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, 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 0-17690
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.
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
BALANCE SHEETS
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
Participating Insured Mortgages ("PIMs")
<S> <C> <C>
(Note 2) $112,526,119 $113,051,723
Mortgage-Backed Securities ("MBS") (Note 3) 21,302,865 23,700,858
------------ ------------
Total mortgage investments 133,828,984 136,752,581
Cash and cash equivalents 3,556,029 20,480,666
Interest receivable and other assets 895,032 936,883
Prepaid acquisition fees and expenses, net of
accumulated amortization of $7,424,085 and
$ 6,944,814, respectively 1,914,002 2,393,273
Prepaid participation servicing fees, net of
accumulated amortization of $2,446,050 and
$2,293,034, respectively 641,871 794,887
----------------- -----------------
Total assets $140,835,918 $161,358,290
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 16,324 $ 120,966
----------- -----------
Partners' equity (deficit):
Limited Partners 140,438,404 160,722,004
(14,956,856 Limited Partner interests
outstanding)
General Partners (310,208) (274,985)
Unrealized gain on MBS 691,398 790,305
------------ ------------
Total Partners' equity 140,819,594 161,237,324
------------ ------------
Total liabilities and Partners' equity $140,835,918 $161,358,290
============ ============
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
-------- --------- ------- ------
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,173,157 $2,780,278 $4,347,434 $5,784,184
Participation interest 38,392 299,050 69,756 1,042,684
Interest income - MBS 409,975 330,317 847,888 670,693
Other interest income 118,553 100,270 180,682 225,855
--------- ------------- --------- ----------
Total revenues 2,740,077 3,509,915 5,445,760 7,723,416
--------- --------- --------- ----------
Expenses:
Asset management fee to
an affiliate 224,286 281,221 439,489 565,581
Expense reimbursements to
affiliates (34,465) 43,236 8,771 78,341
Amortization of prepaid
fees and expenses 316,144 603,375 632,287 1,431,047
General and administrative
expenses 72,585 71,105 142,556 179,031
--------- ------------- --------- --------------
Total expenses 578,550 998,937 1,223,103 2,254,000
--------- ------------- --------- --------------
Net income $2,161,527 $2,510,978 $4,222,657 $5,469,416
========== ========== ========== ==========
Allocation of net income (Note 4):
Limited Partners $2,096,681 $2,435,649 $4,095,977 $5,305,334
========== ========== ========== ==========
Average net income per
Limited Partner interest
(14,956,856 Limited
Partner interests
outstanding) $ .14 $ .16 $ .27 $ .35
========== ========== ========== ==========
General Partners $ 64,846 $ 75,329 $ 126,680 $ 164,082
========== ========== ========== ==========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
Operating activities:
<S> <C> <C>
Net income $4,222,657 $5,469,416
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 632,287 1,431,047
Shared appreciation income - (652,453)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 41,851 202,659
Decrease in liabilities (104,642) (4,259)
--------------- --------------
Net cash provided by operating activities 4,792,153 6,446,410
--------------- --------------
Investing activities:
Principal collections on PIMs including shared
appreciation income of $652,453 in 1997 525,604 19,672,995
Principal collections on MBS 2,299,086 1,001,549
---------------- ----------------
Net cash provided by investing activities 2,824,690 20,674,544
---------------- ----------------
Financing activities:
Quarterly distributions (7,789,869) (9,170,218)
Special distributions (16,751,611) (19,144,699)
----------- -----------
Net cash used for financing activities (24,541,480) (28,314,917)
----------- -----------
Net decrease in cash and cash equivalents (16,924,637) (1,193,963)
Cash and cash equivalents, beginning of period 20,480,666 6,057,077
---------------- ---------------
Cash and cash equivalents, end of period $ 3,556,029 $ 4,863,114
=========== ===========
The accompanying notes are an integral
part of the financial statements.
</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, 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 primarily of normal recurring accruals) necessary to present
fairly the Partnership's financial position as of June 30, 1998, its
results of operations for the three and six months ended June 30, 1998
and 1997 and its cash flows for the six months ended June 30, 1998 and
1997.
The results of operations for the three and six months ended June 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 June 30, 1998, the Partnership=s PIM portfolio has a fair value of
$115,109,901 and gross unrealized gains of $2,583,782. The Partnership=s
PIMs have maturities ranging from 1999 to 2032. At June 30, 1998 there
are no insured mortgage loans within the Partnership's portfolio that are
delinquent of principal or interest.
During January 1998, the Partnership made a $1.12 per Unit special
distribution with the prepayment proceeds of the Paddock Club and
Southland Station PIMs that were received during the fourth quarter of
1997.
3. MBS
As of June 30, 1998, the Partnership=s MBS portfolio has an amortized
cost of $20,611,467 and gross unrealized gains of $691,398. The MBS
portfolio has maturity dates ranging from 1999 to 2024.
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. FASB 130 had no material effect on the
Partnership's financial position or results of operations.
<PAGE>
KRUPP INSURED MORTGAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June
30, 1998 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $160,722,004 $(274,985) $ 790,305 $161,237,324
Net income 4,095,977 126,680 - 4,222,657
Quarterly distributions (7,627,966) (161,903) - (7,789,869)
Special distributions (16,751,611) - - (16,751,611)
Decrease in unrealized gain
on MBS - - (98,907) (98,907)
------------ --------- ------------- -----------------
Balance at June 30, 1998 $140,438,404 $ (310,208) $ 691,398 $140,819,594
=========== =========== ========= ============
</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.
Liquidity and Capital Resources
The most significant demand on the Partnership's liquidity are regular
quarterly distributions paid to investors of approximately of $3.14 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
quarterly 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 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.
During the second quarter of 1998 the borrower on the Deering Place
Apartments PIM informed the Partnership of the potential payoff during the third
quarter of 1998. The borrower on the Cross Creek Apartment PIM has also informed
the Partnership of the possibility that the property could be sold or refinanced
during the second half of 1998. If one or both transactions take place, the
Partnership would receive any Additional Interest that would be due as well as a
prepayment of the outstanding principal balance due on each of the PIMs.
The first mortgage loan underlying the PIM on Remington Place Apartments
went into default in November 1997. However, the Partnership will continue to
receive its full principal and interest payments until the default is worked out
because GNMA has guaranteed those payments to the Partnership. The borrower and
the first mortgage lender are working with HUD to structure a modification to
the mortgage that will substantially change the terms of the mortgage. If they
are successful, the Partnership will receive a prepayment of the outstanding
principal balance due on the PIM but will not receive any participation
interest.
During January 1998, the Partnership made a $1.12 per Unit special
distribution with the prepayment proceeds of the Paddock Club and Southland
Station PIMs that were received during the fourth quarter of 1997.
The General Partners estimate that the Partnership can maintain the
quarterly distribution rate of $.21 per limited partner interest for the near
future. However, in the event of further PIM prepayments the Partnership would
be required to distribute proceeds from such 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.
The participation features of the PIMs are neither insured nor guaranteed
and if repayment of a PIM results from an insurance claim, the Partnership will
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
Fannie Mae, 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.
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 six months ended June 30, 1998 and 1997.
Net income decreased for the three months ended June 30, 1998 as compared
to the same period of 1997 by approximately $349,000. This decrease was
primarily due to lower base interest of $607,000, and lower participation
interest of $261,000. Offsetting these decreases were higher interest income on
MBS of approximately $80,000, due to the Patrician PIM converting to a
non-participating insured mortgage during the fourth quarter of 1997, lower
amortization expenses of $287,000 and lower expense reimbursements to affiliates
of $78,000. The decrease in base interest was the result of the Silver Springs,
Hampton Ridge, Paddock Club and Southland Apartment PIMs payoffs which occurred
in 1997. Participation interest declined approximately $261,000 due to the
Partnership realizing participation interest solely from the Cross Creek
Apartment PIM in the amount of $38,392 during the second quarter of 1998 versus
approximately $299,000 from six PIMs during the same period of 1997. Three of
the six PIMs that paid participation interest during the second quarter of 1997
were prepaid later in the year.
Net income decreased approximately $1,247,000 for the six months ended June
30, 1998 as compared to the same period in 1997, due primarily to lower base
interest and participation income of approximately $1,437,000 and $973,000,
respectively. This was offset by higher interest income on MBS of approximately
$177,000 and lower amortization expense, asset management fees and expense
reimbursements of approximately $799,000, $127,000 and $69,000, respectively.
Base interest on PIMs was lower primarily due to the prepayments of the Rock
Creek, Silver Springs, Hampton Ridge, Southland Station and Paddock Club PIM's
during 1997 and by the Patrician PIM converting to a non-participating insured
mortgage during the fourth quarter of 1997. Participation income was mainly
lower due to the Partnership having recognized approximately $860,000 of the
approximate $1,042,000 in participation income reported during the first half of
1997 in connection with the Silver Springs and Hampton Ridge PIM's. During the
first six months of 1998, the Partnership received $70,000 from two of its PIMs:
Pope Building and Cross Creek. The increase in MBS interest income was due to
the Patrician PIM being converted to a non-participating insured mortgage during
the fourth quarter of 1997. The decrease in amortization expense was a result of
the Partnership fully amortizing the costs associated with the PIM's that were
prepaid in 1997. The general and administrative expense decrease was primarily
due to lower transfer agent costs of approximately $38,000 for the six months
ended June 30, 1998 as compared to the same period in 1997.
Interest income on PIMs and MBS will likely 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 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
<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: August 5, 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> 0000832095
<NAME> Krupp Insured Mortage Limited Partnership
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Jun-30-1998
<CASH> 3,556,029
<SECURITIES> 133,828,948<F1>
<RECEIVABLES> 895,032
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,555,873<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 140,835,918
<CURRENT-LIABILITIES> 16,324
<BONDS> 0
0
0
<COMMON> 140,128,196<F3>
<OTHER-SE> 691,398<F4>
<TOTAL-LIABILITY-AND-EQUITY> 140,835,918
<SALES> 0
<TOTAL-REVENUES> 5,445,760<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,223,103<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,222,657
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,222,657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,222,657
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages("PIMs") of $112,526,119 and
Mortgage-Backed Securities ("MBS") of $21,302,865.
<F2>Includes prepaid acquisition fees and expenses of $9,338,087 net of
accumulated amortization of $7,424,085 and prepaid participation servicing
fees of $3,087,921 net of accumulated amortization of $2,446,050.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($310,208) and Limited Partners equity of $140,438,404.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $632,287 of amortization of prepaid fees and expenses.
<F7>Net income allocated $126,680 to the General Partners and $4,095,977 to the
Limited Partners. Average net income per Limited Partner interest is $.27 on
14,956,896 Limited Partner interests outstanding.
</FN>
</TABLE>
