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 June 30, 1999
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 (IRS employer identification no.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(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
June 30, December 31,
1999 1998
<S> <C> <C>
Participating Insured Mortgages ("PIMs") $ 28,888,318 $ 29,074,105
(Note 2)
Mortgage-Backed Securities and
insured mortgage("MBS") (Note 3) 22,924,933 23,880,438
Total mortgage investments 51,813,251 52,954,543
Cash and cash equivalents 3,577,626 3,653,130
Interest receivable and other assets 353,117 367,780
Prepaid acquisition fees and expenses, net of
accumulated amortization of $624,009 and
$590,032 respectively 220,243 254,220
Prepaid participation servicing fees, net of
accumulated amortization of $209,666 and
$193,113, respectively 121,386 137,939
Total assets $ 56,085,623 $ 57,367,612
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 9,000 $ 20,198
Partners' equity (deficit)(Note 4):
Limited Partners
(7,500,099 Limited Partner interests
outstanding) 55,650,313 56,720,679
General Partners (239,408) (237,028)
Accumulated Comprehensive Income 665,718 863,763
Total Partners' equity 56,076,623 57,347,414
Total liabilities and Partners' equity $ 56,085,623 $ 57,367,612
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Interest income - PIMs
<S> <C> <C> <C> <C>
Basic interest $ 536,064 $ 620,540 $ 1,073,248 $ 1,269,618
Participation interest - 250,000 - 250,000
Interest income - MBS 478,950 536,255 968,176 1,042,103
Other interest income 44,105 97,564 89,788 162,897
Total revenues 1,059,119 1,504,359 2,131,212 2,724,618
Expenses:
Asset management fee to an affiliate 95,847 99,404 191,405 208,746
Expense reimbursements to affiliates 13,512 (15,873) 15,258 4,259
Amortization of prepaid fees and
expenses 25,264 25,264 50,530 50,530
General and administrative 25,586 42,934 39,306 67,392
Total expenses 160,209 151,729 296,499 330,927
Net income 898,910 1,352,630 1,834,713 2,393,691
Other comprehensive income:
Net change in unrealized gain on MBS (180,790) 175,456 (198,045) 149,067
Total comprehensive income $ 718,120 $ 1,528,086 $ 1,636,668 $ 2,542,758
Allocation of net income (Note 4):
Limited Partners $ 871,943 $ 1,312,051 $ 1,779,672 $ 2,321,880
Average net income per Limited
Partner interest
(7,500,099 Limited Partner
interests outstanding) $ .12 $ .17 $ .24 $ .31
General Partners $ 26,967 $ 40,579 $ 55,041 $ 71,811
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
Operating activities:
<S> <C> <C>
Net income $ 1,834,713 $ 2,393,691
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 50,530 50,530
Prepayment premium - (250,000)
Changes in assets and liabilities:
Decrease (increase) in interest receivable
and other assets 14,663 (170,571)
Decrease in liabilities (11,198) (10,988)
Net cash provided by operating activities 1,888,708 2,012,662
Investing activities:
Principal collections on MBS 757,460 797,235
Principal collections on PIMs including
prepayment premium of $250,000 in 1998 185,787 8,832,765
Net cash provided by investing activities 943,247 9,630,000
Financing activities:
Quarterly distributions (2,907,459) (2,927,663)
Special distributions - (8,400,111)
Net cash used for financing activities (2,907,459) (11,327,774)
Net (decrease) increase in cash and cash equivalents (75,504) 314,888
Cash and cash equivalents, beginning of period 3,653,130 3,100,615
Cash and cash equivalents, end of period $ 3,577,626 $ 3,415,503
</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, 1998 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 June 30, 1999 and its results of operations for the
three and six months ended June 30, 1999 and 1998, and its cash flows for the
six months ended June 30, 1999 and 1998.
The results of operations for the three and six months ended June 30, 1999 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 June 30, 1999, the Partnership's PIMs have a fair market value of
approximately $29,054,792 and gross unrealized gains of $166,474. The PIMs have
maturities ranging from 2006 to 2033. At June 30, 1999, the Partnership's
participating insured mortgage loan was not delinquent with respect to principal
or interest payments.
3. MBS
At June 30, 1999, the Partnership's MBS portfolio has an amortized cost of
$22,259,215 and gross unrealized gains of $665,718 with maturities from 2006 to
2033. At June 30, 1999, the Partnership's insured mortgage loan was not
delinquent with respect to principal or interest payments.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended
June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 56,720,679 $ (237,028) $ 863,763 $ 57,347,414
Net income 1,779,672 55,041 - 1,834,713
Quarterly distributions (2,850,038) (57,421) - (2,907,459)
Change in unrealized gain
on MBS - - (198,045) (198,045)
Balance at June 30, 1999 $ 55,650,313 $ (239,408) $ 665,718 $ 56,076,623
</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
General Partners of 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 significant internal systems or software that the Partnership
is using at the present time.
The General Partners of the Partnership surveyed the Partnership's material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors and received assurances
that such service providers and vendors are Year 2000 ready. The Partnership
does not anticipate any problems with such providers and vendors that would
materially impact its results of operations, liquidity or capital resources.
Nevertheless, the General Partners are developing contingency plans for all of
their "mission-critical functions" to insure business continuity.
The Partnership is also subject to external forces that might generally
affect industry and commerce, such as utility and transportation company Year
2000 readiness failures and related service interruptions. However, the General
Partners do not anticipate any material impact on the Partnership's results of
operations, liquidity or capital resources.
To date, the Partnership has not incurred any cost associated with being
Year 2000 ready. All costs have been incurred by the General Partners and it is
estimated that any future Year 2000 readiness costs will be borne by the General
Partners.
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 and as a result the capital resources of
the Partnership will continually decrease. As a result of this decrease, the
total cash inflows to the Partnership will also decrease which will result in
periodic adjustments to the quarterly distributions paid to investors.
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.
Based on current projections, the General Partners believe the Partnership
can maintain the current distribution rate through 1999. However, in the event
of PIM prepayments, the Partnership would be required to distribute any proceeds
from the prepayments as a special distribution which may cause an adjustment to
the distribution rate to reflect the anticipated future cash inflows from the
remaining mortgage investments.
Royal Palm Place and Vista Montana operate under long-term restructure
programs. As an ongoing result of the Partnership's 1995 agreement to modify the
payment terms of the Royal Palm Place PIM, the Partnership will receive basic
interest-only payments on the Fannie Mae MBS at the rate of 7.0% per annum
during 1999. Thereafter, the interest rate will range from 7.5% to 8.775% per
annum through the maturity of the first mortgage loan in 2006. The Partnership
also received its share ($68,423) of the scheduled $250,000 principal payment in
January 1999. The Partnership agreed in 1993 to permanently reduce the interest
rate on the Vista Montana first mortgage loan to 7.375% per annum. The mediocre
operating performance of the remaining portfolio property, La Costa, has not
generated a sufficient increase in its value to provide an incentive for the
owners to pursue either a sale or a refinance of the property. La Costa is an
older property with physical shortcomings that affect rental income potential
and increase the cost of operations. Consequently, the property does not
generate any participation interest to the Partnership from operating cash flow.
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 represents interest in pooled mortgages insured by
HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by
the full faith and credit of the U.S. Government.
The Partnership includes in cash and cash equivalents approximately $3
million of commercial paper, which is issued by entities with a credit rating
equal to one of the top two rating categories of a nationally recognized
statistical rating organization.
Operations
The following discussion relates to the operations of the Partnership
during the three and six months ended June 30, 1999 and 1998.
Net income decreased by approximately $454,000 and $559,000 for the three
and six months ended June 30, 1999, respectively, as compared to the
corresponding periods in 1998. These decreases were due primarily to lower basic
interest on PIMs resulting from the prepayment of the Greentree PIM in March
1998 and the receipt of $250,000 of participation interest in 1998.
Additionally, interest income on MBS declined due to a lower investment balance
and other interest income decreased due to lower average cash balances in 1999
as compared to 1998.
The Partnership funds a portion of its 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
<PAGE>
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
Vice-President of The Krupp Corporation,
a General Partner of the Registrant.
DATE: August 5, 1999
<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> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 3,577,626
<SECURITIES> 51,813,251<F1>
<RECEIVABLES> 353,117
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 341,629<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,085,623
<CURRENT-LIABILITIES> 9,000
<BONDS> 0
0
0
<COMMON> 55,410,905<F3>
<OTHER-SE> 665,718<F4>
<TOTAL-LIABILITY-AND-EQUITY> 56,085,623
<SALES> 0
<TOTAL-REVENUES> 2,131,212<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 296,499<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,834,713
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,834,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,834,713
<EPS-BASIC> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $28,888,318 and
Mortgage-Backed Securities ("MBS") of $22,924,933.
<F2>Includes prepaid acquisition fees and expenses of $844,252 net of
accumulated amortization of $624,009 and prepaid participation servicing
fees of $331,052 net of accumulated amortization of $209,666.
<F3>Represents total equity of General Partners and Limited Partners.
General Partners deficit of ($239,408) and Limited Partners equity of
$55,650,313.
<F4>Unrealized gains on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $50,530 of amortization of prepaid fees and expenses.
<F7>Net income allocated $55,041 to the General Partners and $1,779,672 to
the Limited Partners. Average net income per Limited Partner interest is
$.24 on 7,500,099 Limited Partner interests outstanding.
</FN>
</TABLE>
