UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 0-17690
Krupp Insured Mortgage Limited Partnership
Massachusetts 04-3021395
(State or other jurisdiction of (IRS employer
incorporation or organization) identification
no.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(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.
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<TABLE>
BALANCE SHEETS
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
<S> <C> <C>
Participating Insured Mortgages ("PIMs")
(Note 2) $145,922,379 $164,942,921
Mortgage-Backed Securities ("MBS") (Note 3) 16,352,609 17,358,307
Total mortgage investments 162,274,988 182,301,228
Cash and cash equivalents 4,863,114 6,057,077
Interest receivable and other assets 1,090,175 1,292,834
Prepaid acquisition fees and expenses, net of
accumulated amortization of $7,789,900 and
$8,125,626, respectively 3,473,132 4,544,255
Prepaid participation servicing fees, net of
accumulated amortization of $2,523,764 and
$2,629,028 respectively 1,200,659 1,560,583
Total assets $172,902,068 $195,755,977
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,714 $ 18,973
Partners' equity (deficit):
Limited Partners 172,751,334 195,564,776
(14,956,856 Limited Partner interests
outstanding)
General Partners (286,600) (254,541)
Unrealized gain on MBS 422,620 426,769
Total Partners' equity 172,887,354 195,737,004
Total liabilities and Partners' equity $172,902,068 $195,755,977
</TABLE>
-2-
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Revenues:
<S> <C> <C> <C> <C>
Interest income - PIMs:
Base interest $2,780,278 $3,157,909 $5,784,184 $ 6,655,777
Participation interest
(Note 2) 299,050 - 1,042,684 982,845
Interest income - MBS 330,317 382,563 670,693 783,453
Other interest income 100,270 82,731 225,855 251,236
Total revenues 3,509,915 3,623,203 7,723,416 8,673,311
Expenses:
Asset management fee
to an affiliate 281,221 344,101 565,581 705,756
Expense reimbursements
to affiliates 43,236 49,348 78,341 108,959
Amortization of prepaid
fees and expenses
(Note 2) 603,375 437,728 1,431,047 2,137,676
General and administrative
expenses 71,105 28,504 179,031 105,876
Total expenses 998,937 859,681 2,254,000 3,058,267
Net income $2,510,978 $2,763,522 $5,469,416 $ 5,615,044
Allocation of net income
(Note 4):
Limited Partners $2,435,649 $2,680,617 $5,305,334 $ 5,446,593
Average net income per
Limited Partner interest
(14,956,856 Limited
Partner interests
outstanding) $ .16 $ .18 $ .35 $ .36
General Partners $ 75,329 $ 82,905 $ 164,082 $ 168,451
</TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income $5,469,416 $ 5,615,044
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 1,431,047 2,137,676
Shared appreciation income (652,453) (982,845)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 202,659 815,889
Decrease in liabilities (4,259) (6,661)
Net cash provided by operating activities 6,446,410 7,579,103
Investing activities:
Principal collections on PIMs including shared
appreciation income of $652,453 and 982,845
respectively 19,672,995 25,704,239
Principal collections on MBS 1,001,549 1,731,477
Net cash provided by investing activities 20,674,544 27,435,716
Financing activities:
Quarterly distributions (9,170,218) (9,206,350)
Special distributions (19,144,699) (25,426,553)
Net cash used for financing activities (28,314,917) (34,632,903)
Net increase (decrease) in cash and cash equivalents (1,193,963) 381,916
Cash and cash equivalents, beginning of period 6,057,077 5,970,759
Cash and cash equivalents, end of period $ 4,863,114 $ 6,352,675
</TABLE>
<PAGE>
KRUPP INSURED MORTGAGE 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, Krupp Plus Corporation and Mortgage Services Partners
Limited Partnership, (collectively the "General Partners") of Krupp
Insured Mortgage 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, 1996 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 primarily of normal recurring accruals) necessary to
present fairly the Partnership's financial position as of June 30,
1997, its results of operations for the three and six months ended
June 30, 1997 and 1996 and its cash flows for the six months ended
June 30, 1997 and 1996.
The results of operations for the three and six months ended June 30,
1997 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
On February 25, 1997, the Partnership received a prepayment of the
Rock Creek Apartments PIM. The Partnership received the outstanding
principal balance of $11,139,968 plus outstanding interest. The
Partnership did not receive any prepayment penalty or participation
income from this PIM. The borrower of the Rock Creek Springs PIM
defaulted on its debt service obligation during the third quarter of
1996. FNMA, the guarantor of the MBS portion of the PIM, was unable
to negotiate a workout plan with the borrower and exercised its
option to payoff the MBS in February 1997 and pursue a foreclosure.
On March 21, 1997, the Partnership made a special distribution of
$.75 per Limited Partner interest with the proceeds from the Rock
Creek payoff. In addition, the Partnership fully amortized the
remaining prepaid fees and expenses associated with this PIM.
During 1997, the Partnership received a prepayment of the Silver
Springs PIM. The Partnership received the outstanding principal
balance of $7,249,479 plus outstanding interest on April 25,
1997, while on March 31, 1997, the Partnership had received a
prepayment penalty of $652,453 and Minimum Additional and
Shared Income Interest of $41,173. On May 23, 1997 the
Partnership made a special distribution of $.53 per unit to
the Limited Partners from the proceeds of the Silver Springs
PIM prepayment.
At June 30, 1997, the Partnership s PIM portfolio has a fair value of
$147,942,091 and gross unrealized gains and losses of $2,541,618 and
$521,906, respectively. The Partnership s PIMs have maturities
ranging from 1999 to 2032.
<PAGE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
3. MBS
As of June 30, 1997, the Partnership s MBS portfolio has an amortized
cost of $15,929,989 and gross unrealized gains and losses of
$542,289 and $119,669. The MBS portfolio has maturity dates ranging
from 1999 to 2024.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended
June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $195,564,776 $(254,541) $426,769 $195,737,004
Net income 5,305,334 164,082 - 5,469,416
Quarterly distributions (8,974,077) (196,141) - (9,170,218)
Special distributions (19,144,699) - - (19,144,699)
Decrease in unrealized gain
on MBS - - (4,149) (4,149)
Balance at June 30, 1997 $172,751,334 $(286,600) $422,620 $172,887,354
</TABLE>
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.
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are regular
quarterly distributions paid to investors of approximately $4.5 million.
Funds used for investor distributions are generated from interest income
received on the PIMs, MBS, cash and short-term investments, and the
principal collections received on the PIMs and MBS. The Partnership funds
a portion of the distribution from principal collections 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
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 the cash
available for distribution, the General Partners may adjust the
distribution rate or distribute funds through a special distribution.
The owner of the Patrician Apartments sold the property during the second
quarter of 1997 and the new owner assumed the first mortgage. In
connection with this transaction, the General Partners agreed to accept a
$100,000 payment from the owner to discharge the loan s participation
features, which converts the Partnership s PIM into an insured mortgage.
The Partnership s invested assets decreased significantly during the first
half of 1997 as a result of the repayments of the Rock Creek and Silver
Springs Apartments PIMs and the subsequent distribution of the proceeds to
investors. The Partnership received approximately $11.1 million of
principal proceeds from the repayment of the Rock Creek Apartments PIM and
approximately $7.9 million of principal proceeds including the prepayment
penalty from the repayment of the Silver Springs Apartments PIM. The
Partnership used these proceeds to make special distributions to investors
of $.75 and $.53 per limited partner interest on March 21, 1997 and May
23, 1997, respectively. The General Partners estimate that the Partnership
can maintain the current quarterly distribution rate of $.30 per limited
partner interest through 1997. The General Partners will continue to
monitor the appropriateness of this distribution rate in the future and
will adjust it as necessary.
For the first five years of the PIMs the borrowers are prohibited from
prepaying. For the second five years, the borrowers can prepay the loans
and pay the greater of a prepayment penalty or all participation interest.
<PAGE>
The participation features of the PIMs are neither insured nor guaranteed
and if repayment of a PIM results from an insurance claim the Partnership
would not receive any participation interest. 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") and the 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 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 six months ended June 30, 1997 and 1996.
Net income decreased for the three months ended June 30, 1997 as compared
to the same period of 1996 by approximately $252,000. This decrease was
due to lower base interest of $378,000, lower interest income on MBS of
$51,000 and higher amortization expenses of $165,000. The decrease in base
interest was the result of two prepayments in 1997, Rock Creek Apartments
on February 25, 1997 and Silver Springs Apartments on April 25, 1997. This
was offset by higher participation interest of $299,000, higher other
interest income of $18,000 and lower Partnership expenses of $25,000. The
Partnership received participation interest from the Paddock-Lakeland,
Patrician, Hampton Ridge, Cross Creek and Deering Place PIM s in the
amounts of $108,000, $100,000, $35,000, 34,000 and $22,000, respectively
Net income decreased for the six months ended June 30, 1997 as compared to
the same period of 1996 by approximately $146,000. This decrease was due
to lower base interest of $872,000, lower interest income on MBS of
$112,000 and lower other interest income of $25,000. The decrease in base
interest was primarily the result of the two prepayments in 1997 and two
prepayments in 1996, Water View Apartments on February 16, 1996 and
Tarnhill Apartments on February 29, 1996. This was offset by higher
participation interest of $59,000, lower amortization expenses of $707,000
and Partnership expenses of $97,000. The decrease in amortization expense
is primarily related to the write off of costs in 1996 related to the
Waterview and Tarnhill PIMs. The Partnership received shared appreciation
income from the prepayment of the Silver Springs PIM of $652,000, and
participation interest received from six properties totaling $390,000.
The Partnership funds a portion of distributions with MBS and PIM principal
collections which reduces the invested assets generating interest 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 MORTGAGE 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
-14-
<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 Mortgage Limited Partnership
(Registrant)
BY: /s/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer of Krupp Plus
Corporation, a General Partner
DATE: July 25, 1997
-15-
<PAGE>
<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> 0000832095
<NAME> KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,863,114
<SECURITIES> 162,274,988<F1>
<RECEIVABLES> 1,090,175
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,673,791<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 172,902,068
<CURRENT-LIABILITIES> 14,714
<BONDS> 0
0
0
<COMMON> 172,464,734<F3>
<OTHER-SE> 422,620<F4>
<TOTAL-LIABILITY-AND-EQUITY> 172,902,068
<SALES> 0
<TOTAL-REVENUES> 7,723,416<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,254,000<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,469,416
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,469,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,469,416
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $145,922,379 and
Mortgage-Backed Securities ("MBS) of $16,352,609
<F2>Includes prepaid acquisition fees and expenses of $11,263,032 net of
accumulated amortization of $7,789,900 and prepaid participation servicing fees
of $3,724,423 net of accumulated amortization of $2,523,764
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($286,600) and Limited Partners equity of $172,751,334.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,431,047 of amortization of prepaid fees and expenses.
<F7>Net income allocated $164,082 to the General Partners and $5,305,334 to the
Limited Partners. Average net income per Limited Partner interest is $.35 on
14,956,896 Limited Partner interests outstanding.
</FN>
</TABLE>
