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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________to_____________
Commission file number 0-15815
Krupp Insured Plus Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2915281
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 523-0066
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. / /.
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes / / No /X/
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: See Item 15.
The exhibit index is located on pages 9-11.
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PART I
This Form 10-K contains forward-looking statements within the meaning of section
27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward looking statements as a result of a number of factors, including those
identified herein.
ITEM 1. BUSINESS
On December 20, 1985, The Krupp Corporation and The Krupp Company Limited
Partnership-IV (the "General Partners") formed Krupp Insured Plus Limited
Partnership (the "Partnership"), a Massachusetts Limited Partnership. The
Partnership raised approximately $149 million through a public offering of
limited partner interests evidenced by units of depositary receipts ("Units")
and used the net proceeds primarily to acquire participating insured mortgages
("PIMs") and mortgage backed securities ("MBS"). The Partnership considers
itself to be engaged in the industry segment of investment in mortgages.
The Partnership's investments in PIMs consist of a securitized multi-family
first mortgage loan or a sole participation interest in a Department of Housing
and Urban Development ("HUD") multi-family insured first mortgage loan, and
participation interests in the current revenue stream of the mortgaged property
and any increase in the mortgaged property's value above certain specified base
levels. The Partnership provided the funds for the first mortgage loan made to
the borrower by acquiring either a securitized first mortgage loan ("MBS"),
originated under the lending program of Fannie Mae or a sole participation
interest in a first mortgage loan originated under the Federal Housing
Administration ("FHA") lending program (collectively the "insured mortgages").
The Partnership receives the participation interests in the mortgaged property
as additional consideration for providing the funds for the first mortgage loan
and accepting a below market interest rate on the insured mortgage. The borrower
conveyed the participation interests to the Partnership through either a
subordinated promissory note and mortgage or a shared income and appreciation
agreement. Fannie Mae guarantees the principal and interest payments for the
Fannie Mae insured mortgage. HUD insures the first mortgage loan originated
under the FHA lending program. The participation interests conveyed to the
Partnership by the borrower are neither insured nor guaranteed.
The Partnership also has investments in MBS backed by single-family or
multi-family mortgage loans issued or originated by the Government National
Mortgage Association ("GNMA"), Fannie Mae or the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae and FHLMC guarantee the principal and interest
on the Fannie Mae and FHLMC MBS, respectively. GNMA guarantees the timely
payment of principal and interest on its MBS and HUD insures the pooled mortgage
loans underlying the GNMA MBS.
Although the Partnership will terminate no later than December 31, 2025 the
Partnership anticipates realizing the value of the PIMs through repayment well
before this date. Therefore, dissolution of the Partnership should occur
significantly prior to December 31, 2025.
The Partnership's investments are not subject to seasonal fluctuations. However,
the realization of the participation features of the PIMs are subject to similar
risks associated with equity real estate investments, including: reliance on the
owner's operating skills, ability to maintain occupancy levels, control
operating expenses, maintain the property and provide adequate insurance
coverage; adverse changes in general economic conditions, adverse local
conditions, and changes in governmental regulations, real estate zoning laws, or
tax laws; and other circumstances over which the Partnership may have little or
no control.
The Partnership anticipates that there will be sufficient cash flow from the
mortgages to meet cash requirements. To the extent that the Partnership's cash
flow is insufficient to meet the Partnership's operating expenses and
liabilities, it will be necessary for the Partnership to obtain additional funds
by liquidating its investment in one or more mortgages or by borrowing. The
Partnership may borrow money on an unsecured or secured basis to further the
purposes of the Partnership. The Partnership may pledge mortgages as security
for any permitted borrowing. The Partnership, under some circumstances, may
borrow funds from any general partner or an affiliate of any general partner.
However, the transaction must include interest rates and other finance charges
and fees not in excess of the amounts that are charged by unaffiliated lenders
for comparable loans and must satisfy other conditions specified in the
partnership agreement. The Partnership has not borrowed any funds during the
past and does not intend to do so in the future.
The FHA coinsurance loan program under Section 221(d)(4) of the National Housing
Act provides for loans with 40 year terms. However, this program allows for a
call option at any time after ten years, upon one year's notice. The
subordinated promissory note and subordinated mortgage of the PIM provides for
acceleration of maturity at the earlier of the sale of the underlying property
or the call date, typically expected to be a date ten years after the date of
final endorsement for mortgage insurance.
From time to time, the Partnership expects that it may realize the principal and
participation in residual value, if any, of its mortgages before maturity. It
was expected that the mortgages would be repaid after a period of ownership of
approximately ten years from the dates of the closings of permanent loans.
Realization of the value of mortgages, however, have been made at earlier and
later dates.
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The Partnership will not underwrite securities of other issuers, offer
securities in exchange for property, invest in securities of other issuers for
the purpose of exercising control or issue senior securities, and the
Partnership has not engaged in any of these activities during the past. The
Partnership has not repurchased or reacquired any of the partner interests from
partners or units from unit holders in the past and does not intend to do so in
the future. The Partnership may not make loans to any general partner or any
affiliate of any general partner and will not make loans to any other persons,
other than mortgage investments of the type described above.
The requirements for compliance with federal, state and local regulations to
date have not adversely effected the Partnership's operations and the
Partnership does not presently anticipate adverse effects in the future.
As of December 31, 2001, there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership is a
party or to which any of its investments is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 2001 was approximately
5,500. One of the objectives of the Partnership is to provide quarterly
distributions of cash flow generated by its investments in mortgages. The
Partnership presently anticipates that future operations will continue to
generate cash available for distribution. Adjustments may be made to the
distribution rate in the future due to the realization and payout of the
existing mortgages.
During August 2001, the Partnership made a special distribution of $1.25 per
Limited Partner interest from the principal proceeds and prepayment premium
received from the Boulders Apartments MBS.
During November 2000, the Partnership made a special distribution of $.33 per
Limited Partner interest from the principal proceeds and prepayment premium
received from the Chateau Bijou MBS.
During January 2000, the Partnership made a special distribution of $1.30 per
Limited Partner interest from the principal proceeds and Shared Appreciation
Interest from the LaCosta PIM.
The Partnership may make special distributions in the future if MBS or PIMs
prepay or a sufficient amount of cash is available from MBS and PIM principal
collections.
The Partnership made the following distributions, in quarterly installments, and
special distributions, to its Partners during the two years ended December 31,
2001 and 2000:
<Table>
<Caption>
2001 2000
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Amount Per Unit Amount Per Unit
------------ -------- ------------ --------
Distributions:
Limited Partners $ 3,000,040 $ .40 $ 5,700,076 $ .76
General Partners 78,220 - 97,014 -
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3,078,260 5,797,090
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Special Distributions:
Limited Partners 9,375,124 $ 1.25 12,225,162 $ 1.63
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Total Distributions $ 12,453,384 $ 18,022,252
============ ============
</Table>
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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.
<Table>
<Caption>
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ -------------
Total revenues $ 3,022,454 $ 3,587,833 $ 4,215,833 $ 4,823,813 $ 6,078,663
Net income 2,540,547 3,038,185 3,610,232 4,171,014 4,743,768
Net income allocated to:
Limited Partners 2,464,331 2,947,039 3,501,925 4,045,884 4,601,455
Average Per Unit .33 .39 .47 .54 .61
General Partners 76,216 91,146 108,307 125,130 142,313
Total assets at:
December 31 29,901,042 39,651,355 54,564,577 57,367,612 67,795,436
Distributions to:
Limited Partners 3,000,040 5,700,076 5,700,076 5,700,075 5,700,093
Average per Unit .40 .76 .76 .76 .76
Special to Limited Partners 9,375,124 12,225,162 - 8,400,111 4,575,060
Average per Unit 1.25 1.63 - 1.12 .61
General Partners 78,220 97,014 112,626 137,665 172,798
</Table>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the Partnership's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. These factors include, among other
things, federal, state or local regulations; adverse changes in general economic
or local conditions; prepayments of mortgages; failure of borrowers to pay
participation interests due to poor operating results at properties underlying
the mortgages; uninsured losses and potential conflicts of interest between the
Partnership and its Affiliates, including the General Partners.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001 the Partnership had liquidity consisting of cash and cash
equivalents of approximately $1.4 million as well as the cash flow provided by
its investments in the PIMs and MBS. The Partnership anticipates that these
sources will be adequate to provide the Partnership with sufficient liquidity to
meet its obligations as well as to provide distributions to its investors.
The most significant demand on the Partnership's liquidity is quarterly
distributions paid to investors, which are approximately $750,000 per quarter.
Funds for the quarterly distributions come from the monthly principal and
interest payments received on the PIMs and MBS, the principal prepayments of the
PIMs and MBS, interest earned on the Partnership's cash and cash equivalents and
cash reserves. The portion of distributions attributable to the principal
collections and cash reserves reduces the capital resources of the Partnership.
As the capital resources of the Partnership decrease, the total cash flows to
the Partnership also will decrease and over time will result in periodic
adjustments to the distributions paid to investors. The General Partners
periodically review the distribution rate to determine whether an adjustment is
necessary based on projected future cash flows. In general, the General Partners
try to set a distribution rate that provides for level quarterly distributions.
Based on current projections, the General Partners expect that the Partnership
will reduce the distribution rate of $.10 per Limited Partner interest per
quarter to $.06 per Limited Partner interest per quarter with the May 2002
distribution.
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In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's investments in the PIMs also may provide
additional income through a participation interest in the underlying properties.
However, this payment is neither guaranteed nor insured and depends on the
successful operations of the underlying properties.
The Partnership received a prepayment of the Royal Palm Place PIM. On January 2,
2002, the Partnership received $378,480 of Shared Appreciation Interest and
$121,490 of Minimum Additional Interest. On February 27, 2002 the Partnership
received $5,563,531 representing the principal proceeds on the first mortgage.
The Partnership has declared a special distribution of $.80 per Limited Partner
interest consisting of Shared Appreciation Interest and prepayment proceeds
which will be paid in the first quarter of 2002.
The Partnership received a payoff of the Boulders Apartments MBS on July 9, 2001
for $9,045,042. The Partnership also received a prepayment premium of $306,000
from this payoff. On August 17, 2001, the Partnership paid a special
distribution of $1.25 per Limited Partner interest from the proceeds received.
The Partnership received a payoff from the Chateau Bijou MBS on September 19,
2000 for $2,266,064. During October the Partnership received a 9% prepayment
premium of $203,946 from this payoff. The Partnership paid a special
distribution in November of $.33 per Limited Partner interest from the proceeds
received.
In December 1999, the Partnership received a prepayment in the amount of
$9,746,923 representing the outstanding principal balance due on the La Costa
PIM. The Borrower defaulted on the first mortgage loan underlying the PIM in
June of 1999. The Partnership continued to receive its full principal and
interest payments until the default was resolved as GNMA guaranteed those
payments to the Partnership. The Partnership did not receive any participation
interest as a result of this default. However, the Partnership received $10,000
from the Borrower to release the Subordinated Promissory Note. This payment was
classified as Shared Appreciation Interest. On January 11, 2000, the Partnership
paid a special distribution to the investors of $1.30 per Limited Partner
interest.
With the payoff of the Royal Palm Place PIM in January, 2002, the Partnership's
only remaining PIM investment is backed by the first mortgage loan on Vista
Montana. Presently, the General Partners do not expect Vista Montana to pay the
Partnership any participation interest or to be sold or refinanced during 2002.
However, if favorable market conditions provide the borrower an opportunity to
sell the property, there are no contractual obligations remaining that would
prevent a prepayment of the underlying first mortgage. Vista Montana operates
under a long-term restructure program. The Partnership agreed in 1993 to change
the original participation terms and to permanently reduce the rate on the first
mortgage loan to 7.375% per annum when construction was significantly delayed.
The borrower also raised additional equity at the time of the modification by
selling investment tax credits. These funds have been held in escrow and are
used to fund operating deficits. Although occupancy in the Phoenix sub-market is
generally in the low 90% range, the property is currently 80% occupied because
of a fire. Repairs to the property are underway and will be covered by the
borrower's property insurance.
The Partnership has the option to call its remaining PIM by accelerating the
maturity date of the loan. If the call feature is exercised for the whole PIM
then the insurance feature of the loan would be canceled. Therefore, the
Partnership will determine the merits of exercising the call option 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.
CRITICAL ACCOUNTING POLICY
The Partnership's critical accounting policy relates primarily to revenue
recognition related to the participation feature of the Partnership's PIM
investments. The Partnership's policy is as follows:
Basic interest on PIMs is recognized at the stated rate of the Federal
Housing Administration insured mortgage (less the servicer's fee) or the
stated coupon rate of the Fannie Mae MBS. The Partnership recognizes interest
related to the participation features when the amount becomes fixed and the
transaction that gives rise to such amount is finalized, cash is received,
and all contingencies are resolved. This could be the sale or refinancing of
the underlying real estate, which results in a cash payment to the
Partnership or a cash payment made to the Partnership from surplus cash
relative to the participation feature.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSESSMENT OF CREDIT RISK
The Partnership's investments in its insured mortgage portion and MBS portion of
its PIMs and its MBS are guaranteed and/or insured by GNMA, Fannie Mae, FHLMC or
HUD and therefore the certainty of their cash flows and the risk of material
loss of the amounts invested depends on the creditworthiness of these entities.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs. These
obligations are not guaranteed
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by the U.S. Government or the Federal Home Loan Bank Board. However, Fannie Mae
and FHLMC are two of the largest corporations in the United States with
significant experience in mortgage securitizations. In addition, their MBS
instruments carry the highest credit rating given to financial instruments. GNMA
guarantees the full and timely payment of principal and basic interest on the
securities it issues, which represents interest in pooled mortgages insured by
HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by
the full faith and credit of the U.S. Government.
The Partnership includes in cash and cash equivalents approximately $1.1 million
of commercial paper, which is issued by entities with a credit rating equal to
one of the top two rating categories of a nationally recognized statistical
rating organization.
INTEREST RATE RISK
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
December 31, 2001, the Partnership's PIMs and MBS comprise the majority of the
Partnership's assets. Decreases in interest rates may accelerate the prepayment
of the Partnership's investments. The Partnership does not utilize any
derivatives or other instruments to manage this risk as the Partnership plans to
hold its PIM investments to expected maturity, while it is expected that
substantially all of the MBS will prepay over the same time period, thereby
mitigating any potential interest rate risk to the disposition value of any
remaining MBS.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the fund forecasts prepayments based on trends in similar
securities as reported by statistical reporting entities such as Bloomberg. For
PIMs, the Partnership incorporates prepayment assumptions into planning as
individual properties notify the Partnership of the intent to prepay or as they
are scheduled to mature.
The table below provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates ("WAIR") by expected maturity dates. The expected
maturity date is contractual maturity adjusted for expectations of prepayments.
<Table>
<Caption>
Expected maturity dates ($ in thousands)
-----------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total Fair
Face Value(1)
Value
--------------------------------------------------------------------------------------
Interest-sensitive assets:
MBS $ 256 $ 231 $ 211 $ 194 $ 181 $ 7,844 $ 8,917 $ 9,411
WAIR 8.41% 8.41% 8.41% 8.41% 8.41% 8.41% 8.41%
PIMs 5,667 111 120 129 139 12,613 18,779 19,649
WAIR 7.38% 7.38% 7.38% 7.38% 7.38% 7.38% 7.67%
-------- -------- ------- ------- -------- ---------- --------- ---------
Total Interest-
sensitive assets $ 5,923 $ 342 $ 331 $ 323 $ 320 $ 20,457 $ 27,696 $ 29,060
======== ======== ======= ======= ======== ========== ========= =========
</Table>
(1) The methodology used by the Partnership to estimate the fair value of each
class of financial instrument is described in Note H to the Partnership's
financial statements presented in Appendix A to this report. As described in
that note, the Partnership does not include an estimate of value for the
participation interest associated with its PIM investments.
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RESULTS OF OPERATIONS
The following discussion relates to the operation of the Partnership during the
years ended December 31, 2001, 2000 and 1999.
<Table>
<Caption>
(Amounts in thousands)
2001 2000 1999
------- -------- --------
Interest income on PIMs:
Basic interest $ 1,446 $ 1,423 $ 2,085
Participation interest 306 214 -
Interest income on MBS 1,171 1,702 1,900
Other interest income 100 249 231
Partnership expenses (390) (449) (505)
Amortization of prepaid fees
and expenses (92) (101) (101)
------- -------- --------
Net income $ 2,541 $ 3,038 $ 3,610
======= ======== ========
</Table>
Net income decreased for 2001 when compared with 2000 primarily due to decreases
in interest income on MBS and other interest income. This is partially offset by
an increase in participation interest and a decrease in asset management fees.
Interest income on MBS decreased in 2001 when compared to 2000 primarily due to
the payoffs of the Boulders Apartments MBS in July 2001 and the Chateau Bijou
MBS in September of 2000. Other interest income decreased due to lower average
interest rates earned on cash balances available for short-term investing in
2001 as compared with 2000. Participation interest increased due to the
collection of a prepayment premium from the Boulders Apartments MBS payoff in
July 2001. The decrease in asset management fees is due to the Partnership's
asset base declining.
Net income decreased for 2000 when compared with 1999 due primarily to the
decrease in interest income on PIMs and MBS. Basic interest on PIMs decreased in
2000 as compared to 1999 due primarily to the prepayment of the LaCosta PIM in
December 1999. MBS interest income decreased in 2000 as compared to 1999
primarily due to principal collections received on the remaining MBS investments
and the Chateau Bijou MBS payoff in September 2000. Participation interest
increased in 2000 compared with 1999 due to the Chateau Bijou MBS prepayment
premium and Shared Appreciation Interest from the LaCosta PIM payoff received in
2000. Expenses decreased in 2000 as compared with 1999 due primarily to lower
asset management fees caused by a declining asset base.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to the
directors and executive officers of The Krupp Corporation, which is a General
Partner of the Partnership and is the general partner of The Krupp Company
Limited Partnership-IV, the other General Partner of the Partnership, is as
follows:
<Table>
<Caption>
Position with
Name and Age The Krupp Corporation
------------ ---------------------
Douglas Krupp (55) Co-Chairman, President and Director
George Krupp (57) Co-Chairman, President and Director
Robert A. Barrows (44) Vice President and Chief Accounting Officer
</Table>
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer
of The Berkshire Group, an integrated real
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estate financial services firm engaged in real estate acquisitions, property
management, investment sponsorship, venture capital investing, mortgage banking
and financial management, and ownership of two operating companies through
private equity investments. Mr. Krupp has held the position of Co-Chairman since
The Berkshire Group was established as The Krupp Companies in 1969 and he has
served as the Chief Executive Officer since 1992. He is a graduate of Bryant
College where he received an honorary Doctor of Science in Business
Administration in 1989.
George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group, an
integrated real estate financial services firm engaged in real estate
acquisitions, property management, investment sponsorship, venture capital
investing, mortgage banking and financial management, and ownership of two
operating companies through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish
High School in Waltham, Massachusetts since September of 1997. Mr. Krupp
attended the University of Pennsylvania and Harvard University and holds a
Master's Degree in History from Brown University. Douglas and George Krupp are
brothers.
Robert A. Barrows is Senior Vice President and Chief Financial Officer of
Berkshire Mortgage Finance. Mr. Barrows has held several positions within The
Berkshire Group since joining the company in 1983 and is currently responsible
for accounting, financial reporting and treasury functions 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, 2001 no person owned of record or was known by the General
Partners to own beneficially more than 5% of the Partnership's 7,500,099
outstanding Limited Partner interests. The only interests held by management or
its affiliates consist of the 2.5% general partner interest held by The Krupp
Corporation, the 97.5% general partner interest held by The Krupp Company
Limited Partnership-IV and the 100 limited partner interests (0.0013% of the
total outstanding) held by Krupp Depositary Corporation, an affiliate of the
General Partners.
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.
Upon the occurrence of a terminating capital transaction, as defined in the
Partnership Agreement, the net cash proceeds and winding up of the affairs of
the Partnership will be allocated among the Partners first, to each class of
Partners in the amount equal to, or if less than, in proportion to, the positive
balance in the Partner's capital accounts, second, to the Limited Partners until
they have received a return of their total invested capital, third, to the
General Partners until they have received a return of their total invested
capital, fourth, 99% to the Limited Partners and 1% to the General Partners
until the Limited Partners have received 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, fifth, to the General Partners until they have
received an amount equal to 4% of all amounts of cash distributed under all
capital transactions and sixth, 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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.
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During 2001 The Krupp Company Limited Partnership IV, a General Partner,
received $243,650 related to the Asset Management Fee.
Additionally, the Partnership reimburses affiliates of the General Partners for
certain expenses incurred in connection with maintaining the books and records
of the Partnership, the preparation and mailing of financial reports, tax
information and other communications to investors and legal fees and expenses.
During 2001, The Berkshire Companies Limited Partnership and Berkshire Mortgage
Finance Limited Partnership, affiliates of the General Partners, received a
total of $53,989 in reimbursements.
During 2001, the General Partners received distributions totaling $78,220
related to their 3% share of Distributable Cash Flow.
ITEM 14. CONTROLS AND PROCEDURES
Not applicable.
ITEM 15. 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) REPORTS ON FORM 8-K
During the last quarter of the year ended December 31, 2001 the
Partnership did not file any reports on Form 8-K.
(c) Exhibits:
NUMBER AND DESCRIPTION
UNDER REGULATION S-K
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS INCLUDING
INDENTURES:
(4.1) Amended Agreement of Limited Partnership dated as of June 27, 1986
[Exhibit A to Prospectus included in Amendment No. 1 of
Registrant's Registration Statement on Form S-11 dated July 2,
1986 (File No. 33-2520)].*
(4.2) Subscription Agreement whereby a subscriber agrees to purchase
Units and adopts the provisions of the Amended Agreement of
Limited Partnership [Exhibit D to Prospectus included in Amendment
No. 1 of Registrant's Registration Statement on Form S-11 dated
July 2, 1986 (File No. 33-2520)].*
(4.3) Eighth Amendment and Restatement of Certificate of Limited
Partnership filed with the Massachusetts Secretary of State on
February 6, 1987 [Exhibit 4.3 to Registrant's Report on Form 10-K
for the year ended December 31, 1986 (File No. 33-2520)].*
(10) MATERIAL CONTRACTS:
VISTA MONTANA
(10.1) Subordinated Promissory Note, dated March 31, 1988, between VM
Associates Limited Partnership, an Arizona Limited Partnership and
GMAC Mortgage Corporation of PA. [Exhibit 19.7 to Registrant's
Report on Form 10-Q for the Quarter Ended March 31, 1988 (File No.
0-15815)].*
(10.2) Subordinated Multi-family Deed of Trust, dated March 31, 1988,
between VM Associates Limited Partnership, an Arizona Limited
Partnership, and GMAC Mortgage Corporation of PA [Exhibit 19.8 to
Registrant's Report on Form 10-Q for the Quarter Ended March 31,
1988 (File No. 0-15815)].*
9
<Page>
(10.3) Assignment of Subordinated Deed of Trust, dated March 31, 1988,
between GMAC Mortgage Corporation of PA, and Krupp Insured Plus-II
Limited Partnership, a Massachusetts Limited Partnership. [Exhibit
19.9 to Registrant's Report on Form 10-Q for the Quarter Ended
March 31, 1988 (File No. 0-15815)].*
(10.4) Assignment of Closing Documents, dated July 12, 1988 by and
between Krupp Insured Plus-II Limited Partnership ("KIP-II"), a
Massachusetts limited partnership, and Krupp Insured Plus Limited
Partnership ("KIP-I"), a Massachusetts limited partnership.
[Exhibit 19.10 to Registrant's Report on Form 10-Q for the Quarter
Ended June 30, 1988 (File No. 0-15815)].*
(10.5) Deed of Trust, dated March 31, 1988 between VM Associates Limited
Partnership, an Arizona limited partnership and Transamerica Title
Insurance Company, a California corporation. [Exhibit 19.11 to
Registrant's Report on Form 10-Q for the Quarter Ended September
30, 1988 (File No. 0-15815)].*
(10.6) Deed of Trust Note, dated March 31, 1988, between VM Associates
Limited Partnership, an Arizona limited partnership and GMAC
Mortgage Corporation of PA, a Pennsylvania corporation. [Exhibit
19.12 to Registrant's Report on Form 10-Q for the Quarter Ended
September 30, 1988 (File No. 0-15815)].*
(10.7) Assignment of Mortgage and Collateral Documents, dated March 31,
1988 by and between Krupp Insured Plus-II Limited Partnership, a
Massachusetts limited partnership and GMAC Mortgage Corporation of
PA, a Pennsylvania corporation. [Exhibit 19.13 to Registrant's
Report on Form 10-Q for the Quarter Ended September 30, 1988 (File
No. 0-15815)].*
(10.8) Servicing Agreement, dated March 31, 1988 by and between Krupp
Insured Plus-II Limited Partnership, a Massachusetts limited
partnership and GMAC Mortgage Corporation of PA, a Pennsylvania
corporation. [Exhibit 19.14 to Registrant's Report on Form 10-Q
for the Quarter Ended September 30, 1988 (File No. 0-15815)].*
(10.9) Modification to the First mortgage loan and subordinated
Promissory Note, dated June 7, 1993, by and between Krupp Insured
Plus-II Limited Partnership and V.M. Associates Limited
Partnership. [Exhibit 10.28 to Registrant's Report on Form 10-K
for the Year Ended December 31, 1994 (File No. 0-15815)].*
(10.10) Assignment of interest from Krupp Insured Plus Limited Partnership
II to Krupp Insured Plus Limited Partnership, dated February 6,
1995. [Exhibit 10.29 to Registrant's Report on Form 10-K for the
Year Ended December 31, 1994 (File No. 0-15815)].*
ROYAL PALM PLACE
(10.11) Supplement to Prospectus for FNMA Pool No. MB-109057. [Exhibit
10.30 to Registrant's Report on Form 10-K for the year ended
December 31, 1995(File No. 0-15815)].*
(10.12) Subordinated Multifamily Mortgage dated March 20, 1991 between
Royal Palm Place, Ltd., a Florida limited partnership (the
"Mortgagor") and Krupp Insured Plus-III Limited Partnership (the
"Mortgagee"). [Exhibit 19.2 to Registrant's Report on Form 10-Q
for the Quarter Ended June 30, 1991 (File No. 0-15815)].*
(10.13) Amended and Restated Subordinated Promissory Note dated December
1, 1995 between Royal Palm Place, Ltd., a Florida limited
partnership (the "Mortgagor") and Krupp Insured Plus-III Limited
Partnership (the "Holder") [Exhibit 10.32 to Registrant's Report
on Form 10-K for the year ended December 31, 1995(File
No.0-15815)].*
(10.14) Modification Agreement dated March 20, 1991 by and between Royal
Palm Place, Ltd., a Florida limited partnership and Krupp Insured
Plus-III Limited Partnership. [Exhibit 19.4 to Registrant's Report
on Form 10-Q for the Quarter Ended June 30, 1991 (File No.
0-15815)].*
(10.15) Participation Agreement dated March 20, 1991 between Krupp Insured
Plus-III Limited Partnership and Krupp Insured Plus Limited
Partnership. [Exhibit 19.1 to Registrant's Report on Form 10-Q for
the Quarter Ended September 30, 1991 (File No. 0-15815)].*
10
<Page>
(99) OTHER:
(99.1) Principal Executive Officer Certification pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+
(99.2) Chief Accounting Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+
* Incorporated by reference.
+ Filed herein
11
<Page>
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 7th day
of January, 2003.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
By: The Krupp Corporation,
a General Partner
By: /s/ Douglas Krupp
-----------------
Douglas Krupp, Co-Chairman
(Principal Executive Officer) and
Director of The Krupp Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on the 7th day of January, 2003.
SIGNATURES TITLE(S)
/s/ Douglas Krupp Co-Chairman (Principal Executive Officer),
- ------------------------- President and Director of The Krupp
Douglas Krupp Corporation, a General Partner of the
Registrant.
/s/ George Krupp Co-Chairman (Principal Executive Officer) and
- ------------------------- Director of The Krupp Corporation, a
George Krupp General Partner of the Registrant
/s/ Robert A. Barrows Vice President and Chief Accounting Officer of
- ------------------------- The Krupp Corporation, a General Partner
Robert A. Barrows of the Registrant.
12
<Page>
CERTIFICATIONS
I, Douglas Krupp, certify that:
1. I have reviewed this annual report on Form 10-K/A of Krupp Insured Plus
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report.
Date: January 7, 2003
/s/ Douglas Krupp
---------------------------
Douglas Krupp
Principal Executive Officer
13
<Page>
CERTIFICATIONS
I, Robert A. Barrows, certify that:
1. I have reviewed this annual report on Form 10-K/A of Krupp Insured Plus
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report.
Date: January 7, 2003
/s/ Robert A. Barrows
----------------------------
Robert A. Barrows
Chief Accounting Officer
14
<Page>
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, 2001
F- 1
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
----------
<Table>
Report of Independent Accountants F-3
Balance Sheets at December 31, 2001 and 2000 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 2001, 2000 and 1999 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 2001, 2000 and 1999 F-6
Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999 F-7
Notes to Financial Statements F-8 - F-15
</Table>
All schedules are omitted as they are not applicable or not required, or the
information is provided in the financial statements or the notes thereto.
F- 2
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Partners of
Krupp Insured Plus Limited Partnership:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Krupp
Insured Plus Limited Partnership (the "Partnership") at December 31, 2001 and
2000 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 22, 2002
F- 3
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 2001 and 2000
----------
<Table>
<Caption>
ASSETS
2001 2000
------------- -------------
Participating Insured Mortgages
("PIMs") (Notes B, C, H and I) $ 18,779,477 $ 18,875,248
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, D and H) 9,410,920 18,864,480
------------- -------------
Total mortgage investments 28,190,397 37,739,728
Cash and cash equivalents (Notes B and H) 1,422,582 1,460,786
Interest receivable and other assets 190,282 260,797
Prepaid acquisition fees and expenses, net of
accumulated amortization of $785,095 and
$725,937, respectively (Note B) 59,157 118,315
Prepaid participation servicing fees, net of
accumulated amortization of $292,428 and
$259,323, respectively (Note B) 38,624 71,729
------------- -------------
Total assets $ 29,901,042 $ 39,651,355
============= ==============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 17,877 $ 17,650
------------- -------------
Partners' equity (deficit) (Notes A, E and I):
Limited Partners
(7,500,099 Limited Partner interests outstanding) 29,633,496 39,544,329
General Partners (249,219) (247,215)
Accumulated Comprehensive Income (Note B) 498,888 336,591
------------- -------------
Total Partners' equity 29,883,165 39,633,705
------------- -------------
Total liabilities and Partners' equity $ 29,901,042 $ 39,651,355
============= =============
</Table>
The accompanying notes are an integral
part of the financial statements.
F- 4
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME & COMPREHENSIVE INCOME
For the Years Ended December 31, 2001, 2000 and 1999
----------
<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------
Revenues:
Interest income - PIMs
Basic interest $ 1,446,220 $ 1,422,912 $ 2,085,273
Participation interest 306,000 213,946 -
Interest income - MBS 1,170,585 1,701,993 1,899,734
Other interest income 99,649 248,982 230,826
------------ ------------ ------------
Total revenues 3,022,454 3,587,833 4,215,833
------------ ------------ ------------
Expenses:
Asset management fee to an affiliate (Note F) 243,650 295,192 376,755
Expense reimbursements to affiliates (Note F) 53,989 56,015 42,279
Amortization of prepaid fees and expenses (Note B) 92,263 101,056 101,059
General and administrative 92,005 97,385 85,508
------------ ------------ ------------
Total expenses 481,907 549,648 605,601
------------ ------------ ------------
Net income (Note G) 2,540,547 3,038,185 3,610,232
Other Comprehensive Income:
Net change in unrealized gain on MBS 162,297 72,745 (599,917)
------------ ------------ ------------
Total Comprehensive Income $ 2,702,844 $ 3,110,930 $ 3,010,315
============ ============ ============
Allocation of net income (Notes E and G):
Limited Partners $ 2,464,331 $ 2,947,039 $ 3,501,925
============ ============ ============
Average net income per Limited Partner Interest
(7,500,099 Limited Partner interests outstanding) $ .33 $ .39 $ .47
============ ============ ============
General Partners $ 76,216 $ 91,146 $ 108,307
============ ============ ============
</Table>
The accompanying notes are an integral
part of the financial statements.
F- 5
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999
----------
<Table>
<Caption>
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
------------- ----------- ------------- -------------
Balance at December 31, 1998 $ 56,720,679 $ (237,028) $ 863,763 $ 57,347,414
Net income 3,501,925 108,307 - 3,610,232
Quarterly distributions (5,700,076) (112,626) - (5,812,702)
Change in unrealized gain
on MBS - - (599,917) (599,917)
------------- ----------- ------------- -------------
Balance at December 31, 1999 54,522,528 (241,347) 263,846 54,545,027
Net income 2,947,039 91,146 - 3,038,185
Quarterly distributions (5,700,076) (97,014) - (5,797,090)
Special distributions (12,225,162) - - (12,225,162)
Change in unrealized gain
on MBS - - 72,745 72,745
------------- ----------- ------------- -------------
Balance at December 31, 2000 39,544,329 (247,215) 336,591 39,633,705
Net income 2,464,331 76,216 - 2,540,547
Quarterly distributions (3,000,040) (78,220) - (3,078,260)
Special distribution (9,375,124) - - (9,375,124)
Change in unrealized gain
on MBS - - 162,297 162,297
------------- ----------- ------------- -------------
Balance at December 31, 2001 $ 29,633,496 $ (249,219) $ 498,888 $ 29,883,165
============= ===========- ============= =============
</Table>
The accompanying notes are an integral
part of the financial statements.
F- 6
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999
----------
<Table>
<Caption>
2001 2000 1999
------------ ------------- ---------------
Operating activities:
Net income $ 2,540,547 $ 3,038,185 $ 3,610,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 92,263 101,056 101,059
Shared Appreciation Interest and prepayment premiums (306,000) (213,946) -
Premium amortization - 52,528 6,630
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 70,515 59,197 47,786
Increase (decrease) in liabilities 227 (1,900) (648)
------------ ------------- ---------------
Net cash provided by operating activities 2,397,552 3,035,120 3,765,059
------------ ------------- ---------------
Investing activities:
Principal collections and prepayments on PIMs
including Shared Appreciation Interest of $10,000 in 2000 95,771 167,751 10,041,106
Principal collections on MBS including a prepayment premium
of $306,000 in 2001 and $203,946 in 2000. 9,921,857 3,278,080 1,355,494
------------ ------------- ---------------
Net cash provided by investing activities 10,017,628 3,445,831 11,396,600
------------ ------------- ---------------
Financing activities:
Quarterly distributions (3,078,260) (5,797,090) (5,812,702)
Special distributions (9,375,124) (12,225,162) -
------------ ------------- ---------------
Net cash used for financing activities (12,453,384) (18,022,252) (5,812,702)
------------ ------------- ---------------
Net (decrease) increase in cash and cash equivalents (38,204) (11,541,301) 9,348,957
Cash and cash equivalents, beginning of period 1,460,786 13,002,087 3,653,130
------------ ------------- ---------------
Cash and cash equivalents, end of period $ 1,422,582 $ 1,460,786 $ 13,002,087
============ ============= ===============
Non cash activities:
Increase (decrease) in Fair Value of MBS $ 162,297 $ 72,745 $ (599,917)
============ ============= ===============
</Table>
The accompanying notes are an integral
part of the financial statements.
F- 7
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
----------
A. ORGANIZATION
Krupp Insured Plus Limited Partnership (the "Partnership") is a
Massachusetts Limited Partnership. The Partnership was organized for the
purpose of investing in multi-family loans and mortgage-backed securities.
The General Partners of the Partnership are The Krupp Corporation and The
Krupp Company Limited Partnership-IV and the Corporate Limited Partner is
Krupp Depositary Corporation. The Partnership terminates on December 31,
2025, unless terminated earlier upon the occurrence of certain events as
set forth in the Partnership Agreement.
The Partnership commenced the public offering of Units on July 7, 1986 and
completed its public offering having sold 7,499,999 Units for $149,489,830
net of purchase volume discounts of $510,150 as of January 27, 1987. In
addition, Krupp Depositary Corporation owns 100 Units.
B. SIGNIFICANT ACCOUNTING POLICIES
The Partnership uses the following accounting policies for financial
reporting purposes which differ in certain respects from those used for
federal income tax purposes (Note G):
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with accounting principles generally
accepted in the United States of America ("GAAP").
MBS
The Partnership, in accordance with Financial Accounting Standards
Board's Statement 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115), classifies its MBS portfolio as
available-for-sale. The Partnership classifies its MBS portfolio as
available-for-sale as the Partnership expects that a portion of the
portfolio at that time in order to close out the Partnership. In
addition, other situations such as liquidity needs could arise which
would necessitate the sale of a portion of the MBS portfolio. 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 investment in
accordance with FAS 115, under the classification of held to maturity as
this investment has a participation feature. As a result, the
Partnership would not sell or otherwise dispose of the MBS. Accordingly,
the Partnership has both the intention and ability to hold this
investment to expected maturity. The Partnership carries this MBS at
amortized cost.
The Partnership holds insured mortgage portion of the Federal Housing
Administration PIM (FHA PIM) at amortized cost and does not establish
loan loss reserves as this investment is fully insured by the FHA.
Basic interest on PIMs is recognized at the stated rate of the Federal
Housing Administration insured mortgage (less the servicer's fee) or the
stated coupon rate of the Fannie Mae MBS. The Partnership recognizes
interest related to the participation features when the amount becomes
fixed and the transaction that gives rise to such amount is finalized,
cash is received and all contingencies are resolved. This could be the
sale or refinancing of the underlying real estate, which results in a
cash payment to the Partnership or a cash payment made to the
Partnership from surplus cash relative to the participation feature.
CASH AND CASH EQUIVALENTS
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The Partnership invests its cash primarily in commercial paper
and money market funds with a commercial bank and has not experienced any
loss to date on its invested cash.
Continued
F- 8
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
----------
B. SIGNIFICANT ACCOUNTING POLICIES, continued
PREPAID FEES AND EXPENSES
Prepaid fees and expenses represent prepaid acquisition fees and expenses
and prepaid participation servicing fees paid for the acquisition and
servicing of PIMs. The Partnership amortizes the prepaid acquisition fees
and expenses using a method that approximates the effective interest method
over a period of ten to twelve years, which represents the estimated life
of the underlying mortgage.
The Partnership amortizes the prepaid participation servicing fees using a
method that approximates the effective interest method over a ten year
period beginning from the acquisition of the Fannie Mae MBS or final
endorsement of the FHA loan.
Upon the repayment of a PIM, any unamortized acquisition fees and expenses
and unamortized participation servicing fees related to such loan are
expensed.
INCOME TAXES
The Partnership is not liable for federal or state income taxes because
Partnership income is allocated to the partners for income tax purposes. If
the Partnership's tax returns are examined by the Internal Revenue Service
or state taxing authority and such an examination results in a change in
Partnership taxable income, such change will be reported to the partners.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities, contingent assets and liabilities and
revenues and expenses during the period. Actual results could differ from
those estimates.
C. PIMs
At December 31, 2001 and 2000, the Partnership had investments in two PIMs.
The Partnership's PIMs consist of one Fannie Mae MBS representing the
securitized first mortgage loan on the underlying property and one
participation interest in a first mortgage loan originated under the FHA
lending program on the underlying property (collectively the "insured
mortgages"). The Partnership also has participation interests in the
revenue stream and appreciation of the underlying properties above
specified thresholds. The borrower conveys these participation features to
the Partnership generally through a subordinated promissory note and
mortgage (the "Agreement").
The Partnership receives monthly payments of principal and basic interest
that are guaranteed by Fannie Mae on the MBS and insured by HUD on the FHA
mortgage loan. The Partnership may receive income related to its
participation interests in the underlying property, however, these amounts
are neither insured nor guaranteed.
Generally, the participation features consist of the following: (i)
"Minimum Additional Interest" which is at the rate of .5% per annum
calculated on the unpaid principal balance of the first mortgage on the
underlying property, (ii) "Shared Income Interest" which is 30% of the
monthly gross rental income generated by the underlying property in excess
of a specified base, limited to the extent that it exceeds the amount of
Minimum Additional Interest earned during such month or 25% of
distributable surplus cash and (iii) "Shared Appreciation Interest" which
is 30% of any increase in the value of the underlying property in excess of
a specified base or 25% of the net sales proceeds.
Payment of participation interest from the operations of the property is
limited to 50% of net revenue or Surplus Cash as defined by Fannie Mae or
HUD, respectively. The aggregate amount of Minimum Additional Interest,
Shared Income Interest and Shared Appreciation Interest payable by the
underlying borrower on the maturity date generally cannot exceed 50% of any
increase in value of the property over certain thresholds.
Continued
F- 9
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
----------
C. PIMs, continued
Shared Appreciation Interest is payable when one of the following occurs:
(1) the sale of the underlying property to an unrelated third party on a
date which is later than five years from the date of the Agreement, (2) the
maturity date or accelerated maturity date of the Agreement, or (3)
prepayment of amounts due under the Agreement and the insured mortgage.
The borrower may prepay the first mortgage loan subject to a 9% prepayment
premium in years six through nine, a 1% prepayment premium in year ten and
no prepayment premium thereafter.
Under the Agreement, upon giving twelve months written notice, the
Partnership can accelerate the maturity date of the Agreement to a date not
earlier than ten years from the date of the Agreement for (a) the payment
of all participation interest due under the Agreement as of the accelerated
maturity date, or (b) the payment of all participation interest due under
the Agreement plus all amounts due on the first mortgage note on the
property.
In December 1999, the Partnership received a prepayment in the amount of
$9,746,923 representing the outstanding principal balance due on the La
Costa PIM. The Borrower defaulted on the first mortgage loan underlying the
PIM in June of 1999. The Partnership continued to receive its full
principal and interest payments until the GNMA mortgagee exercised its
right to prepay the GNMA MBS due to the continuing default of the
underlying first mortgage loan. Subsequent to the payoff, the Partnership
received $10,000 from the Borrower to release the Subordinated Promissory
Note. This payment has been classified as Shared Appreciation Interest. On
January 11, 2000, the Partnership paid a special distribution to the
investors of $1.30 per Limited Partner interest.
At December 31, 2001 and 2000 there were no loans within the Partnership's
portfolio that were delinquent as to principal or interest.
The Partnership's PIMs consist of the following at December 31, 2001 and
2000:
<Table>
<Caption>
Approximate
Original Interest Maturity Monthly Investment Basis at
PIMs Face Amount Rates (a) Dates Payment December 31,
- ---- ------------ --------- -------- ----------- ---------------------------------
2001 2000
------------ ------------
FHA
Vista Montana Apts.
Val Vista Lakes, Az. $ 13,814,400 7.375%(b) 12/1/33 90,000 $ 13,215,946 $ 13,311,717
FANNIE MAE
Royal Palm Place
Kendall, Fl. 6,021,258(c) 8.375%(d) 4/1/06 39,000 5,563,531 5,563,531
------------ ------------ ------------
$ 19,835,658 $ 18,779,477(e) $ 18,875,248
============ ============ ============
</Table>
Continued
F- 10
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
----------
C. PIMs, continued
(a) Represents only the stated interest rate of the Fannie Mae MBS or the
stated interest rate of the FHA mortgage loan less the servicing fee. In
addition, the Partnership may receive participation income, consisting of
(i) Minimum Additional Interest, (ii) Shared Income Interest and (iii)
Shared Appreciation Interest.
(b) On November 30, 1993, the Partnership entered into an agreement with the
underlying borrower of the FHA PIM for a permanent interest rate reduction
from 8.875% per annum to 7.375% per annum, retroactive to January 1, 1992.
In exchange for the interest rate reduction, the Partnership received an
increase in Shared Appreciation Interest from 25% in excess of the base
amount of $15,410,000 to 25% of the net sales proceeds over the outstanding
indebtedness at the time of sale. In the event of a refinancing, Shared
Appreciation Interest is 25% of the appraised value over the outstanding
indebtedness at the time of refinancing. In addition, Shared Income
Interest increased from 25% of rental income in excess of the base amount
of $175,000 to 25% of all distributable surplus cash.
(c) The total original face amount of the PIM on the underlying property was
$22,000,000 of which 73% or $15,978,742 was acquired by Krupp Insured Plus
III Limited Partnership, an affiliate of the Partnership.
(d) During December 1995, the Partnership agreed to a modification of the Royal
Palm PIM. The Partnership received a reissued Fannie Mae MBS and increased
its participation percentage in income and appreciation from 25% to 30%.
The Partnership will receive interest only payments on the Fannie Mae MBS
at interest rates ranging from 8.375% to 8.775% per annum through maturity.
(e) The aggregate cost of PIMs for federal income tax purposes is $18,779,477.
A reconciliation of the carrying value of Mortgages for each of the three years
in the period ended December 31, 2001 is as follows:
<Table>
<Caption>
2001 2000 1999
------------- -------------- --------------
Balance at beginning of period $ 18,875,248 $ 19,032,999 $ 29,074,105
Deductions during period:
Prepayment and principal collections (95,771) (157,751) (10,041,106)
------------- -------------- --------------
Balance at end of period $ 18,779,477 $ 18,875,248 $ 19,032,999
============= ============== ==============
</Table>
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in two states. The apartment complexes range in
size from 341 to 377 units.
D. MBS
The Partnership received a payoff of the Boulders Apartments MBS on July 9,
2001 for $9,045,042. The Partnership also received a prepayment premium of
$306,000 from this payoff. On August 17, 2001, the Partnership paid a
special distribution of $1.25 per Limited Partner interest from the
proceeds received.
The Partnership received a payoff from the Chateau Bijou MBS on September
19, 2000 for $2,266,064. During October, the Partnership received a 9%
prepayment premium of $203,946 from this payoff. The Partnership paid a
special distribution in November of $.33 per Limited Partner interest from
the proceeds received.
Continued
F- 11
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
----------------------
D. MBS, continued
At December 31, 2001, the Partnership's MBS portfolio had an amortized cost
of $8,912,032 and gross unrealized gains of $498,888. At December 31, 2000,
the Partnership's MBS portfolio had an amortized cost of $9,458,992 and
gross unrealized gains and losses of $338,073 and $1,482, respectively. At
December 31, 2000, the Partnership's insured mortgage had an amortized cost
of $9,068,897 and an unrealized gain of $351,420. The portfolio has
maturities ranging from 2006 to 2032.
<Table>
<Caption>
Unrealized
Maturity Date Fair Value Gain
------------- ------------- -------------
2002 - 2006 $ 93,563 $ 7,082
2007 - 2011 317,739 22,746
2012 - 2032 8,999,618 469,060
------------- -------------
Total $ 9,410,920 $ 498,888
============= =============
</Table>
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.
Upon the occurrence of a terminating capital transaction, as defined in the
Partnership Agreement, the net cash proceeds and winding up of the affairs
of the Partnership will be allocated among the Partners first, to each
class of Partners in the amount equal to, or if less than, in proportion
to, the positive balance in the Partner's capital accounts, second, to the
Limited Partners until they have received a return of their total invested
capital, third, to the General Partners until they have received a return
of their total invested capital, fourth, 99% to the Limited Partners and 1%
to the General Partners until the Limited Partners have received 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,
fifth, to the General Partners until they have received an amount equal to
4% of all amounts of cash distributed under all capital transactions and
sixth, 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 2001, 2000 and 1999, the Partnership made quarterly distributions
totaling $.40, $.76 and $.76 per Limited Partner interest annually,
respectively. The Partnership made special distributions of $1.25 and $1.63
per Limited Partner interest in 2001 and 2000, respectively.
Continued
F- 12
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
----------
E. PARTNERS' EQUITY, continued
As of December 31, 2001, the following cumulative partner contributions and
allocations have been made since inception of the Partnership:
<Table>
<Caption>
Corporate Accumulated
Limited General Comprehensive
Unitholders Partner Partners Income Total
-------------- --------- ------------ ------------- --------------
Capital contributions $ 149,489,830 $ 2,000 $ 3,000 $ - $ 149,494,830
Syndication costs (7,906,604) - - - (7,906,604)
Quarterly distributions (126,236,046) (1,727) (2,927,848) - (129,165,621)
Special distributions (72,224,972) (963) - - (72,225,935)
Net income 86,510,815 1,163 2,675,629 - 89,187,607
Unrealized gains on MBS - - - 498,888 498,888
-------------- --------- ------------ ------------- --------------
Balance at
December 31, 2001 $ 29,633,023 $ 473 $ (249,219) $ 498,888 $ 29,883,165
============== ========= ============ ============= ==============
</Table>
F. RELATED PARTY TRANSACTIONS
Under the terms of the Partnership Agreement, the General Partners receive
an Asset Management Fee equal to .75% per annum of the value of the
Partnership's total invested assets payable quarterly. The General Partners
may also receive an incentive management fee in an amount equal to .3% per
annum on the Partnership's Total Invested Assets providing the Unitholders
receive a specified non-cumulative annual return on their Invested Capital.
Total fees payable to the General Partners for asset management and
incentive management fees shall not exceed 10% of distributable cash flow
over the life of the Partnership.
Additionally, the Partnership reimburses affiliates of the General Partners
for certain expenses incurred in connection with maintaining the books and
records of the Partnership, the preparation and mailing of financial
reports, tax information and other communications to investors and legal
fees and expenses.
Continued
F- 13
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
----------
G. FEDERAL INCOME TAXES
The reconciliation of the net income reported in the accompanying statement
of income with the net income reported in the Partnership's 2001 federal
income tax return is as follows:
<Table>
Net income from statement of operations $ 2,540,547
Add: Book to tax difference for amortization of
prepaid fees and expenses 63,587
-------------
Net income for federal income tax purposes $ 2,604,134
=============
</Table>
The allocation of the 2001 net income for federal income tax purposes is as
follows:
<Table>
<Caption>
Portfolio
Income
-------------
Unitholders $ 2,535,156
Corporate Limited Partner 34
General Partners 68,944
-------------
$ 2,604,134
=============
</Table>
For the years ended December 31, 2001, 2000 and 1999 the average per unit
net income to the Unitholders for federal income tax purposes was $.34,
$.40 and $.40, respectively.
The basis of the Partnership's assets for financial reporting purposes was
less than its tax basis by approximately $256,000 and $343,000 at December
31, 2001 and 2000, respectively. The basis of the Partnership's liabilities
for financial reporting purposes was less than its tax basis by
approximately $11,000 at December 31, 2001. At December 31, 2000 the basis
of the Partnership's liabilities for financial reporting purposes was the
same as its tax basis.
H. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The Partnership used the following methods and assumptions to estimate the
fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity
of those instruments.
MBS
The Partnership estimated the fair value of MBS based on quoted market
prices while it estimated the fair value of insured mortgages based on
quoted prices of MBS with similar interest rates. Based on the estimated
fair value determined using these methods and assumptions, the
Partnership's investments in MBS had gross unrealized gains of
approximately $499,000 at December 31, 2001 and gross unrealized gains and
losses of approximately $689,000 and $1,000 at December 31, 2000.
Continued
F- 14
<Page>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
----------
H. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS, continued
PIMs
As there is no active trading market for these investments, management
estimates the fair value of the PIMs using quoted market prices of MBS
having a similar interest rate. Management does not include any estimate of
participation interest in the Partnership's estimated fair value for the
Vista Montana PIM, as Management does not believe it can predict the time
of realization of the feature with any certainty. Based on the estimated
fair value determined using these methods and assumptions, the
Partnership's investments in PIMs had gross unrealized gains of
approximately $870,000 at December 31, 2001, and gross unrealized gains and
losses of approximately $42,000 and $300,000 at December 31, 2000.
At December 31, 2001 and 2000, the Partnership estimates the fair value of
its financial instruments as follows (amounts rounded to the nearest
thousand):
<Table>
<Caption>
2001 2000
---------------------------- --------------------------
Fair Carrying Fair Carrying
Value Value Value Value
---------- ---------- --------- ---------
Cash and cash equivalents $ 1,423 $ 1,423 $ 1,461 $ 1,461
MBS and insured mortgage 9,411 9,411 19,216 18,864
PIMs 19,649 18,779 18,617 18,875
---------- ---------- --------- ---------
$ 30,483 $ 29,613 $ 39,294 $ 39,200
========== ========== ========= =========
</Table>
I. SUBSEQUENT EVENTS
The Partnership received a prepayment of the Royal Palm Place PIM. On
January 2, 2002, the Partnership received $378,480 of Shared Appreciation
Interest and $121,490 of Minimum Additional Interest. On February 27, 2002
the Partnership received $5,563,531 representing the principal proceeds on
the first mortgage. The Partnership has declared a special distribution of
$.80 per Limited Partner interest consisting of Shared Appreciation
Interest and prepayment proceeds which will be paid in the first quarter of
2002.
F- 15