UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-15815
Krupp Insured Plus Limited Partnership
Massachusetts 04-2915281
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(617) 423-2233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
<TABLE>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
<S> <C> <C> <C> <C> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $ 29,131,126 $ 37,769,835
Mortgage-Backed Securities and insured
mortgage ("MBS") (Note 3) 24,945,088 25,897,592
Total mortgage investments 54,076,214 63,667,427
Cash and cash equivalents 3,620,812 3,100,615
Interest receivable and other assets 364,990 534,178
Prepaid acquisition fees and expenses, net of
accumulated amortization of $573,045 and
$522,080, respectively 271,207 322,172
Prepaid participation servicing fees, net of
accumulated amortization of $184,838 and
$160,008, respectively 146,214 171,044
Total assets $ 58,479,437 $ 67,795,436
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 15,211 $ 21,117
Partners' equity (deficit)(Note 4)
Limited Partners 57,245,815 66,774,981
(7,500,099 Limited Partner interests
outstanding)
General Partners (238,612) (224,493)
Unrealized gain on MBS 1,457,023 1,223,831
Total Partners' equity 58,464,226 67,774,319
Total liabilities and Partners' equity $ 58,479,437 $ 67,795,436
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Interest income - PIMs
<S> <C> <C> <C> <C>
Base interest $ 453,296 $ 799,175 $1,722,914 $2,403,843
Participation interest - - 250,000 -
Interest income - MBS 507,670 543,961 1,549,773 1,644,568
Other interest income 48,284 31,611 211,181 86,537
Total revenues 1,009,250 1,374,747 3,733,868 4,134,948
Expenses:
Asset management fee
to an affiliate 99,698 127,733 308,444 381,194
Expense reimbursements
to affiliates 11,577 20,130 15,836 56,597
Amortization of prepaid
fees and expenses 25,265 154,600 75,795 497,384
General and administrative 23,100 26,861 90,492 112,741
Total expenses 159,640 329,324 490,567 1,047,916
Net income 849,610 1,045,423 3,243,301 3,087,032
Net change in unrealized gain
on MBS 84,125 58,586 233,192 90,161
Total comprehensive income $ 933,735 $1,104,009 $3,476,493 $3,177,193
Allocation of net income (Note 4):
Limited Partners $ 824,122 $1,014,061 $3,146,002 $2,994,421
Average net income per Limited
Partner interest
(7,500,099 Limited Partner
interests outstanding) $ .11 $ .14 $ .42 $ .40
General Partners $ 25,488 $ 31,362 $ 97,299 $ 92,611
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
Operating activities:
<S> <C> <C>
Net income $ 3,243,301 $3,087,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 75,795 497,384
Prepayment premium (250,000) -
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 169,188 50,471
Decrease in liabilities (5,906) (3,178)
Net cash provided by operating activities 3,232,378 3,631,709
Investing activities:
Principal collections on PIMs including
prepayment premium of $250,000 in 1998 8,888,709 329,834
Principal collections on MBS 1,185,696 1,072,919
Net cash provided by investing activities 10,074,405 1,402,753
Financing activities:
Quarterly distributions (4,386,475) (4,411,871)
Special distributions (8,400,111) -
Net cash used for financing activities (12,786,586) (4,411,871)
Net increase in cash and cash equivalents 520,197 622,591
Cash and cash equivalents, beginning of period 3,100,615 1,757,197
Cash and cash equivalents, end of period $3,620,812 $2,379,788
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this report on Form 10-Q pursuant to the
Rules and Regulations of the Securities and Exchange Commission. However, in
the opinion of the general partners, The Krupp Corporation and The Krupp
Company Limited Partnership-IV (collectively the "General Partners"), of Krupp
Insured Plus Limited Partnership (the "Partnership") the disclosures contained
in this report are adequate to make the information presented not misleading.
See Notes to Financial Statements included in the Partnership's Form 10-K for
the year ended December 31, 1997 for additional information relevant to
significant accounting policies followed by the Partnership.
In the opinion of the General Partners of the Partnership, the accompanying
unaudited financial statements reflect all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the Partnership's
financial position as of September 30, 1998, its results of operations for the
three and nine months ended September 30, 1998 and 1997 and its cash flows
for the nine months ended September 30, 1998 and 1997.
The results of operations for the three and nine months ended September 30,
1998 are not necessarily indicative of the results which may be expected for
the full year. See Management's Discussion and Analysis of Financial Condition
and Results of Operations included in this report.
2. PIMs
At September 30, 1998, the Partnership's PIMs have a fair value of $29,137,674
and gross unrealized gains and losses of $27,926 and $21,378, respectively.
The PIMs have maturities ranging from 2006 to 2033. At September 30, 1998 there
are no insured mortgage loans within the Partnership's portfolio that are
delinquent with respect to principal or interest payments.
The borrower on the Greentree PIM defaulted on the first mortgage obligation.
During the default the Partnership had continued to receive its full principal
and interest payments due on the PIM because GNMA had guaranteed those payments
to the Partnership. In March 1998, the GNMA mortgagee exercised their right to
prepay the GNMA MBS because of the continuing default of the underlying first
mortgage loan, and the Partnership received proceeds from the prepayment of the
GNMA MBS in the amount of $8,362,336. On April 16, 1998, the Partnership made a
special distribution to the investors from the capital proceeds of $1.12 per
Limited Partner interest. Subsequent to the payoff of the GNMA MBS, the General
Partners negotiated a settlement with the borrower to release the Subordinated
Promissory Note, and $250,000 was received in July 1998.
3. MBS
At September 30, 1998, the Partnership's MBS portfolio has an amortized cost of
$23,488,065 and gross unrealized gains of $1,457,023 with maturities from 2004
to 2033.
In June 1997, Statement of Financial Accounting Standards No. 130, 'Reporting
Comprehensive Income' (FASB 130), was issued establishing standards for
reporting and displaying comprehensive income and its components effective
January 1, 1998. FASB 130 requires comprehensive income and its components,
as recognized under accounting standards, to be displayed in a financial
statement with the same prominence as other financial statements, if material.
Accordingly, unrealized gains (losses) on the Partnership's available-for sale
securities have been included in other comprehensive income.
Continued
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1998 is as follows:
<TABLE>
Limited General Unrealized Total Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 66,774,981 $(224,493) $1,223,831 $ 67,774,319
Net income 3,146,002 97,299 - 3,243,301
Quarterly distributions (4,275,057) (111,418) - (4,386,475)
Special distributions (8,400,111) - - (8,400,111)
Increase in unrealized gain
on MBS - - 233,192 233,192
Balance at
September 30, 1998 $ 57,245,815 $(238,612) $1,457,023 $ 58,464,226
</TABLE>
<PAGE>
Item 2. 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.
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the further necessary steps to understand the nature and extent of the
work required to make its systems Year 2000 ready in those situations in which
it is required to do so. The Year 2000 readiness issue concerns the inability
of computerized information systems to accurately calculate, store or use a
date after 1999. This could result in a system failure or miscalculations
causing disruptions of operations. The Year 2000 issue affects virtually all
companies and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
Partnership incurred hardware costs as well as consulting and other expenses
related to the infrastructure and facilities enhancements necessary to complete
the upgrade and prepare for the Year 2000. There are no other systems or
software that the Partnership is using at the present time.
The General Partners of the Partnership are in the process of evaluating the
potential adverse impact that could result from the failure of material third-
party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors to be Year 2000 ready.
No estimate can be made at this time as to the impact of the readiness of such
third parties.
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are regular
quarterly distributions paid to investors of approximately $1.5 million.
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 causing the capital
resources of the Partnership to continually decrease. As a result of this
decrease, the total cash inflows to the Partnership will also decrease which
will result in periodic downward adjustments to the quarterly distributions
paid to investors.
As a result of the Greentree PIM prepayment the Partnership made a special
distribution of $1.12 per unit from the payoff proceeds. Consequently, the
Partnership's capital resources and its future cash flows will be lower.
However, at this time the General Partners has determined that the Partnership
can maintain its current dividend rate of $.76 per unit per year. The General
Partners periodically review the distribution rate to determine whether an
adjustment is necessary based on projected future cash flows. In general, the
General Partners try to set a distribution rate that provides for level
quarterly distributions of cash available for distribution. To the extent
quarterly distributions differ from cash available for distribution, the General
Partners may adjust the distribution rate or distribute funds through a special
distribution.
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 Fannie
Mae, 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.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and is
wholly-owned by the twelve Federal Home Loan Banks. These obligations are not
guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA
guarantees the full and timely payment of principal and basic interest on
the securities it issues, which represent interests in pooled mortgages
insured by HUD. Obligations insured by HUD, an agency of the U.S. Government,
are backed by the full faith and credit of the U.S. Government.
Operations
The following discussion relates to the operations of the Partnership during
the three and nine months ended September 30, 1998 and 1997.
Net income decreased for the three month period ended September 30, 1998 as
compared to the same period in 1997. This decrease was due to lower interest
income on PIMs and MBS, which was offset, by higher interest income on cash
and cash equivalents and lower expenses. PIM interest income decreased as
did asset management fees paid to an affiliate due primarily to the
prepayments of the Pine Hills PIM in November of 1997 and the Greentree PIM in
March 1998. The increase in interest income on cash and cash equivalents
was due to the Partnership having higher short-term investment balances
during the three months ended September 30, 1998 as compared to the same period
in 1997. Amortization expense decreased as all the prepaid expenses and fees
associated with all the remaining PIMs, except Vista Montana were fully
amortized.
Net income increased for the nine month period ended September 30, 1998 as
compared to the same period in 1997. This increase was due to higher
participation interest and interest income on cash and cash equivalents
and lower expenses, which was offset by lower interest income on PIMs and MBS.
The increase in participation income is related to the Greentree PIM
prepayment. The increase in interest income on cash and cash equivalents was
due to the Partnership having higher short-term investment balances during the
nine months ended September 30, 1998 as compared to the same period in 1997.
Amortization expense decreased as all the prepaid expenses and fees associated
with all the remaining PIMs, except Vista Montana have been fully amortized.
Expense reimbursements to affiliates decreased during the nine months ended
September 30, 1998 due to the Partnership having received a rebate for expense
reimbursementsrelated to 1997. PIM interest income decreased as did asset
management fees paid to an affiliate due primarily to the prepayments of
the Pine Hills PIM in November of 1997 and the Greentree PIM in March 1998.
Interest income on PIMs and MBS will continue to decline as principal
collections reduce the outstanding balance of the portfolios. The Partnership
funds a portion of distributions with MBS and PIM principal collections, which
reduces the invested assets generating income for the Partnership. As the
invested assets decline so will interest income on MBS, base interest income
on PIMs and other interest income.
<PAGE>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response: None
SIGNATURE
Pursuant to the requirements 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.
Krupp Insured Plus Limited Partnership
(Registrant)
BY: /s/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Mortgage
Officer of The Krupp Corporation,
a General Partner of the Registrant.
DATE: October 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK>0000786622
<NAME>KRUPP INSURED PLUS LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<CASH> 3,620,812
<SECURITIES> 54,076,214<F1>
<RECEIVABLES> 364,990
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 417,421<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,479,437
<CURRENT-LIABILITIES> 15,211
<BONDS> 0
0
0
<COMMON> 57,007,203<F3>
<OTHER-SE> 1,457,023<F4>
<TOTAL-LIABILITY-AND-EQUITY> 58,479,437
<SALES> 0
<TOTAL-REVENUES> 3,733,868<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 490,567<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,243,301
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,243,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,243,301
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $29,131,126 and
Mortgage-Backed Securities ("MBS") of $24,945,088.
<F2>Includes prepaid acquisition fees and expenses of $844,252 net of
accumulated amortization of $573,045 and prepaid participation servicing fees of
$331,052 net of accumulated amortization of $184,838.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($238,612) and Limited Partners equity of $57,245,815.
<F4>Unrealized gains on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $75,795 of amortization of prepaid fees and expenses.
<F7>Net income allocated $97,299 to the General Partners and $3,146,002 to the
Limited Partners. Average net income per Limited Partner interest is $.42 on
7,500,099 Limited Partner interests outstanding.
</FN>
</TABLE>
