UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 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 0-14378 Krupp Institutional Mortgage Fund Limited Partnership Massachusetts 04-2860302 (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 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP BALANCE SHEETS ASSETS September 30, December 31, 1995 1994 Mortgage notes receivable, net of loan loss reserve of $16,524,000 (Notes 2 and 3) $11,802,807 $11,822,403 Cash and cash equivalents 1,367,187 1,026,664 Accrued interest receivable - mortgage notes, net of reserve for uncollectible interest of $9,143,010 and $7,584,144, respectively (Note 3) 101,082 231,116 Other assets 1,594 12,003 Total assets $13,272,670 $13,092,186 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 11,478 $ 14,324 Partners' equity (Note 4) Limited Partners (30,059 Units outstanding) 13,428,183 13,246,687 General Partners (166,991) (168,825) Total Partners' equity 13,261,192 13,077,862 Total liabilities and partners' equity $13,272,670 $13,092,186 The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Interest income: Mortgage notes receivable (Notes 2 and 3) $124,791 $274,461 $663,250 $762,453 Cash equivalents and short- term investments 19,455 7,906 49,908 26,339 Total interest income 144,246 282,367 713,158 788,792 Expenses: Expense reimbursements to affiliates 12,816 26,835 38,448 80,506 General and administrative 12,646 12,881 35,941 46,994 Total expenses 25,462 39,716 74,389 127,500 Net income $118,784 $242,651 $638,769 $661,292 Allocation of net income (Note 4): Per Unit of Limited Partner Interest (30,059 Units outstanding) $ 3.91 $ 7.99 $ 21.04 $ 21.78 General Partners $ 1,188 $ 2,427 $ 6,388 $ 6,613 The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1995 1994 Operating activities: Net income $ 638,769 $ 661,292 Adjustments to reconcile net income to net cash provided by operating activities: Changes in assets and liabilities: Decrease (increase) in accrued interest receivable-mortgage notes 130,034 (45) Decrease(increase) in other assets 10,409 (224,237) Increase (decrease) in liabilities (2,846) 10,717 Net cash provided by operating activities 776,366 447,727 Investing activity: Decrease in mortgage note receivable 19,596 17,738 Financing activity: Distributions (455,439) (379,533) Net increase in cash and cash equivalents 340,523 85,932 Cash and cash equivalents, beginning of period 1,026,664 992,640 Cash and cash equivalents, end of period $1,367,187 $ 1,078,572 The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND 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. In the opinion of The Krupp Corporation and The Krupp Company Limited Partnership-III ("Krupp Co.-III"), the General Partners of Krupp Institutional Mortgage Fund Limited Partnership (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Financial Statements in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994 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 necessary to present fairly the Partnership's financial position as of September 30, 1995, its results of operations for the three and nine months ended September 30, 1995 and 1994, and cash flows for the nine months ended September 30, 1995 and 1994. The results of operations for the three and nine months ended September 30, 1995 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. Certain prior year balances have been reclassified to conform with current year financial statement presentation. (2) Krupp Equity Limited Partnership ("KELP") Condensed financial statements of KELP are as follows: CONDENSED BALANCE SHEETS ASSETS September 30, December 31, 1995 1994 Property, at cost $30,902,653 $30,660,597 Property valuation provision (5,400,000) (5,400,000) Accumulated depreciation (9,607,920) (9,380,069) 15,894,733 15,880,528 Other assets 931,220 1,047,545 Total assets $16,825,953 $16,928,073 Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (2) Krupp Equity Limited Partners, Continued LIABILITIES AND PARTNERS' DEFICIT September 30, December 31, 1995 1994 Mortgage notes payable to KIMF $ 28,326,807 $ 28,346,403 Mortgage notes payable (A) 7,576,055 7,676,531 Notes payable to an affiliate 300,000 300,000 Accrued interest payable to affiliates 9,540,886 8,089,139 Due to affiliates 651,196 669,473 Other liabilities 634,726 605,065 Total liabilities 47,029,670 45,686,611 Partners' deficit (30,203,717) (28,758,538) Total liabilities and partners' deficit $ 16,825,953 $ 16,928,073 CONDENSED STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Revenues $ 870,535 $ 1,127,779 $ 2,593,352 $ 3,408,572 Property operating expenses (353,794) (624,826) (1,028,390) (1,864,330) Operating income 516,741 502,953 1,564,962 1,544,242 Depreciation and amortization (82,301) (319,230) (240,497) (953,472) Interest (930,176) (1,056,147) (2,769,644) (3,115,703) Net loss before loss on sale of property (495,736) (872,424) (1,445,179) (2,524,933) Loss on sale of property - (2,306,573) - (2,306,573) Net loss $(495,736) $(3,178,997) $(1,445,179) $(4,831,506) (A) On October 31, 1995, the Partnership refinanced the first mortgage note payable of North Salado Village Shopping Center for $2,972,130. The terms of the new mortgage require principal and interest payments at a rate of 9.25% per annum. The new mortgage may be prepaid without penalty at any time and will mature on November 15, 2009. Closing costs for there financing were approximately $80,000. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (3) Accrued Interest Reserves and Cash Flow Payments The Partnership has recorded additional reserves for uncollectible interest of $1,558,866 for 1995. The General Partners have estimated that $101,082 of the current interest receivable due on the Participating Notes is collectible. The mortgage note and interest reserves are recorded against the carrying value of the assets to reflect management's current estimates of the underlying property values which, given the inherent uncertainty of real estate valuation in the current market, could differ significantly from the ultimate value obtained from such properties. The Partnership has waived for 90 days the right to pursue its foreclosure remedies. It has received a payment equal to cash flow net of operating and administrative expenses and first mortgage obligations. This waiver is effective only with respect to the payment due October 1995, and KIMF reserves its rights to take any action to which it is entitled in the event any future event of default occurs. (4) Summary of Change in Partners' Equity A summary of changes in partners' equity (deficit) for the nine months ended September 30, 1995 is as follows: Total Limited General Partners' Partners Partners Equity Balance at December 31, 1994 $13,246,687 $(168,825) $13,077,862 Net income 632,381 6,388 638,769 Distributions (450,885) (4,554) (455,439) Balance at September 30, 1995 $13,428,183 $(166,991) $13,261,192 KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Currently, the Partnership has sufficient liquidity to meet its operating needs. The most significant capital need is distributions to investors. However, distributions are currently dependent on cash flow received from KELP's interest payments on the Participating Notes. KELP's properties have not generated cash flow sufficient to meet the terms of their existing obligations. Historically, retail centers have suffered from an economic downturn in retail sales beginning in the late 1980s. Recently, the properties have maintained a consistent level of operating cash flow. However, the properties held by KELP have not materially increased in value since the depressed state of the real estate markets in much of the United States made it unlikely that the properties would be sold at other than very unattractive prices. The partners of KELP have made cumulative capital contributions of approximately $4,673,000 to cover prior operating deficits and have arranged for certain short-term borrowings. Additionally, the affiliated management agent has not received payment of management fees since 1991. The General Partners of the Partnership have declined to proceed toward foreclosure because they determined that there were advantages to allowing KELP to continue to own the properties. By proceeding in this fashion, the General Partners are seeking to avoid a disposition of the portfolio at "forced liquidation" prices. The General Partners intend to closely monitor the operations of each property and the state of the market in which each property is located. At such time as the Partnership believes the disposition of a property by KELP would produce an attractive level of proceeds to the Partnership under the Master Loan Agreement, the General Partners will take the appropriate steps on behalf of the Partnership to require a sale by KELP or commence foreclosure proceedings with respect to such property. The General Partners of KELP are beginning the marketing of Village Green Apartments and North Salado Village Shopping Center. Operations The increase in interest earned on cash equivalents for the three and nine months ended September 30, 1995 as compared to the same periods in 1994 is due to higher interest rates and balances of investments. Mortgage interest income for the three and nine months ended September 30, 1995, as compared to the same periods in 1994, decreased due to lower cash flow payments from the KELP properties. Additionally, the Partnership has experienced a reduction in expenses due to savings in investor service costs during the three and nine months ended September 30, 1995. These cost savings are anticipated to continue throughout 1995. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP - Continued Distributable Cash from Operations Distributable Cash from Operations, as defined by Section 5.1 of the Partnership Agreement, is equivalent to the net income of the Partnership. KELP's Results of Operations The following table reflects the analysis of KELP's cash flow for the three and nine months ended September 30, 1995 and 1994 (rounded to thousands): For the Three Months For the Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Cash Flow from properties before mortgage debt service and capital improvement expenditures and reserves $ 518,000 $ 561,000 $1,558,000 $1,736,000 Mortgage debt service exclusive of amounts due to Partnership (239,000) (360,000) (716,000) (1,075,000) Capital improvement expenditures (172,000) (31,000) (242,000) (52,000) Contribution to capital improvement reserve (6,000) - (8,000) - Cash flow from properties before mortgage debt service to the Partnership 101,000 170,000 592,000 609,000 Mortgage debt service to the Partnership (101,000) (170,000) (592,000) (609,000) KELP general and administrative expense (3,000) (12,000) (16,000) (27,000) Cash Deficit (1) $ (3,000) $ (12,000) $ (16,000) $ (27,000) (1) Cash deficit equals net loss before the gain or loss on sales plus depreciation and amortization, and unpaid Participating Note interest less mortgage principal payments, capital improvement expenditures and capital improvement reserves. KRUPP INSTITUTIONAL MORTGAGE FUND 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 SIGNATURES 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 Institutional Mortgage Fund Limited Partnership (Registrant) BY: /s/Marianne Pritchard Marianne Pritchard Treasurer and Chief Accounting Officer of The Krupp Corporation, a General Partner. DATE: November 3, 1995