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 programs of the Federal National Mortgage Association ("FNMA") or Government National Mortgage Association ("GNMA"), or a sole participation interest in a first mortgage loan originated under the Federal Housing Administration ("FHA") lending program (collectively the "insured mortgages"). The Partnership received the participation interests in the mortgaged property as additional consideration for providing the funds for the first mortgage loan and accepting a below market interest rate on the insured mortgage, which provided the borrower with a below market interest rate on the first mortgage loan. The borrower conveyed the participation interests to the Partnership through either a subordinated promissory note and mortgage or a shared income and appreciation agreement. FNMA guarantees the principal and interest payments for the FNMA MBS and GNMA guarantees the timely payment of principal and interest for the GNMA MBS. HUD insures the first mortgage loan underlying the GNMA MBS and any first mortgage loan originated under the FHA lending program. The participation interests conveyed to the Partnership by the borrower are neither insured nor guaranteed.
The Partnership also acquired MBS backed by single-family or multi- family mortgage loans issued or originated by GNMA, FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC guarantee the principal and basic interest of these FNMA and FHLMC MBS, respectively. GNMA guarantees the timely payment of principal and interest of GNMA MBS, and HUD insures the pooled first mortgage loans underlying the GNMA MBS.
Although the Partnership will terminate no later than December 31, 2025 the Partnership anticipates realizing the value of the PIMs through repayment well before this date. In addition, the Partnership expects to receive a significant portion of the value of its MBS within a ten year holding period. Therefore, dissolution of the Partnership should occur significantly prior to December 31, 2025, the stated termination date of the Partnership.
The Partnership's investments are not subject to seasonal fluctuations. However, the realization of the participation features of the PIMs are subject to similar risks associated with equity real estate investments, including: reliance on the owner's operating skills, ability to maintain occupancy levels, control operating expenses, maintain the property and provide adequate insurance coverage; adverse changes in general economic conditions, adverse local conditions, and changes in governmental regulations, real estate zoning laws, or tax laws; and other circumstances over which the Partnership may have little or no control.
The requirements for compliance with federal, state and local regulations to date have not adversely effected the Partnership's operations and the Partnership anticipates no adverse effect in the future.
As of December 31, 1996, there were no personnel directly employed by the Partnership.
ITEM 2.

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK- HOLDER MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1996 was approximately 7,100. One of the objectives of the Partnership is to provide quarterly distributions of cash flow generated by its investments in mortgages. The Partnership anticipates that future operations will continue to generate cash available for distribution. Adjustments may be made to the distribution rate in the future due to the realization and payout of the existing mortgages.
During 1996, the Partnership made a special distribution consisting primarily of principal proceeds from the Mandalay PIM prepayment. The Partnership may make special distributions in the future if PIMs prepay or a sufficient amount of cash is available from MBS and PIM principal collections.
The Partnership made the following distributions, in quarterly installments, and special distributions, to its Partners during the two years ended December 31, 1996 and 1995:
ITEM 6.

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

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 risk 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 of approximately $2.3 million paid to investors. Commencing in February 1997 the Partnership will pay out approximately $1.4 million per quarter. Funds used for investor distributions come from (I)interest received on the PIMs, MBS, cash and cash equivalents, (ii) the principal collections received on the PIMs and MBS and (iii) cash reserves. The Partnership funds a portion of the distribution from principal collections and cash revenues causes the capital resources of the Partnership to continually decrease. As a result of this decrease, the total cash inflows to the Partnership also will decrease resulting in periodic downward adjustments to the quarterly distributions paid to investors.
In November 1996, the underlying borrower of the Mandalay Apartments PIM prepaid the insured mortgage and paid a portion of the accumulated participation income. Following the prepayment, the Partnership made a special distribution of $2.20 per Unit to investors. As a result of the prepayment, the Partnership adjusted the quarterly distribution rate to $.19 per Unit per quarter beginning with the February 1997 distribution.
Three of the properties underlying the Partnership s PIMs operated at or slightly better than break even during 1996, however, two properties incurred operating deficits. Located in a seasonal market, Vista Montana s challenge is to find and lease to prospective residents who will live at the property year-round and who will qualify for tenancy under the property s investment tax credit( ITC ) leasing restrictions. Inasmuch as rental revenues were insufficient to cover all operating expenses and first mortgage debt service, the annual ITC payment, part of the original financing structure, funded the annual operating deficit. Royal Palm Place Apartments is located in the very competitive Kendall, Florida market. Deep rental concessions as well as increased operating and replacement expenses needed to market the property to prospective residents resulted in an operating deficit by year-end, which was funded by the borrower.
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 differ from cash available for distribution, the General Partners may adjust the distribution rate.
In the event of a sale or refinancing of the remaining PIMs, the Partnership will distribute the proceeds to investors as a special distribution and adjust the distribution rate as necessary to reflect the anticipated cash inflows from the remaining mortgage investments.
For the first five years of the PIMs the borrowers were prohibited from prepaying the insured mortgage loan. For the second five years, the borrower can prepay the insured mortgage by 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 the Federal National Mortgage Association ( FNMA ), the Government National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or the United States Department of Housing and Urban Development ("HUD") and therefore the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities.
FNMA is a federally chartered private corporation that guarantees obligations originated under its programs. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs and is wholly-owned by the twelve Federal Home Loan Banks. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA guarantees the full and timely payment of principal and basic interest on the securities it issues, which represents interest in pooled mortgages insured by HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by the full faith and credit of the U.S. Government.
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions, as defined by Section 17 of the Partnership Agreement, and the source of cash distributions for the year ended December 31, 1996 and the period from inception through December 31, 1996. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity.
(a) Represents all distributions paid in 1996 except the February 1996 distribution and includes an estimate of the distribution to be paid in February 1997. (b) Includes an estimate of the distribution to be paid in February 1997. (c) Limited Partners average per Unit return of capital as of February 1997 is $8.28 [$18.60 - $10.32]. Return of capital represents that portion of distributions which is not funded from DCF such as proceeds from the sale of assets and substantially all of the principal collections received from MBS and PIMs.
Operations
The following discussion relates to the operation of the Partnership during the years ended December 31, 1996, 1995 and 1994.
Net income increased slightly in 1996 as compared to 1995 due primarily to an increase in interest income on PIMs and lower Partnership expenses which were offset by lower interest income on MBS and an increase in amortization expense. Base interest income on PIMs increased in 1996 as compared to 1995 as a result of fully amortizing the remaining unamortized discount on the Mandalay Apartments PIM of approximately $411,000 upon its prepayment in November 1996, net of a decrease in base interest income of approximately $100,000 resulting from the prepayment, a decrease of approximately $83,000 resulting from the modification of the Royal Palm Apartments PIM, and a decrease resulting from the scheduled amortization of the underlying mortgages. In 1995, the Royal Palm Apartments PIM was modified and the interest rate on the FNMA MBS was reduced from 7.75% to 6.25% per annum. The Partnership saw an increase in participation interest income of approximately $114,000 in 1996 versus 1995 due to participation interest income received from the prepayment of the Mandalay Apartments PIM. Interest income on MBS declined approximately $158,000 due to principal collections reducing the outstanding MBS portfolio. Interest income on MBS and base interest income on PIMs will continue to decline as principal collections reduce the outstanding balance of these investments. As the Partnership distributes principal collections on MBS and PIMs through quarterly or special distributions, the invested assets of the Partnership will decline which should result in a continuing decline in interest income. Amortization expense increased in 1996 as compared to 1995 due to fully amortizing the remaining prepaid fees and expenses related to the Mandalay Apartments PIM. Partnership expenses decreased approximately $100,000 in 1996 versus 1995 as result of lower asset management fees caused by a declining asset base and decreases of approximately $34,000 in expense reimbursements to affiliates and $27,000 in general and administrative expenses.
Net income decreased approximately $435,000 in 1995 as compared to 1994 due primarily to lower participation income accrued in 1995, interest income on MBS, and interest income on cash and short-term investments.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of the Partnership and is a general partner of The Krupp Company Limited Partnership-IV, the other General Partner of the Partnership, is as follows:
Position with Name and Age The Krupp Corporation
Douglas Krupp (50) Co-Chairman of the Board George Krupp (52) Co-Chairman of the Board Laurence Gerber (40) President Robert A. Barrows (39) Vice President and Chief Accounting Officer
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for the more than $3 billion under management for institutional and individual clients. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and Director of Berkshire Realty Company, Inc. (NYSE- BRI). Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust II and Krupp Government Income Trust.
George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for more than $3.0 billion under management for institutional and individual clients. Mr. Krupp attended the University of Pennsylvania and Harvard University.
Laurence Gerber is the President and Chief Executive Officer of The Berkshire Group. Prior to becoming President and Chief Executive Officer in 1991, Mr. Gerber held various positions with The Berkshire Group which included overall responsibility at various times for: strategic planning and product development, real estate acquisitions, corporate finance, mortgage banking, syndication and marketing. Before joining The Berkshire Group in 1984, he was a management consultant with Bain & Company, a national consulting firm headquartered in Boston. Prior to that, he was a senior tax accountant with Arthur Andersen & Co., an international accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics from the University of Pennsylvania, Wharton School and an M.B.A. degree with high distinction from Harvard Business School. He is a Certified Public Accountant. Mr. Gerber also serves as President and a Director of Berkshire Realty Company, Inc. (NYSE-BRI), and President and Trustee of Krupp Government Income Trust and Krupp Government Income Trust II.
Robert A. Barrows is Senior Vice President and Chief Financial Officer of Berkshire Mortgage Finance and The Berkshire Group. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting and financial reporting, treasury, tax, payroll and office administrative activities. Prior to joining The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College and is a Certified Public Accountant.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996 no person owned of record or was known by the General Partners to own beneficially more than 5% of the Partnership's 7,499,999 outstanding Units. The only interests held by management or its affiliates consist of its General Partner and Corporate Limited Partner Interests.
ITEM 13.

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.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page of this report.
2. Financial Statement Schedule - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page of this report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Financial Statements or the Notes thereto.
(b) Exhibits:
Number and Description Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601 of Regulation S-K:
(4) Instruments defining the rights of security holders including indentures:
(4.1) Amended Agreement of Limited Partnership dated as of June 27, 1986 [Exhibit A to Prospectus included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated July 2, 1986 (File No. 33-2520)].*
(4.2) Subscription Agreement whereby a subscriber agrees to purchase Units and adopts the provisions of the Amended Agreement of Limited Partnership [Exhibit D to Prospectus included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated July 2, 1986 (File No. 33- 2520)].*
(4.3) Eighth Amendment and Restatement of Certificate of Limited Partnership filed with the Massachusetts Secretary of State on February 6, 1987 [Exhibit 4.3 to Registrant's Report on Form 10-K for the year ended December 31, 1986 (File No. 33- 2520)].*
(10) Material Contracts:
La Costa Apartments
(10.1) Prospectus for GNMA Pool No. 168416 (PL). [Exhibit 19.1 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].*
(10.2) Shared Income and Appreciation Agreement, dated March 18, 1987 between International Plaza Associates, Ltd., A Florida limited partnership, and DRG Funding Corporation, a Delaware corporation. [Exhibit 19.2 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].*
(10.3) Multifamily Mortgage, Assignment of Rents and Security Agreement, dated March 18, 1987 between International Plaza Associates, Ltd., a Florida limited partnership, and DRG Funding Corporation, a Delaware corporation. [Exhibit 19.3 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].*
(10.4) Assignment of Mortgage, dated March 18, 1987, between DRG Funding Corporation, a Delaware corporation, (Mortgagee) and Krupp Insured Plus Limited Partnership, a Massachusetts limited partnership, (Assignee). [Exhibit 19.4 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1987 (File No. 33-2520)].*
Greentree Apartments
(10.5) Prospectus for GNMA Pool No. 238744-(PL). [Exhibit 1 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].*
(10.6) Mortgage Note, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 2 to Registrant's Report on Form 8-K dated December 10, 1987 (File No.0-15815)].*
(10.7) Mortgage, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 3 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].*
(10.8) Shared Income and Appreciation Agreement, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 4 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].*
(10.9) Assignment of Shared Income and Appreciation Agreement, dated October 22, 1987, between DRG Funding Corporation and Krupp Insured Plus Limited Partnership (as "Assignee"). [Exhibit 5 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].*
(10.10) Multifamily Mortgage, Assignment of Rents and Security Agreement, dated October 22, 1987, between Greentree Associates, Ltd. and DRG Funding Corporation. [Exhibit 6 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].*
(10.11) Assignment of Mortgage (the Multifamily Mortgage, Assignment of Rents and Security Agreement), dated November 23, 1987, between DRG Funding Corporation (as "Mortgagee") and Krupp Insured Plus Limited Partnership (as "Assignee"). [Exhibit 7 to Registrant's Report on Form 8-K dated December 10, 1987 (File No. 0-15815)].*
Pine Hills Apartments
(10.12) Prospectus for GNMA Pool No. 238825-(PL). [Exhibit 10.27 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0-15815)].*
(10.13) Subordinated Promissory Note, dated November 20, 1987, between Pine Hill Partners ("Maker" or "Mortgagor") and York Associates, Inc., ("Holder" or "First-Mortgagee") as assigned to Krupp Insured Plus Limited Partnership. [Exhibit 10.28 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0- 15815)].*
(10.14) Subordinated Multifamily Mortgage, Assignment of Rents and Security Agreement, dated November 20, 1987, between Pine Hill Partners ("Borrower") and York Associates, Inc., ("Lender"). [Exhibit 10.29 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0-15815)].*
(10.15) Assignment of Subordinated Mortgage, dated November 23, 1987 between York Associates, Inc., ("Assignor") and Krupp Insured Plus Limited Partnership ("Assignee"). [Exhibit 10.30 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0- 15815)].*
(10.16) Modification to the loan and participation workout agreement, dated March 31, 1992, by and between Krupp Insured Plus Limited Partnership and Pine Hill Partners. [Exhibit 10.19 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0- 15815)].*
Vista Montana
(10.17) 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)].*
(10.18) Subordinated Multi-family Deed of Trust, dated March 31, 1988, between VM Associates Limited Partnership, an Arizona Limited Partnership, and GMAC Mortgage Corporation of PA [Exhibit 19.8 to Registrant's Report on Form 10-Q for the Quarter Ended March 31, 1988 (File No. 0-15815)].*
(10.19) 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)].*
(10.20) 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)].*
(10.21) 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)].*
(10.22) 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)].*
(10.23) 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)].*
(10.24) 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)].*
(10.25) 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)].*
(10.26) 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
(10.27) 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)].*
(10.28) 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)].*
(10.29) 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)].*
(10.30) 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)].*
(10.31) Participation Agreement dated March 20, 1991 between Krupp Insured Plus-III Limited Partnership and Krupp Insured Plus Limited Partnership. [Exhibit 19.1 to Registrant's Report on Form 10-Q for the Quarter Ended September 30, 1991 (File No. 0-15815)].*
* Incorporated by reference.
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1996 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 5th day of February, 1997.
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 5th day of February, 1997.
Signatures Title(s)
/s/ Douglas Krupp Co-Chairman (Principal Executive Douglas Krupp (Officer) and Director of The Krupp Corporation, a General Partner of the Registrant.
/s/George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of The Krupp Corporation, a General Partner of the Registrant.
/s/Laurence Gerber President of The Krupp Corporation, a Laurence Gerber General Partner of the Registrant.
/s/ Robert A. Barrows Vice President and Chief Accounting Officer Robert A. Barrows of The Krupp Corporation, a General Partner of the Registrant.
APPENDIX A
KRUPP INSURED PLUS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1996
KRUPP INSURED PLUS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants
Balance Sheets at December 31, 1996 and 1995
Statements of Income for the Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
Notes to Financial Statements -
Schedule IV - Mortgage Loans on Real Estate -
All other schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Krupp Insured Plus Limited Partnership:
We have audited the financial statements and the financial statement schedule of Krupp Insured Plus Limited Partnership (the "Partnership") listed in the index on page of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Krupp Insured Plus Limited Partnership as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts January 30, 1997
KRUPP INSURED PLUS LIMITED PARTNERSHIP
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Insured Plus Limited Partnership (the "Partnership") is a Massachusetts Limited Partnership. The General Partners of the Partnership are The Krupp Corporation and The Krupp Company Limited Partnership-IV and the Corporate Limited Partner is Krupp Depositary Corporation. The Partnership terminates on December 31, 2025, unless terminated earlier upon the occurrence of certain events as set forth in the Partnership Agreement.
The Partnership commenced the public offering of Units on July 7, 1986 and completed its public offering having sold 7,499,999 Units for $149,489,830 net of purchase volume discounts of $510,150 as of January 27, 1987.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial reporting purposes which differ in certain respects from those used for federal income tax purposes (Note G):
PIMs
The Partnership carries its investments in PIMs at amortized cost as it has the ability and intention to hold these investments. Basic interest is recognized at the stated rate of the Department of Housing and Urban Development ("HUD") insured mortgage (less the servicer's fee) or the stated coupon rate of the Government National Mortgage Association ("GNMA") or Federal National Mortgage Association ("FNMA") MBS. The Partnership recognizes interest related to the participation features as earned and when it deems these amounts as collectible.
MBS
At December 31, 1995, the Partnership in accordance with the Financial Accounting Standards Board s Special Report on Statement 115, "Accounting for Certain Investments in Debt and Equity Securities", reclassified its MBS portfolio from held-to-maturity to available-for-sale. The Partnership carries its MBS at fair market value and reflects any unrealized gains (losses) as a separate component of Partners' Equity. Prior to December 31, 1995, the Partnership carried its MBS portfolio at amortized cost. The Partnership amortizes purchase premiums or discounts over the life of the underlying mortgages using the effective interest method.
Cash 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 deposits 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 and expenses and prepaid participation servicing fees paid for the acquisition and servicing of PIMs. The Partnership amortizes the prepaid acquisition fees and expenses using a method that approximates the effective interest method over a period of ten to twelve years, which represents the actual maturity or anticipated call date of the underlying mortgage.
The Partnership amortizes the prepaid participation servicing fees using a method that approximates the effective interest method over a ten year period beginning from the acquisition of the GNMA or FNMA MBS or final endorsement of the FHA loan.
Income Taxes
The Partnership is not liable for federal or state income taxes because Partnership income is allocated to the partners for income tax purposes. If the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in Partnership taxable income, such change will be reported to the partners.
Estimates and Assumptions
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the period. Actual results could differ from those estimates.
C. PIMs
At December 31, 1996, the Partnership has investments in five PIMs. The Partnership's PIMs consist of (a) a GNMA or FNMA MBS representing the securitized first mortgage loan on the underlying property or a sole participation interest in a first mortgage loan originated under the FHA lending program on the underlying property (collectively the "insured mortgages"), and (b) participation interests in the revenue stream and appreciation of the underlying property above specified base levels. The borrower conveys these participation features to the Partnership generally through a subordinated promissory note and mortgage (the "Agreement"). The Partnership receives guaranteed monthly payments of principal and interest on the GNMA and FNMA MBS and HUD insures the FHA mortgage loan and the mortgage loan underlying the GNMA MBS. The Partnership may receive interest related to its participation interests in the underlying property, however, these amounts are neither insured nor guaranteed.
Generally, the participation features consist of the following: (i) "Minimum Additional Interest" which is at the rate of .5% per annum calculated on the unpaid principal balance of the first mortgage on the underlying property, (ii) "Shared Income Interest" which is 25% of the monthly gross rental income generated by the underlying property in excess of a specified base, but only to the extent that it exceeds the amount of Minimum Additional Interest earned during such month, (iii) "Shared Appreciation Interest" which is 25% of any increase in the value of the underlying property in excess of a specified base. Payment of participation interest from the operations of the property is limited to 50% of net revenue or surplus cash as defined by FNMA or HUD, respectively. The aggregate amount of Minimum Additional Interest, Shared Income Interest and Shared Appreciation Interest payable by the underlying borrower on the maturity date generally cannot exceed 50% of any increase in Value of the property. However, generally any net proceeds from a sale or refinancing of the property will be available to satisfy any accrued but unpaid Shared Income or Minimum Additional Interest.
Shared Appreciation Interest is payable when one of the following occurs: (1) the sale of the underlying property to an unrelated third party on a date which is later than five years from the date of the Agreement, (2) the maturity date or accelerated maturity date of the Agreement, or (3) prepayment of amounts due under the Agreement and the insured mortgage.
The borrower may prepay the first mortgage loan subject to a 9% prepayment penalty in years six through nine, a 1% prepayment penalty in year ten and no prepayment penalty thereafter.
Under the Agreement, the Partnership, upon giving twelve months written notice, can accelerate the maturity date of the Agreement to a date not earlier than ten years from the date of the Agreement for (a) the payment of all participation interest due under the Agreement as of the accelerated maturity date, or (b) the payment of all participation interest due under the Agreement plus all amounts due on the first mortgage note on the property.
In November, 1996, the borrower of the Mandalay Apartments PIM completed a refinancing of the property and prepaid the insured mortgage. The borrower a l s o paid $379,000 representing a portion of accumulated participation income. The Partnership made a special distribution of $2.20 per Unit to investors from the proceeds of the payoff. In November 1996, the Partnership fully amortized the remaining prepaid fees and expenses of the Mandalay Apartments PIM and retired them from the books.
The Partnership's PIMs consist of the following at December 31, 1996 and 1995:
(a) The range of maturity dates for PIMs issued by GNMA and FHA represent the stated maturity date of the security or insured mortgage, however, the Partnership anticipates realizing amounts due under these PIMs well before these stated maturity dates.
(b) Includes a PIM with a prepayment penalty of 9% in year 6 through 7, 3% in year 8 and 9, with no penalty thereafter.
(c) On January 1, 1992, the Partnership entered into an agreement which provided for a reduction in the permanent interest rate on a GNMA PIM having an original face value of $4,900,000, which reduced the interest rate from 8.5% to 7% for a period of four years. The reduction in the permanent interest rate was granted in exchange for a reduction of the Shared Appreciation Interest Base from $5,700,000 to $4,900,000.
(d) At December 31, 1995 there were four GNMA PIMs. (e) On November 30, 1993, the Partnership entered into an agreement with the underlying borrower of the FHA PIM for a permanent interest rate reduction from 8.875% per annum to 7.375% per annum, retroactive to January 1, 1992. In exchange for the interest rate reduction, the Partnership received an increase in Shared Appreciation Income from 25% in excess of the base amount of $15,410,000 to 25% of the net sales proceeds over the outstanding indebtedness at the time of sale ($13,630,602 as of December 31, 1996). In the event of a refinancing, Shared Appreciation Income is 25% of the appraised value over the outstanding indebtedness at the time of refinance. 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. (f) The total PIM on the underlying property is $22,000,000 of which 73% or $15,978,742 is held by Krupp Insured Plus III Limited Partnership. (g) During December 1995, the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Federal National Mortgage Association ("FNMA") mortgage-backed security ("MBS") and increased its participation percentage in income and appreciation from 25% to 30%. During December 1995, the Partnership received its pro- rata share of a $90,644 principal payment and will receive interest only payments on the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum through maturity. Also, the Partnership will receive its pro-rata share of annual principal payments totaling $250,000 due each year for four years beginning in January 1997.
The underlying mortgages of the PIMs are collateralized by multi-family apartment complexes located in four states. The apartment complexes range in size from 207 to 352 units.
D. MBS
At December 31, 1996, the Partnership's MBS portfolio had an amortized cost of $26,146,829 and gross unrealized gains of $1,000,384. At December 31, 1995, the Partnership s MBS portfolio had an amortized cost of $27,864,097 and gross unrealized gains of $1,162,741. The MBS portfolio has maturities ranging from 2004 to 2033.
E. Partners' Equity
Profits and losses from Partnership operations and Distributable Cash Flow are allocated 97% to the Unitholders and Corporate Limited Partner (the "Limited Partners") and 3% to the General Partners.
Upon the occurrence of a capital transaction, as defined in the Partnership Agreement, net cash proceeds will be distributed first, to the Limited Partners until they have received a return of their total invested capital, second, to the General Partners until they have received a return of their total invested capital, third, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to any deficiency in the 10% cumulative return on their invested capital that exists through fiscal years prior to the date of the capital transaction, fourth, to the class of General Partners until they have received an amount equal to 4% of all amounts of cash distributed under all capital transactions and fifth, 96% to the Limited Partners and 4% to the General Partners.
Profits arising from a capital transaction will be allocated in the same manner as related cash distributions. Losses from a capital transaction will be allocated 97% to the Limited Partners and 3% to the General Partners.
During 1996, 1995 and 1994, the Partnership made quarterly distributions totaling $1.20, $1.20 and $1.28 per Unit, respectively. The Partnership made special distributions of $2.20 and $1.06 per Unit in 1996 and 1994, respectively.
As of December 31, 1996, the following cumulative partner contributions and allocations have been made since inception of the Partnership:
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General Partners receive an Asset Management Fee equal to .75% per annum of the value of the Partnership's total invested assets payable quarterly. The General Partners may also receive an incentive management fee in an amount equal to .3% per annum on the Partnership's Total Invested Assets providing the Unitholders receive a specified non-cumulative annual return on their Invested Capital. Total fees payable to the General Partners for asset management and incentive management fees shall not exceed 10% of distributable cash flow over the life of the Partnership.
Additionally, the Partnership reimburses affiliates of the General Partners for certain expenses incurred in connection with maintaining the books and records of the Partnership and the preparation and mailing of financial reports, tax information and other communications to investors.
G. Federal Income Taxes
The reconciliation of the net income reported in the accompanying statement of income with the net income reported in the Partnership's 1996 federal income tax return is as follows:
The allocation of the 1996 net income for federal income tax purposes is as follows:
Portfolio Income
Unitholders $ 5,263,357 Corporate Limited Partner 71 General Partners 162,787
$ 5,426,215
For the years Ended December 31, 1996, 1995 and 1994 the average per unit net income to the Unitholders for federal income tax purposes was $.71, $.79 and $.81, respectively.
H. Fair Value Disclosures of Financial Instruments
The Partnership used the following methods and assumptions to estimate the fair value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of those instruments.
MBS
The Partnership estimated the fair value of MBS based on quoted market prices.
PIMs
There is no established trading market for these investments. Management estimates the fair value of the PIMs using quoted market prices of MBS having the same stated coupon rate. Management does not include any participation income in the Parnership 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 Partnership's investments in PIMs had gross unrealized gains and losses of approximately $474,000 and $652,000 at December 31, 1996, respectively, and unrealized gains and losses of approximately $1,628,000 and $148,000 at December 31, 1995.
At December 31, 1996 and 1995, the Partnership estimates fair value of its financial instruments as follows:
KRUPP INSURED PLUS LIMITED PARTNERSHIP
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"), a securitized mortgage loan insured by the Department of Housing and Urban Development ("HUD") and issued and guaranteed as to the timely payment of principal and interest by the Government National Mortgage Association ("GNMA") or a first mortgage issued by the Federal Housing Authority ("FHA") and insured by HUD, and a subordinated promissory note and mortgage or shared income and appreciation agreement with the underlying borrower that conveys participation interests in the revenue stream and appreciation of the underlying property above certain base levels. (b) The GNMA MBS, FNMA MBS and FHA mortgage loans may generally be prepaid subject to a 9% prepayment penalty in years six through nine, a 1% prepayment penalty in year ten and no prepayment penalty after year ten. (c) Represents only the stated interest rate of the GNMA or FNMA MBS or the stated interest rate of the FHA mortgage loan less the servicing fee. In addition, the Partnership may receive participation interest, consisting of (i) Minimum Additional Interest based on a percentage of the unpaid principal balance of the first mortgage on the property, (ii) Shared Income Interest based on a percentage of monthly gross income generated by the underlying property in excess of a specified base amount (but only to the extent it exceeds the amount of Minimum Additional Interest received during such month) and (iii) Shared Appreciation Interest based on a percentage of any increase in the value of the underlying property in excess of a specified base value. Minimum Additional Interest is at a rate of .5% per annum calculated on the unpaid principal balance of the first mortgage note. Shared Income Interest is generally based on 25% of the monthly gross rental income generated by the underlying property in excess of a specified base, but only to the extent it exceeds the amount of Minimum Additional Interest earned during the month. Shared Appreciation Interest is generally based on 25% of any increase in the value of the project over the base value. (d) The Partnership's GNMA MBS and FHA mortgage loan have call provisions, which allow the Partnership to accelerate their respective maturity dates to as early as ten years from the date of the loan closing. (e) The normal monthly payment consisting of principal and interest is payable monthly at level amounts over the term of the GNMA MBS and the FHA direct mortgages. (f) The normal monthly payment consisting of principal and interest for FNMA MBS is payable at level amounts based on a 35-year amortization. All unpaid principal and accrued interest is due at maturity. (g) The total PIM on the underlying property is $22,000,000 of which 72.63% or $15,978,742 is held by Krupp Insured Plus-III Limited Partnership. The Partnership's share of the principal balance due at maturity for the Royal Palm PIM is approximately $5,564,000. (h) On January 1, 1992, the Partnership entered into an agreement which provided for a reduction in the permanent interest rate from 8.5% to 7% per annum for a period of four years. The reduction in the permanent interest rate was granted in exchange for a reduction of the Shared Appreciation Interest Base from $5,700,000 to $4,900,000. (i) On November 30, 1993, the Partnership entered into an agreement with the underlying borrower for a permanent interest rate reduction from 8.75% per annum to 7.375% per annum retroactive to January 1, 1992. In exchange for the interest rate reduction, the Partnership received an increase in Shared Appreciation Income from 25% in excess of the base amount of $15,410,000 to 25% of the net sales proceeds over the outstanding indebtedness at sale ($13,630,602 at December 31, 1996). In the event of a refinancing, Shared Appreciation Income is 25% of the appraised value over the outstanding indebtedness at refinance. In addition, Shared Income Interest increased from 25% of rental income in excess of the base amount of $175,000 to 25% of all distributable surplus cash. (j) The aggregate cost of PIMs for federal income tax purposes is $42,745,790. (k) During December 1995, the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Federal National Mortgage Association ("FNMA") mortgage-backed security ("MBS") and increased its participation percentage in income and appreciation from 25% to 30%. During December 1995, the Partnership received its pro- rata share of a $90,644 principal payment and will receive interest only payments on the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum through maturity. Also, the Partnership will receive its pro-rata share of annual principal payments $250,000 due each year for four years beginning in January 1997.
A reconciliation of the carrying value of Mortgages for each of the three years in the period ended December 31, 1996 is as follows:


Item 2. PROPERTIES
The Company has the following properties:
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant and plaintiff in various legal actions arising in the normal course of business. The Company does not anticipate material losses as a result of these actions.
In September 1996, the United States Court of Appeals for the Federal Circuit affirmed the 1995 decision of the Federal District Court for the Eastern District of New York awarding the Company damages, attorney fees and interest for infringement of the Company's U.S. patent on its OmniFlex Hip System. A petition for rehearing or rehearing en banc was denied by the Federal Circuit in December 1996 and the Company was paid $77,600,000. The Company recognized a pre-tax gain, net of related legal fees and other expenses of $61,094,000.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
Certain information with respect to the executive officers of the Company is set forth in Item 10 of this report.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market on The NASDAQ Stock Market under the symbol STRY. Quarterly stock prices appearing under the caption "Summary of Quarterly Data" on page 41 of the 1996 Annual Report and dividend information for the years ended December 31, 1996 and 1995 under the caption "Ten Year Review" on page 22 of the 1996 Annual Report are incorporated herein by reference. The Company's Board of Directors intends to consider a year-end cash dividend annually at its December meeting.
On December 31, 1993, the Company's Board of Directors authorized the repurchase in the open market from time to time, depending upon prevailing market conditions, of up to 1,200,000 shares of its common stock (after adjustment for the two-for-one stock split) of which 895,000 split-adjusted shares had been repurchased under this plan. This repurchase authorization was replaced by a new authorization approved by the Company's Board of Directors on April 24, 1996, for repurchase of up to 1,000,000 split adjusted shares of common stock. At March 20, 1997, 11,200 shares had been repurchased under this plan.
On December 31, 1996, there were 3,306 stockholders of record of the Company's common stock.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The financial information for each of the five years in the period ended December 31, 1996 under the caption "Ten Year Review" on pages 22 and 23 of the 1996 Annual Report is incorporated herein by reference.
ITEM 7.

Item 7. Financial Statements and Exhibits - Exhibit, press release.
(c) Exhibits - Exhibit Index appears on page 19 of this report.
(d) Financial statement schedules - The response to this portion of Item 14 is submitted as a separate section of this report following the signature page.
* compensation arrangement
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 of the undersigned, thereunto duly authorized.
STRYKER CORPORATION
Date: 3/20/97 DAVID J. SIMPSON David J. Simpson, Vice President, Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
JOHN W. BROWN 3/20/97 DAVID J. SIMPSON 3/20/97 __________________________________ ____________________________________ John W. Brown, Chairman, President David J. Simpson, Vice President, and Chief Executive Officer Chief Financial Officer and (Principal Executive Officer) Secretary (Principal Financial Officer)
HOWARD E. COX, JR. 3/20/97 JEFFREY R. WINTER 3/20/97 __________________________________ ____________________________________ Howard E. Cox, Jr.-Director Jeffrey R. Winter, Controller (Principal Accounting Officer)
DONALD M. ENGELMAN 3/20/97 RONDA E. STRYKER 3/20/97 __________________________________ ___________________________________ Donald M. Engelman, Ph.D.-Director Ronda E. Stryker-Director
JEROME H. GROSSMAN 3/20/97 WILLIAM U. PARFET 3/20/97 __________________________________ ___________________________________ Jerome H. Grossman,M.D.-Director William U. Parfet-Director
JOHN S. LILLARD 3/20/97 __________________________________ John S. Lillard-Director
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1996
STRYKER CORPORATION
KALAMAZOO, MICHIGAN
FORM 10-K--ITEM 14(a)(1), (2) AND (d)
STRYKER CORPORATION AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Stryker Corporation and subsidiaries and report of independent auditors, included in the annual stockholders report of the registrant for the year ended December 31, 1996, are incorporated by reference in Item 8:


Item 1. Business --------
(a) General Development of Business -------------------------------
Armored Storage Income Investors 2 Limited Partnership (the "Registrant") is a limited partnership formed on January 13, 1986 under the laws of the State of California to acquire, develop, own and operate self-storage facilities using a minimum of mortgage indebtedness. The Registrant sold $2,105,000 in Limited Partnership Interests to the public pursuant to a Registration Statement on Form S-18 under the Securities Act of 1933 (Registration Statement No. 33-2732 as amended. The offering commenced on April 4, 1986 and terminated on April 3, 1987.
(b) Financial Information About Industry Segments ---------------------------------------------
The Registrant operates in only one industry segment, the acquisition, development, operation and holding for investment of self-storage facilities. Information relating to the Registrant's revenues, operating profit (loss) and identifiable assets attributable thereto for the fiscal year ended December 31, 1996 is set forth under Item 8 below.
(c) Narrative Description of Business ---------------------------------
The Self-Service Storage Association (SSSA) estimates that approximately one-half of the population relocates every three years. Urban areas are becoming more congested, houses are getting smaller and people are requiring outside storage space to meet their needs. Business owners, too, are feeling the crunch as the square foot cost of office space increases. They need an affordable alternative to using expensive office space for the storage of records and supplies.
Self-storage is an innovation responding to the needs of the community. The facility owned and operated by the Registrant is designed to offer low cost, accessible and secure storage space for business and personal use. In addition to some indoor units, on-site, live-in managers provide an extra measure of security. The facility of the Registrant is designed for a comfortable architectural blend with the surrounding residential, commercial and retail areas.
The Partnership's principal investment objectives are: (i) to provide distributions of Cash Flow from operations; (ii) realize capital appreciation of the Partnership's Property; and (iii) to preserve and protect the Limited Partners' capital. There can be no assurance that these objectives will be attained.
Markets and Competition. - ------------------------ The metropolitan Phoenix market has one of the greatest saturations of storage facilities per capita in the country. This increased competition has required delaying anticipated rental increases which may reduce availability of cash distributions. To meet the competition, the Registrant is, and intends to continue, taking steps to maximize efficient operations and to differentiate its facilities from the competition.
General Risks of Real Estate Ownership. - --------------------------------------- The Registrant's investments are subject to the risks generally incident to the ownership of real property. These risks include the uncertainty of cash flow to meet fixed obligations, adverse changes in national economic conditions, changes in the relative demand for space in the locale of the facility (and thus the relative price which can be charged), adverse local market conditions due to changes in general or local economic conditions or neighborhood values, changes in interest rates and in the availability, cost and terms of mortgage funds, the financial condition of tenants and sellers of properties, changes in real estate tax rates and other operating expenses, governmental rules and fiscal policies including possible proposals for rent controls, as well as acts of God, uninsured losses and other factors.
Seasonality. The business of the Registrant is not generally subject to seasonal - ------------ variations.
Employees. The Registrant has no full-time employees. - ----------
(d) Financial Information About Foreign and Domestic Operations and Export Sales ----------------------------------------------------------------------------
The registrant does not derive any revenue from foreign operations or export sales.
Item 2.

Item 2. Description of Property -----------------------
The Partnership owns one self-storage facility located in Phoenix, Arizona.
Washington Street - ----------------- The Registrant's self-storage facility is located at 3036 E. Washington Street, Phoenix, Arizona, in the central part of the city, with close proximity to Sky Harbor International Airport and the downtown business center. The facility, which consists of both one and two level storage buildings, is approximately 44,000 gross square feet, built on approximately 1.82 acres of land. The property was acquired on December 23, 1986, for a total purchase price of $1,122,000, including a note payable of $402,122 at 10.5% per annum interest, secured by a deed of trust and assignment of rents. This note was repaid in 1987. The facility was approximately 10 years old at the time of the Registrant's purchase, and had maintained an occupancy level averaging 90% for the past several years. As of January 31, 1997 the facility was 95% occupied.
Item 3.

Item 3. Legal Proceedings. ------------------
The registrant is not subject to any material pending legal proceedings.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
None
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Security Holder ---------------------------------------------------------------------- Matters -------
(a) Market Information. No market for Limited Partnership Units exists or is expected to develop.
(b) Holders. The approximate number of holders of the Registrant's Limited Partnership Units as of the close of business on December 31, 1996 was 337.
(c) Dividends. During the years ended December 31, 1991, through 1996, the Partnership made distributions of cash to the limited partners. The source of these distributions were as follows: 1991 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- ------ From net income $ -0- $ 10,502 $ -0- $ 26,704 $ 9,585 $ 39,914 From partners' capital 33,975 23,481 33,975 7,271 28,305 2,186 -------- -------- -------- -------- -------- --------
$ 33,975 $ 33,983 $ 33,975 $ 33,975 $ 37,890 $ 42,100 ====================================== ======== ========
The Registrant will make annual distributions, to the extent available, of Cash Available for Distribution. There is, however, no assurance as to when or whether such cash will be available for distribution.
Cash Available for Distribution is generally the Partnership's Excess Reserves and Cash Flow after reduction for any additions to reserves, and after payment of all operating cash expenses.
To the extent available, Cash Available for Distribution for any Partnership fiscal year will be distributed 95% to the Limited Partners and 5% to the General Partner. As referenced to in Item 11, the general partner is to be allocated a minimum of 1% of the cash available for distribution.
If in any period the General Partner determines that Partnership working capital reserves are in excess of the amount deemed necessary for Partnership operations (such excess being called "Excess Reserves"), such Excess Reserves may be distributed as Cash Available for Distribution.
Cash Available for Distribution will be distributed to the Limited Partners of record as of the end of the applicable period in the ratio which the Units owned by such Limited Partner bears to the total Units owned by all Limited Partners entitled to such distribution.
Item 6.

Item 6. Selected Financial Data -----------------------
The following selected financial data should be read in conjunction with the financial statements and notes thereto included under Item 8 of this report. This data is not covered by the opinion of independent certified public accountants.
For the Period From Inception Jan 1, 1991 Jan 1, 1992 Jan 1, 1993 Jan 1, 1994 Statement of Income Thru Thru Thru Thru Information: Dec 31, 1991 Dec 31, 1992 Dec 31, 1993 Dec 31, 1994 ------------ ------------ ------------ ------------
Total Revenues $ 174,295 $ 178,981 $ 168,868 $ 192,084 Net Income Loss) $ (3,944) $ 11,055 $ (13,369) $ 28,109 Net Income (Loss) Per Limited Partnership Unit $ (.93) $ 2.49 $ (3.14) $ 6.34
Jan 1, 1995 Jan 1, 1996 Thru Thru Dec 31, 1995 Dec 31, 1996 ------------ ------------
Total Revenues $ 191,603 $ 222,536 Net Income (Loss) $ 10,089 $ 42,015 Net Income (Loss) Per Limited Partnership Unit $ 2.28 $ 9.48
Balance Sheet As of As of As of As of Information: Dec 31, 1991 Dec 31, 1992 Dec 31, 1993 Dec 31, 1994 ------------ ------------ ------------ ------------
Total Assets $1,145,802 $1,117,739 $1,076,397 $1,070,340 Long-Term Debt $ -0- $ -0- $ -0- $ -0- Partners' Capital $1,123,515 $1,103,365 $1,059,051 $1,055,872 Distributions Per Unit $ 8.07 $ 8.07 $ 8.07 $ 8.07
As of As of Dec 31, 1995 Dec 31, 1996 ------------ ------------
Total Assets $1,047,288 $1,051,247 Long-Term Debt $ -0- $ -0- Partners' Capital $1,027,688 $1,030,966 Distributions Per Unit $ 9.00 $ 10.00
Item 7.

Item 7. Management's discussion and Analysis of Financial Condition and ---------------------------------------------------------------------- Results of Operations ---------------------
(a)(1) and (a)(2) Liquidity and Capital Resources -------------------------------
The Registrant was organized in January, 1986 and its offering of Limited Partnership Units was declared effective April 13, 1986. The Registrant raised $2,105,000 during the offering period.
The cash balance at December 31, 1996 of $87,874 will be used primarily as working capital reserves and, when appropriate, for distributions to the Limited Partners. Capital resources will only increase during the coming year as a result of a corresponding increase rental activity.
The registrant has acquired and developed all of its properties, therefore, no significant additional outlays of funds are expected beyond those items already budgeted.
(a)(3) Results of Operations ---------------------
Rental income for 1996 was substantially higher than in 1995. An increase in rental rates and an improvement in collections were primarily responsible. The Washington Street facility maintained an overall occupancy level of approximately 95%. During the year occupancy ranged from 88% to 97%. Occupancy at December 31, 1996 was 95%.
Expenses relating to property operations were nearly identical to 1995. Partnership administration expenses as well were similar to 1995.
The registrant anticipates that rental income in 1997 will be similar to 1996. Our market studies indicate that our rates are competitive and future rent increases will be made on a selective basis. Expenses for 1997 should be slightly more than in 1996 unless unforeseen circumstances occur.
Inflation has historically been a contributing factor to the increase in rental income levels and capital appreciation of income producing real estate. The most significant trends or uncertainties having an impact on the Partnership's revenues are those associated with inflation, changes in demand for self-storage spaces and fluctuations in rental and occupancy rates of the Partnership property. The modest inflation levels of the past several years have kept rent increases to a minimum. We continue to monitor the property's performance to maximize long-term capital appreciation which is consistent with the Partnership's objectives.
Item 8:

Item 8: Financial Statements and Supplementary Data. --------------------------------------------
See Index to Financial Statements and Schedules attached hereto.
Item 9.

Item 10. Directors and Executive Officers of the Registrant --------------------------------------------------
The Partnership is managed by Armored Management, L.L.C., a limited liability company whose members include Carl R. Spiekerman and Dale D. Ulrich. Armored Management, L.L.C. was elected as general partner by a vote of the limited partners in the fourth quarter of 1993. The new general partner succeeds Armored Storage Ltd., which dissolved because of the dissolution of its sole general partner.
The partnership entered into an agreement with QuestCor, inc. to manage the Partnership's self-storage facility. The terms of the agreement are for one year and shall be renewed on a month-to-month basis unless and until either party terminates the agreement. The agreement provides that the manager shall receive, as compensation for services, the greater of $1000 per month or 6% of the actual gross cash receipts from the prior month.
The Partnership entered into an agreement with QuestCor to provide administrative services to the Partnership, such as investor relations, database management (including data processing of investor subscriptions, fund distributions, ownership changes, and subscription input), accounting, preparation and/or coordinating the preparation of periodic regulatory reports and tax related forms. The term of the agreement is one year and shall continue on a month-to-month basis unless either party terminates the agreement. The agreement provides that QuestCor shall receive a fixed fee of $2,500 per month as compensation for its services. Additionally, QuestCor bills the Partnership for its cost of providing assistance in the annual Partnership audit.
(a) Identification of Directors ---------------------------
Carl R. Spiekerman and Dale D. Ulrich are the managing members of Armored Management L.L.C. Mr. Spiekerman, 53, is the sole shareholder and Chief Executive Officer of The Environmental Group, Inc., a Phoenix based real estate development firm. Mr. Spiekerman holds a Bachelor's Degree from the University of Puget Sound, Tacoma, Washington, and a Master's Degree from the University of Washington. Mr. Ulrich, 43, is a C.P.A. and a shareholder of QuestCor Inc. He is also a panel trustee for the District of Arizona Bankruptcy Court and former president of the Arizona Society of CPA's. Mr. Ulrich graduated from Marquette University, Milwaukee, Wisconsin.
(b) Identification of Executive Officers None ------------------------------------
(c) Significant Employees None ---------------------
(d) Family Relationships None --------------------
(e) Legal Proceedings None -----------------
Item 11.

Item 11. Executive Compensation ---------------------- The General Partner, and its affiliates, earned fees, commissions, and expense reimbursements, as permitted in the Limited Partnership Agreement, as follows:
(1)Cash Available for Distribution, if any, shall be Distributed 95% to the Limited Partners, and 5% to the General Partner, with the General Partner's share subordinated to a 10% annual cumulative, noncompounded return with respect to the Limited Partners' Adjusted Capital Contribution.
If at any time the allocation and distribution provisions of the Limited Partnership Agreement do not result in the allocation or distribution to the General Partners of an aggregate of at least one percent (1%) of the item being allocated or distributed, the Limited Partnership Agreement states that the General Partners are to be allocated or distributed so much more of such item as will cause the General Partners to be allocated or distributed one percent (1%) thereof.
(2)The General Partner, or an affiliate, are entitled to receive a subordinated real estate commission in an amount not to exceed the lesser of one-half the amount customarily charged by others rendering similar services or 3% of the sale price.
(3)Sale or refinancing proceeds will be distributed to Limited Partners in accordance with their Capital Accounts in an amount equal to their Adjusted Capital Contributions, then to the Limited Partners in an amount, if any, by which actual Distributions of Cash Available for Distribution were less than the preferred 10% return, then to the General Partner, a subordinated unpaid 5% of Cash Available for Distribution, and the remaining 80% to the Limited Partners, and 20% to the General Partner.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
There is no person known to the Registrant who owns beneficially or of record more than 10% of the voting securities of the Registrant. However, the General Partner has discretionary control over most of the decisions made by or for the Registrant pursuant to the terms of the Partnership Agreement. The Registrant has no directors or officers.
As of December 31, 1996 Dale D. Ulrich, one of the members of the managing general partners, owns 39 limited partnership units constituting less than 1% of the total outstanding units.
There are no arrangements known to the Registrant, the operation of which may, at a subsequent date, result in a change in control of the Registrant.
Item 13.

Item 13. Certain Relationships and Related Transactions ----------------------------------------------
During the year ended December 31, 1995 The Environmental Group, Inc. an affiliate of the General Partner, received or incurred $2000 in direct expense reimbursement for the administration of the Partnership.
During the years ended December 31, 1996, 1995 and 1994 QuestCor, Inc. was paid the following fees:
1996 1995 1994 ------- ------- -------
Property management $13,313 $12,179 $12,045
Partnership administration $30,000 $30,000 $30,000
Audit assistance $ 5,000 $ 5,000 $ 5,000
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ---------------------------------------------------------------
(a)(1) and (a)(2) List of Financial Statements and Schedules as a Part of this -------------------------------------------------------------- Report ------ Report of Independent Certified Public Accountants FINANCIAL STATEMENTS Balance sheet Statement of operations Statement of changes in partners' equity Statement of cash flows Notes to financial statements
(a)(3) List of Exhibits Filed as Part of this Report None ---------------------------------------------
(b) Reports on Form 8-K None -------------------
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ARMORED STORAGE INCOME INVESTORS 2 LIMITED PARTNERSHIP
By: Armored Management, L.L.C.
Its: General partner
Dated: 3/21/97 By: /s/ Carl R. Spiekerman -------------------- ------------------------------------- Carl R. Spiekerman, Member
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person in the capacity on the date indicated.
Signature Title Date --------- ----- ----
/s/ Carl R. Spiekerman Member of Armored Management 3/21/97 - -------------------------- L.L.C., general partner --------------- Carl R. Spiekerman
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1996
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1996
CONTENTS
Page
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of changes in partners' equity 4
Statements of cash flows 5 - 6
Notes to financial statements 7 - 11
To the Partners of Armored Storage Income Investors 2 Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Armored Storage Income Investors 2 (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Armored Storage Income Investors 2 as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
TOBACK CPAs, P.C. Phoenix, Arizona February 4, 1997
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995 ------------- ------------ Rental property and equipment: Land $ 242,825 $ 242,825 Building 1,068,145 1,059,970 Furniture and fixtures 22,655 22,655 ------------- ------------ 1,333,625 1,325,450 Less accumulated depreciation (371,852) (336,360) ------------- ------------
961,773 989,090
Cash and cash equivalents 87,874 55,798 Accounts receivable, net of allowance of $1,600 and $2,400 1,600 2,400 ------------- ------------
Total assets $ 1,051,247 $ 1,047,288 ============= ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 15,281 $ 15,231
Unearned rent 5,000 4,369 ------------- ------------
Total liabilities 20,281 19,600 ------------- ------------
Commitments (Note 3)
Partners' equity (Note 4): General partner (2,265) (3,941) Limited partners; 4,210 units outstanding 1,090,580 1,092,766 ------------- ------------ 1,088,315 1,088,825 Less amount due from former general partner (Note 5) (57,349) (61,137) ------------- ------------ 1,030,966 1,027,688 ------------- ------------
Total liabilities and partners' equity $ 1,051,247 $ 1,047,288 ============= ============
The accompanying notes are an integral part of these financial statements.
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 -------- -------- --------
Rental income $221,032 $190,629 $191,360 Interest income 1,504 974 724 -------- -------- --------
222,536 191,603 192,084 -------- -------- --------
Expenses: Property operations 95,154 96,153 76,089 Partnership administration (Note 3) 49,875 50,148 50,649 Depreciation 35,492 35,213 37,237 -------- -------- --------
180,521 181,514 163,975 -------- -------- --------
Net income $ 42,015 $ 10,089 $ 28,109 ======== ======== ========
Net income allocated to general partner $ 2,101 $ 504 $ 1,405
Net income allocated to limited partners 39,914 9,585 26,704 -------- -------- --------
Net income $ 42,015 $ 10,089 $ 28,109 ======== ======== ========
Net income allocated to limited partners per limited partnership unit (Note 4) $ 9.48 $ 2.28 $ 6.34 ======== ======== ========
Distributions per limited partnership unit $ 10.00 $ 9.00 $ 8.07 ======== ======== ========
Number of limited partnership units outstanding 4,210 4,210 4,210 ======== ======== ========
The accompanying notes are an integral part of these financial statements.
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of these financial statements.
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of these financial statements.
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of these financial statements.
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Partnership organization:
Armored Storage Income Investors 2 (the Partnership), was organized under the laws of the State of California pursuant to an agreement of limited partnership filed January 13, 1986, for the purpose of acquiring, developing, and operating self-service storage facilities in Phoenix, Arizona. As of December 31, 1993, the General Partner was Armored Storage, Ltd., a California Limited Partnership. Sales of the Partnership units commenced in April of 1986 as the Partnership was authorized to issue a total of 20,000 units for a total offering of $10,000,000. The Partnership reached its minimum funding requirement of 2,400 units of limited partnership interests on September 22, 1986, and has sold 4,210 units in total. The Partnership's offering period closed on April 3, 1987. In January 1994, Armored Management L.L.C. assumed the general partnership interest from Armored Storage, Ltd. as a result of a majority vote of the limited partners.
2. Summary of significant accounting policies:
Rental property and equipment:
Rental property and equipment are stated at cost. Depreciation is provided on the straight-line method over the following estimated useful lives:
Years -----
Building 30 Furniture and fixtures 5
Rental income and accounts receivable:
The Partnership generates rental income from month-to-month rental agreements for space at its self-storage facility on the accrual basis.
Accounts receivable are recorded for rental payments that are delinquent at year end. An allowance is recorded for management's estimate of uncollectible rental receivables. After a receivable is 90 days delinquent the contents of the units are generally sold and the proceeds are used to reduce the receivable balance.
Advertising:
Advertising costs are charged to operations as incurred.
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Summary of significant accounting policies, continued:
Accounting estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income taxes:
The Partnership does not record a provision for income taxes as any income or loss from the Partnership is recognized by the individual partners for tax reporting purposes.
Cash and cash equivalents:
For reporting in the statements of cash flows, the Partnership considers all certificates of deposit and money market funds with a maturity of three months or less to be cash equivalents.
3. Commitments and related party transactions:
The Partnership has the following commitments at December 31, 1996:
The Partnership entered into an agreement with Chris Cap Corporation dba QuestCor, Inc. (QuestCor) to manage the Partnership's self-storage facility. The term of the agreement is for one year through November, 1997, to be renewed on a month-to-month basis unless either party terminates the agreement. The agreement provides that the manager shall receive, as compensation for services, the greater of $1,000 per month or 6% of the gross cash receipts from the prior month.
The Partnership entered into an agreement with QuestCor to provide administrative services to the Partnership, such as investor relations, database management (including data processing of investor subscriptions, fund distributions, ownership changes, and subscription input), accounting, preparation and coordinating the preparation of periodic regulatory reports and tax related forms. The term of the agreement is for one year through December, 1997 and shall continue on a month-to-month basis unless either party terminates the agreement. The agreement provided for payment by the Partnership to QuestCor of $2,500 per month in 1996, 1995 and 1994 as compensation for its services. Additionally, the Partnership pays QuestCor $5,000 per year for providing assistance in the annual Partnership audit. A 50% member of Armored Management, L.L.C. is also a 50% shareholder of QuestCor.
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Commitments and related party transactions, continued:
The following are the approximate fees paid to QuestCor, Inc. for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ------- ------- -------
Property management $13,000 $12,000 $12,000 Partnership administration 30,000 30,000 30,000 Audit assistance 5,000 5,000 5,000
During the year ended December 31, 1995, the Partnership paid an affiliate of the General Partner $2,000 in direct expense reimbursements associated with a market study for the facility.
4. Partners' equity:
The Limited Partnership Agreement provides that profits, losses, and cash available for distribution shall be allocated as follows:
Allocation of net income:
Net income is to be allocated to the Limited Partners, ninety-five percent (95%) in accordance with their capital percentages and to the General Partner, five percent (5%), until such time as the Limited Partners have received in cash from all sources (other than cash available for distribution) an amount equal to one hundred percent (100%) of their capital contribution; thereafter to the Limited Partners, eighty percent (80%) in accordance with their capital percentages, and to the General Partner, twenty percent (20%).
Allocation of net loss:
Net losses are to be allocated to the Limited Partners, ninety-nine percent (99%) in accordance with their capital percentages and to the General Partner, one percent (1%), until such time as the Limited Partners have received distributions of cash from all sources (other than cash available for distribution) in an amount equal to one hundred percent (100%) of their capital contributions; thereafter to the Limited Partners, eighty percent (80%) in accordance with their capital percentages and to the General partner, twenty percent (20%).
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Partners' equity, continued:
Cash available for distribution:
Cash available for distribution, if any, realized by or available to the Partnership, shall be distributed no less frequently than annually in the following percentages: (1) to the Limited Partners, ninety-five percent (95%) in accordance with their capital percentages; and (2) to the General Partner five percent (5%) subordinated to a ten percent (10%) annual cumulative noncompounded return with respect to the Limited Partners adjusted capital contributions determined as of the first day of each calendar quarter, which distribution must be made before the General Partner is entitled to participate in cash available for distribution (Limited Partners Preferred Distribution).
Cash available for distribution is generally the Partnership's net cash flow less amounts set aside as reserves.
If in any period the General Partner determines that Partnership working capital reserves are in excess of the amount deemed necessary for Partnership operations, such excess reserves may be distributed as cash available for distribution.
Minimum allocation and distribution to the General Partners:
If, at any time, the allocation and distribution provisions of the Limited Partnership Agreement do not result in the allocation or distribution to the General Partner of an aggregate of at least one percent (1%) of the item being allocated or distributed, the Limited Partnership Agreement states that the General Partner is to be allocated or distributed so much more of such item as will cause the General Partner to be allocated or distributed one percent (1%) thereof.
5. Due from former General Partner:
Due from former General Partner (Armored Storage, Ltd.) represents a receivable of the Partnership for those amounts reimbursed to the former Managing General Partner for syndication fees incurred in excess of the percentage allowable by the Partnership's prospectus which was based on the total amount of limited partners' capital raised. At December 31, 1986, syndication fees of approximately $309,000 had been paid. On April 3, 1987, the offering was terminated. Based on actual units sold through the date of termination, excess syndication fees totalling approximately $113,000 were recorded as amounts due from the former General Partner. As collateral for the receivable, Armored Storage One Limited Partnership (a related partnership through common general partners) assigned its partnership interests in any proceeds or distributions from Armored Storage Income Investors Limited Partnership to Armored Storage Income Investors 2 until such time as the indebtedness is satisfied.
ARMORED STORAGE INCOME INVESTORS 2 (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Due from former General Partner, continued:
During 1995, no distributions were made from Armored Storage Income Investors Limited Partnership to its partners and, as a result, no proceeds were assigned to reduce the due from former general partner.
6. Partnership administration and property operations:
Included in partnership administration and property operations are the following expenses:
1996 1995 1994 ------- ------- ------- Partnership administration: Accounting $12,860 $11,520 $11,005
Property operations: Advertising 4,479 6,620 5,121 Insurance 2,233 2,085 2,034 Legal -- -- 3,000 Management fee 13,313 12,179 12,045 Property taxes 29,467 28,944 16,671 Repairs and maintenance 6,343 4,150 1,335 Utilities 6,950 7,368 6,599 Wages and payroll taxes 22,975 20,535 23,429