity 161,237,324 195,737,004
Total liabilities and Partners' equity $161,358,290 $195,755,977
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues (Note B):
Interest income - PIMs (Note C):
Base interest $10,887,208 $12,952,992 $14,554,706
Participation interest 3,709,622 1,176,169 677,349
Interest income - MBS (Note D) 1,493,309 1,497,760 1,778,121
Other interest income 589,154 412,790 315,748
Total revenues 16,679,293 16,039,711 17,325,924
Expenses:
Asset management fee to an
affiliate (Note F) 1,129,880 1,311,377 1,595,037 Expense reimbursements to affiliates
(Note F) 164,813 156,784 230,648
Amortization of prepaid fees and expenses
(Note B) 2,916,678 3,013,133 1,983,112
General and administrative 279,848 186,052 246,645
Total expenses 4,491,219 4,667,346 4,055,442
Net income (Note G) $12,188,074 $11,372,365 $13,270,482
Allocation of net income (Note E):
Limited Partners $11,822,432 $11,031,194 $12,872,368
Average net income per Limited Partner
interests $ .79 $ .74 $ .86 (14,956,896 Limited Partner interests
outstanding)
General Partners $ 365,642 $ 341,171 $ 398,114
The accompanying notes are an integral
part of the financial statements.
F-6
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Total
Limited General Unrealized Partners'
Partners Partners Gains Equity
Balance at December 31, 1994 $232,984,076 $(107,056) $ - $232,877,020
Net income 12,872,368 398,114 - 13,270,482
Distributions (17,948,156) (455,696) - (18,403,852)
Unrealized gain on MBS - - 895,050 895,050
Balance at December 31, 1995 227,908,288 (164,638) 895,050 228,638,700
Net income 11,031,194 341,171 - 11,372,365
Quarterly distributions (17,948,153) (431,074) - (18,379,227)
Special Distributions (25,426,553) - - (25,426,553)
Change in unrealized
gain on MBS - - (468,281) (468,281)
Balance at December 31, 1996 195,564,776 (254,541) 426,769 195,737,004
Net income 11,822,432 365,642 - 12,188,074
Quarterly distributions (17,948,156) (386,086) - (18,334,242)
Special Distributions (28,717,048) - - (28,717,048)
Change in unrealized
gain on MBS - - 363,536 363,536
Balance at December 31, 1997 $ 160,722,004 $(274,985) $ 790,305 $161,237,324
The accompanying notes are an integral
part of the financial statements.
F-7
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Operating activities:
Net income $12,188,074 $11,372,365 $13,270,482
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid expenses and
fees 2,916,678 3,013,133 1,983,112
Shared appreciation income and prepayment
penalities (2,620,113) (982,845) -
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 355,951 820,544 164,254
Increase (decrease) in liabilities 101,993 4,215 (622)
Net cash provided by operating
activities 12,942,583 14,227,412 15,417,226
Investing activities:
Principal collections on PIMs including
shared appreciation income and prepayment
penalities of $2,620,113 in 1997 and
$982,845 in 1996, respectively 46,486,602 26,365,229 1,328,482
Principal collections on MBS 2,045,694 3,299,457 2,564,249
Net cash provided by investing
activities 48,532,296 29,664,686 3,892,731
Financing activities:
Quarterly distributions (18,334,242) (18,379,227)(18,403,852)
Special distributions (28,717,048) (25,426,553) -
Net cash used for financing
activities (47,051,290) (43,805,780)(18,403,852)
Net increase in cash and cash equivalents 14,423,589 86,318 906,105
Cash and cash equivalents, beginning of year 6,057,077 5,970,759 5,064,654
Cash and cash equivalents, end of year $20,480,666 $ 6,057,077 $ 5,970,759
Supplemental disclosure of non-cash investing
activities:
Reclassification of investment in PIM to
a MBS $ 8,024,709 $ - $ -
F-8
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Insured Mortgage Limited Partnership (the "Partnership") was
formed on March 21, 1988 by filing a Certificate of Limited
Partnership in The Commonwealth of Massachusetts. The Partnership
issued all of the General Partner Interests to two General Partners
in exchange for capital contributions aggregating $3,000. Krupp
Plus Corporation and Mortgage Services Partners Limited Partnership
are the General Partners of the Partnership and Krupp Depositary
Corporation is the Corporate Limited Partner. Except under certain
limited circumstances upon termination of the Partnership, the
General Partners are not required to make any additional capital
contributions. The Partnership terminates on December 31, 2028,
unless terminated earlier upon the occurrence of certain events as
set forth in the Partnership Agreement.
The Partnership commenced the public offering of Units on July 22,
1988 and completed its public offering on May 23, 1990 having sold
14,956,796 Units for $298,678,321 net of purchase volume discounts
of $457,599.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those
used for federal income tax purposes (see Note G):
MBS
The Partnership, in accordance with Financial Accounting
Standards Board s Special Report on Statement 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ( 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.
PIMs
The Partnership accounts for its MBS portion of a PIM in
accordance with FAS 115 under the classification of held to
maturity. The Partnership carries the Government National
Mortgage Association ( GNMA ) or Federal National Mortgage
Association ( FNMA ) MBS at amortized cost.
The Federal Housing Administration PIMs are carried at
amortized cost unless the General Partners of the Partnership
believe there is an impairment in value, in which case a
valuation allowance would be established in accordance with
F-10
Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan, and Financial Accounting
Standard No. 118, Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures.
Basic interest on PIMs is recognized based on the stated rate
of the Federal Housing Administration ("FHA") mortgage loan
(less the servicer's fee) or the stated coupon rate of the
GNMA or FNMA MBS. Participation interest is recognized as
earned and when deemed collectible by the Partnership.
Continued
B. Significant Accounting Policies, continued
Cash and Cash Equivalents
The Partnership includes all short-term investments with
maturities of three months or less from the date of
acquisition in cash and cash equivalents. The Partnership
invests its cash primarily in commercial paper and money
market funds with a commercial bank and has not experienced
any loss to date on its invested cash.
Prepaid Fees and Expenses
Prepaid fees and expenses represent prepaid acquisition fees,
expenses and prepaid participation servicing fees paid for
the acquisition and servicing of PIMs. The Partnership
amortizes prepaid acquisition fees and expenses using a
method that approximates the effective interest method over a
period of ten to twelve years, which represents the actual
maturity or anticipated repayment of the underlying mortgage.
Acquisition expenses incurred on potential acquisitions which
were not consummated were charged to operations.
The Partnership amortizes prepaid participation servicing
fees using a method that approximates the effective interest
method over a ten-year period beginning at final endorsement
of the loan if a Department of Housing and Urban Development
("HUD") loan or GNMA loan and at closing if a FNMA loan.
Income Taxes
The Partnership is not liable for federal or state income
taxes as Partnership income is allocated to the partners for
income tax purposes. In the event that the Partnership's tax
returns are examined by the Internal Revenue Service or state
taxing authority and the examination results in a change in
Partnership taxable income, such change will be reported to
the partners.
Estimates and Assumptions
The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities, contingent assets and
liabilities and revenues and expenses during the period.
Actual results could differ from those estimates.
C. PIMs
The Partnership has investments in 14 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 the mortgage loan originated under HUD's
FHA lending program (collectively the "insured mortgages"),and (b)
participation interests in the revenue stream and appreciation of
the underlying property above specified base levels. The borrower
conveys these participation features to the Partnership generally
through a subordinated promissory note and mortgage (the
"Agreement").
F-12
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C.PIMs, continued
The Partnership receives guaranteed monthly payments of principal
and interest on the GNMA and FNMA MBS, and HUD insures the FHA
mortgage loan and the mortgage loan underlying the GNMA MBS. The
borrower usually cannot prepay the first mortgage loan during the
first five years and may prepay the first mortgage loan thereafter
subject to a 9% prepayment penalty in years six through nine, a 1%
prepayment penalty in year ten and no prepayment penalty thereafter.
The Partnership may receive interest related to its participation
interests in the underlying property, however,
these amounts are neither insured nor guaranteed.
Generally, the participation features consist of the following: (i)
"Minimum Additional Interest" which is at the rate of .5% 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 in any year 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 the sale or refinancing of the property will be
available to satisfy any accrued but unpaid Shared Income or Minimum
Additional Interest.
Shared Appreciation Interest is payable when one of the following
occurs: (1) the sale of the underlying property to an unrelated
third party on a date which is later than five years from the date
of the Agreement, (2) the maturity date or accelerated maturity date
of the Agreement, or (3) prepayment of amounts due under the
Agreement and the insured mortgage.
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.
On February 25, 1997, the Partnership received a prepayment of the
Rock Creek Apartments PIM. The Partnership received the outstanding
principal balance of $11,139,968 plus outstanding interest.
F-13
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
The Partnership did not receive any prepayment penalty or participation
income from this PIM. The Borrower of the Rock Creek Springs PIM
defaulted on its debt service obligation during the third quarter of
1996. FNMA, the guarantor of the MBS portion of the PIM, was unable
to negotiate a workout plan with the borrower and exercised its
option to repay the MBS in February 1997 and pursue a foreclosure.
On March 21, 1997, the Partnership made a special distribution of
$.75 per Limited Partner interest with the proceeds from the Rock
Creek payoff.
Continued
C. PIMs, continued
On April 25, 1997, the Partnership received a prepayment of the
Silver Springs PIM. The Partnership received the outstanding
principal balance of $7,249,479 plus outstanding interest on April 25, 1997,
while on March 31,1997,the Partnership had received a prepayment penalty of
$652,453 and Minimum Additional and Shared Income Interest of $41,173. On
May 23,1997 the Partnership made a special distribution of $.53 per unit to
the Limited Partners from the proceeds of the Silver Springs PIM prepayment.
During the second quarter of 1997, the Partnership received a
$100,000 payment for all additional interest earned on the Patrician
Apartments PIM through the date of discharge. The Partnership then
converted the investment in the PIM to a multi-family insured mortgage.
On October 27, 1997, the Partnership received a prepayment of the
Hampton Ridge Apartments PIM. The Partnership received the
outstanding principal balance of $9,067,437 plus outstanding
interest. The Partnership received a prepayment penalty of
approximately $508,000 in addition to participation income of
approximately $249,000. On November 21, 1997, the Partnership made
a special distribution of $.64 per unit to the Limited Partners from
the proceeds of the Hampton Ridge PIM prepayment.
During December, 1997, the Partnership received prepayments of the
Southland Station Apartments and Paddock Club Apartments PIMs,
respectively. The Partnership received the outstanding principal
balances of $5,254,302 and $9,942,697 on the Southland Apartments
and Paddock Club Apartments PIMs, respectively. The Partnership
received shared appreciation and prepayment penalties of $565,195
and $894,843 from the prepayment of the Southland Apartments and
Paddock Club Apartments PIMs, respectively. In addition, the
Partnership received participation income of $83,441 and $296,799
from the Southland and Paddock Club Apartment PIMs, respectively.
The Partnership made a special distribution of $1.12 per Limited
Partner interest with the proceeds from the outstanding principal
proceeds and the prepayment penalties during January 1998.
On February 16, 1996, the Partnership received a prepayment of the
Water View Apartments PIM. The Partnership received the outstanding
principal balance of $16,651,149 plus outstanding interest. The
Partnership did not receive any prepayment penalty or participation income
from this PIM. During1995, the operating performance of Water View
Apartments declined due to insufficient levels of occupancy and higher
maintenance and repair expenses due to vandalism. As a result, the
borrower went into default on the underlying loan. Normally, a loan like
this would eventually be recovered through an insurance claim process.
However, the Partnership was able to receive its
insured proceeds on this loan earlier than anticipated due toBear Stearn s
assumption of the underlying insured mortgage.
On February 29, 1996, the Partnership received a prepayment of the
Tarnhill PIM. The Partnership received the outstanding principal
balance of $7,483,000, Shared Appreciation Interest of $982,845 and
Minimum Additional and Shared Income Interest of $223,728.
During August 1996, the Partnership made a special distribution of
$1.70 per unit to the Limited Partners from the proceeds of the
Water View Apartments and Tarnhill PIM prepayments.
Continued
C. PIMs, continued
The Partnership's PIMs consisted of the following at December 31, 1997
and 1996:
Issuer Aggregate Permanent Maturity
Original Number Interest Date Investment Basis
Principal of PIMS Rate Range Range at December 31,
1997 1996
GNMA $ 71,545,542 8 6.75%-8% 2024 to 2032 $ 67,900,036 $ 83,779,526
(a) (b)
FNMA 38,968,543 5 7.5% 1999 to 2001 37,000,564 72,971,368
(c)
FHA 8,354,500 1 8.305% 2031 8,151,123 8,192,027
$118,868,585 14 $113,051,723 $164,942,921
F-15
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
(a) Includes three PIMs - Richmond Park, Saratoga, and Marina Shores -
in which the Partnership holds 38%, 50% and 29% of the total PIM,
respectively. The remaining portion is held by an affiliate of the
Partnership.
(b) The Partnership had ten GNMA PIMs as of December 31, 1996. During
December 1997, the Partnership received repayments of the
Southland Station and Paddock Club Apartments PIMs.
(c) The Partnership had nine FNMA PIMs as of December 31, 1996. During
1997 the Partnership received repayments of the Rock Creek, Silver Springs,
and Hampton Ridge Apartments PIMs while the Patrican Apartments PIM was
converted to a multi-family insured mortgage.
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in 10 states. The apartment complexes range in
size from 92 to 736 units.
D. MBS
At December 31, 1997, the Partnership's MBS portfolio has an amortized
cost of $22,910,553 and gross unrealized gains of $790,305. At December
31, 1996, the Partnership's MBS portfolio has an amortized cost of
$16,931,538 and gross unrealized gains and losses of $566,669 and
$139,900, respectively. The MBS portfolio has maturity dates ranging
from 1999 to 2024.
E. Partners' Equity
Profits from Partnership operations and Distributable Cash Flow are
allocated 97% to the Unitholders and Corporate Limited Partner (the
"Limited Partners") and 3% to the General Partners.
F-16
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
E.Partners' Equity, continued
Upon the occurrence of a capital transaction, as defined in the
Partnership Agreement, net cash proceeds and profits from the capital
transaction will be distributed first, to the Limited Partners until
they have received a return of their total invested capital, second, to
the General Partners until they have received a return of their total
invested capital, third, 99% to the Limited Partners and 1% to the
General Partners until the Limited Partners receive an amount equal to
any deficiency in the 11% cumulative return on their invested capital
that exists through fiscal years prior to the date of the capital
transaction, fourth, to the class of General Partners until they have
received an amount equal to 4% of all amounts of cash distributed under
all capital transactions and fifth, 96% to the Limited Partners and 4%
to the General Partners. Losses from a capital transaction will be
allocated 97% to the Limited Partners and 3% to the General Partners.
As of December 31, 1997, the following cumulative partner contributions and
allocations have been made since inception of the Partnership:
Corporate
Limited General Unrealized
Unitholders Partners Partners Gain Total
Capital
contributions $298,678,321 $ 2,000 $ 3,000 $ - $298,683,321
Syndication costs (20,431,915) - - - (20,431,915)
Quarterly
Distributions (188,160,891) (1,372) (4,137,144) - (192,299,407)
Special
Distributions (54,143,239) (362) - - (54,143,601)
Net income 124,778,588 874 3,859,159 - 128,638,621
Unrealized
gain on MBS - - - 790,305 790,305
Balance,
December 31, 1997 $160,720,864 $ 1,140 $ (274,985) $ 790,305 $161,237,324
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General
Partners or their affiliates receive an Asset Management Fee
equal to .75% per annum of the value of the Partnership's
invested assets payable quarterly. The General Partners may
also receive an incentive management fee in an amount equal
to .3% per annum on the Partnership's Total Invested Assets
providing the Unitholders receive a specified non-cumulative
annual return on their Invested Capital. Total fees payable
to the General Partners as asset management or incentive
F-17 management fees shall not exceed 9.05% of distributable cash
flow over the life of the Partnership.
Additionally, the Partnership reimburses affiliates of the
General Partners for certain expenses incurred in connection
with maintaining the books and records of the Partnership and
the preparation and mailing of financial reports, tax
information and other communications to investors.
Continued
G. Federal Income Taxes
The reconciliation of the net income reported in the accompanying
statement of income with the income reported in the Partnership's 1997
federal income tax return is as follows:
Net income per statement of income $12,188,074
Book to tax difference for timing of PIM
income 57,797
Participation income recognized for tax
purposes previously recorded for book 598,262
Book to tax difference for amortization of
prepaid expenses and fees (52,681)
Net income for federal income tax purposes $12,791,452
The allocation of the 1997 net income for federal income tax purposes is
as follows:
Portfolio
Income
Unitholders $12,486,228
Corporate Limited Partner 83
General Partners 305,141
$12,791,452
For the years ended December 31, 1997, 1996 and 1995 the
average per unit income to the Unitholders for federal income
tax purposes was $.83, $.76 and $.93 respectively.
The basis of the Partnership s assets for financial reporting
purposes is less than its tax basis by approximately
$3,547,000 and $3,289,000 at December 31, 1997 and 1996,
respectively. The basis of the Partnership s liabilities for
financial reporting purposes are the same for its tax basis at
December 31, 1997 and 1996, respectively.
H. Fair Value Disclosure of Financial InstrumentsF-18
The Partnership uses the following methods and assumptions to
estimate the fair value of each class of financial
instruments:
Cash and cash equivalents
The carrying amount approximates fair value due to the
short maturity of those instruments.
MBS
The Partnership estimates the fair value of MBS based on quoted
market prices.
PIMs
There is no active trading market for these investments.
Management estimates the fair value of the PIMs using
quoted market prices of MBS having the same stated coupon
rate. Management does not include any participation
income in the Partnership s estimated fair value arising
from appreciation of the properties,because Management
does not believe it can predict the time of realization
of the feature with any certainty. Based on the
estimated fair value determined using these methods and
assumptions, the Trust's investments in PIMs had gross
unrealized gains of approximately $2,596,000 at December
31, 1997, and gross unrealized gains and losses of
approximately $1,506,000 and $372,000, respectively, at
December 31, 1996.
At December 31, 1997 and 1996, the estimated fair values of
the Partnership's financial instruments are as follows:
(Amounts in thousands)
1997 1996
Cash and cash equivalents $ 20,481 $ 6,057
MBS 23,701 17,358
PIMs 115,648 166,077
$159,830 $189,492
F-19
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Normal Carrying
Monthly Original Amount at
Interest Maturity Payment Face Current Face 12/31/97
PIMs (a) Rate (b) Date (1)(m)(n) Amount Amount (r)
GNMA
Cross Creek Apts.
Richmond, VA 7.75%
(o) 4/15/31 $ 68,900 $ 9,647,610 $ 9,453,618 $ 9,453,618
Marina Shores Apts.
Virginia Beach, VA 8.00%
(c)(h)(i) 5/15/32 43,100 6,200,300 6,073,600 6,073,600
Pope Building Apts.
Chicago, IL 8.00%
(c)(f)(g) 6/15/26 23,800 3,349,600 3,208,509 3,208,509
Remington Place
Apts.
Fort Washington, MD 7.00%
(d)(f)
(g)(p) 10/15/24 89,000 13,200,000 12,367,174 12,367,174
Richmond Park Apts.
Richmond Heights,
OH 7.50%
(c)(f)(g) 8/15/24 67,400 10,000,000 9,351,518 9,351,518
Saratoga Apts.
Rolling Meadow, IL 7.875%
(c)(f)(g) 8/15/24 47,300 6,750,000 6,343,841 6,343,841
Valley Manor Apts.
Dover Township, PA 8.00%
(c)(h)(i) 7/15/24 34,000 4,798,032 4,514,466 4,514,466
Wildflower Apts.
Las Vegas, NV 7.75%
(c)(j) 1/15/25 122,000 17,600,000 16,587,310 16,587,310
71,545,542 67,900,036 67,900,036
FNMA
Bell Station Apts.
Montgomery, AL 7.50% 35,700
(c)(h)(i) 4/1/00 (q) 5,300,000 5,022,472 5,022,472
Brookside Apts.
Carmichael, CA 7.50% 33,000
(c)(f)(g) 2/1/00 (q) 4,900,000 4,635,846 4,635,846
Deering Place Apts.
Charlotte, NC 7.50% 25,800
(e)(h)(i) 3/1/01 (q) 3,825,000 3,655,805 3,655,805
Salishan Apts.
Sacramento, CA 7.50% 106,000
(c)(f)(g) 7/1/00 (q) 15,743,543 14,961,154 14,961,154
The Enclave Apts. 7.50% 62,000
(c)(f)(i) 5/1/00 (q) 9,200,000 8,725,287 8,725,287
38,968,543 37,000,564 37,000,564
FHA
Creekside Apts.
Portland, OR 8.305%
(c)(f)(g) 11/1/31 61,600 8,354,500 8,151,123 8,151,123
Total $118,868,585 $113,051,723 $113,051,723
Continued
F-21
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(a) The Participating Insured Mortgages ("PIMs") consist of
either a mortgage-backed security ("MBS") issued and
guaranteed by the Federal National Mortgage Association
("FNMA"), an MBS issued and guaranteed by the Government
National Mortgage Association ("GNMA") or a sole
participation interest in a first mortgage loan insured by
the United States Department of Housing and Urban
Development ("HUD") and a subordinated promissory note and
mortgage or shared income and appreciation agreement with
the underlying Borrower that conveys participation interests
in the revenue stream and appreciation of the underlying
property above certain specified base levels.
(b) Represents the permanent interest rate of the GNMA or FNMA
MBS or the HUD-insured first mortgage less the servicers
fee. The Partnership may also receive additional interest
which consists of (i) Minimum Additional Interest based on a
percentage of the unpaid principal balance of the first
mortgage on the property, (ii) Shared Income Interest based
on a percentage of monthly gross income generated by the
underlying property in excess of a specified base amount
(but only to the extent it exceeds the amount of Minimum
Additional Interest received during such month), (iii)
Shared Appreciation Interest based on a percentage of any
increase in the value of the underlying property in excess
of a specified base value.
(c) Minimum additional interest is at a rate of .5% per annum
calculated on the unpaid principal balance of the first
mortgage note.
(d) Minimum additional interest is at a rate of 1% per annum
calculated on the unpaid principal balance of the first
mortgage note.
(e) Minimum additional interest is at a rate of .75% per annum
calculated on the unpaid principal balance of the first
mortgage note.
(f) Shared income interest is based on 25% of monthly gross
rental income over a specified base amount.
(g) Shared appreciation interest is based on 25% of any increase
in the value of the project over the specified base value.
(h) Shared income interest is based on 30% of monthly gross
rental income over a specified base amount.
(i) Shared appreciation interest is based on 30% of any increase
in the value of the project over the specified base value.
(j) Shared income interest is based on 35% of monthly gross
rental income over a specified base amount and shared
appreciation interest is based on 35% of any increase in the
value of the project over the specified base value.
(k) The Partnership's GNMA MBS and HUD direct mortgages have
call provisions, which allow the Partnership to accelerate
their respective maturity date.
(l) The normal monthly payment consisting of principal and
interest is payable monthly at level amounts over the term
of the GNMA MBS and the HUD direct mortgages.
(m) PIMs generally may not be prepaid during the first five
years and may be prepaid subject to a 9% prepayment penalty
in years six through nine, a 1% prepayment penalty in year
ten and no prepayment penalty after year ten.
Continued
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE, Continued
__________
(n) The normal monthly payment consisting of principal and
interest for a FNMA PIM is payable at level amounts based on
a 35-year amortization. All unpaid principal and accrued
interest is due at the end of year ten.
(o) The Partnership agreed to reduce the permanent loan rate to
5.75% per annum effective March 1, 1992, with periodic
increases in the interest rate through March 1, 1998 when it
will reach the original permanent rate of 8.25% per annum.
As consideration for this interest rate reduction, the
Partnership will receive 25% of the available net cash flow,
will increase the Shared Appreciation Interest rate from 30%
to 50% and will decrease the base value used for this
calculation from $10,615,000 to $9,650,000. Previously,
Minimum Additional Interest was at a rate of .5% per annum
and Shared Income Interest was based on 30% gross rental
income over a specified base amount.
(p) The Partnership agreed to reduce the permanent loan rate to
6.75% per annum from January 1, 1994 through December 31,
1995, with an increase then to 7.0% per annum beginning
January 1, 1996 through December 31, 1996 and thereafter
7.5% per annum until maturity. This
was done in exchange for a lower Shared Appreciation base
value of $13,200,000 from $15,450,000 and an obligation from
the borrower to
repay the interest not paid under the interest rate
reduction upon the sale of the property or the maturity or
prepayment of subordinated promissory note.
(q) The approximate principal balance due at maturity for each
PIM, respectively, is as follows:
PIM Amount
Bell Station Apartments $ 4,897,000
Brookside Apartments $ 4,527,000
Deering Place Apartments $ 3,534,000
Salishan Apartments $14,546,000
The Enclave Apartments $ 8,500,000
(r) The aggregate cost of PIMs for federal income tax purposes
is $113,051,723.
A reconciliation of the carrying value of PIMs for each of the three years
in the period ended December 31, 1997 is as follows:
1997 1996 1995
Balance at beginning of period $164,942,921 $190,325,305 $191,653,787
Deductions during period:
Reclassification (8,024,709) - -
Prepayments and
principal collections (43,866,489) (25,382,384) (1,328,482)
Balance at end of period $113,051,723 $164,942,921 $190,325,305
F-24