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 THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 0-14378 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 The total number of pages in this document is 11. 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 INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP BALANCE SHEETS ASSETS March 31, December 31, 1998 1997 Mortgage notes receivable, net of loan loss reserve of $0 and $15,851,013, respectively (Notes 3 and 4) $ 2,790,388$ 7,614,449 Cash and cash equivalents (Note 2) 5,825,345 1,110,110 Accrued interest receivable - mortgage notes, net of reserve for uncollectible interest of $0 and $14,638,760, respectively (Notes 3 and 4) - 83,585 Other assets 7,119 4,375 Total assets $ 8,622,852$ 8,812,519 LIABILITIES AND PARTNERS' EQUITY Due to affiliates (Note 6) $ 266,716$ - Other liabilities 8,967 25,200 Total liabilities 275,683 25,200 Partners' equity (deficit) (Note 5): Limited Partners (30,059 Units outstanding)8,563,302 8,999,051 General Partners (216,133) (211,732) Total Partners' equity 8,347,169 8,787,319 Total liabilities and Partners' equity $ 8,622,852$ 8,812,519 The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP STATEMENTS OF INCOME (LOSS) For the Three Months Ended March 31, 1998 1997 Interest income: Mortgage notes receivable (Notes 3 and 4)$ - $153,751 Cash equivalents 39,632 14,723 Other income 2,951 - Total income 42,583 168,474 Expenses: Expense reimbursements (Note 6) - 7,427 General and administrative 25,556 21,598 Bad debt expense-mortgage notes receivable (Note 4) 305,364 - Total expenses 330,920 29,025 Net income (loss) $(288,337) $139,449 Allocation of net income (loss) (Note 5): Limited Partners (30,059 Units outstanding)$(285,454)$138,055 Limited Partner Interest Per Unit $ (9.50)$ 4.59 General Partners $ (2,883) $ 1,394 The accompanying notes are an integral part of the financial statements. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 1997 Operating activities: Net income (loss) $ (288,337)$ 139,449 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Changes in assets and liabilities: Decrease (increase) in accrued interest receivable - mortgage notes 83,585 (15,849) Decrease in due from affiliates - 15,091 Increase in due to affiliates 266,716 - Decrease (increase) in other assets (2,744) 47 Decrease in other liabilities (16,233) (12,509) Net cash provided by operating activities 42,987 126,229 Investing activities: Decrease in mortgage notes receivable 45,365 - Principal collections from mortgage notes receivable 4,778,696 7,774 Net cash provided by investing activities 4,824,061 7,774 Financing activity: Distributions (151,813) (151,813) Net increase (decrease) in cash and cash equivalents 4,715,235 (17,810) Cash and cash equivalents, beginning of period1,110,110 1,112,524 Cash and cash equivalents, end of period $ 5,825,345 $1,094,714 The accompanying notes are an integral part of the financial statements.<page< 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, 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 necessary to present fairly the Partnership's financial position as of March 31, 1998 and its results of operations and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 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) Cash and Cash Equivalents Cash and cash equivalents consisted of the following: March 31, December 31, 1998 1997 Cash and money market accounts $ 5,528,311 $ 316,218 Commercial paper 297,034 793,892 $ 5,825,345 $ 1,110,110 (3)Krupp Equity Limited Partnership ("KELP") The Partnership made loans to KELP, an affiliate of the Partnership, as provided under the Master Loan Agreement and Collateral Pledge Agreement ("Agreements"). Pursuant to the Agreements, the mortgage notes receivables are cross collateralized by the KELP properties. The purpose of KELP is to acquire, manage, operate and sell real estate and personal property; and to borrow funds from the Partnership and other sources to finance the acquisition, management and operation of real estate and personal property related thereto. Condensed financial statements of KELP are as follows: Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (3) Krupp Equity Limited Partnership ("KELP"), Continued KRUPP EQUITY LIMITED PARTNERSHIP CONDENSED BALANCE SHEETS ASSETS March 31, December 31, 1998 1997 Real estate assets: Real estate, at cost {A} $ - $ 12,810,945 Property valuation provision {B} - (3,995,696) Accumulated depreciation {A} - (4,036,553) Total real estate assets - 4,778,696 Other assets 422,151 258,748 Total assets $ 422,151 $ 5,037,444 LIABILITIES AND PARTNERS' DEFICIT Mortgage notes payable to the Partnership {A}{C} $ - $ 28,258,421 Notes payable to an affiliate {C} - 300,000 Accrued interest payable to affiliates {A}{C} - 10,290,445 Due to affiliates {C} - 670,367 Other liabilities {D} 376,926 315,202 Total liabilities 376,926 39,834,435 Partners' equity (deficit) 45,225 34,796,991) Total liabilities and Partners' equity (deficit) $ 422,151 $ 5,037,444 KRUPP EQUITY LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 1998 1997 Revenue {A} $ 102,854 $ 266,965 Property operating expenses {C} (353,233) (127,414) Depreciation and amortization {A} - (58,831) Interest {A} - (738,536) Loss before gain on sale of properties and extinguishment of debt (250,379) (657,816) Gain: Sale of properties {A} 171,625 - Extinguishment of debt {C} 34,920,970 - Net income (loss) $34,842,216 $ (657,816) Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (3)Krupp Equity Limited Partnership ("KELP"), Continued A}Pursuant to its disposition strategy, KELP sold its remaining properties on January 30, 1998 to unaffiliated third parties. KELP's properties were included in a package with twelve other properties owned by affiliates of KELP's General Partner. The total selling price of the fourteen properties was $138,000,000, of which KELP received $5,027,200 for the sale of its properties, less its share of closing costs. KELP used the net sales proceeds of $4,778,696 to pay down the mortgage notes payable to the Partnership. For financial reporting purposes, KELP realized a gain of $171,625 on the sale. The gain was calculated as the difference between the properties' selling prices less net book value of the properties and closing costs. The sale of KELP's properties is considered cause for dissolution of KELP, as defined by KELP's Partnership Agreement. Accordingly, KELP's General Partner expects to liquidate KELP in 1998. As a result of the sale of KELP's properties, certain notes totaling $2,790,388, pledged to the Partnership under a Collateral Pledge Agreement, were paid by the original General Partners of KELP to the Partnership, subsequent to March 31, 1998 (see Note 7). {B}In accordance with Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", at December 31, 1997, KELP recorded a cumulative property valuation provision of $3,995,696 based on the selling prices of the properties less estimated costs to sell. {C}At March 31, 1998, KELP was released from $34,920,970 of obligations with respect to the mortgage notes and accrued interest payable to an affiliate of $33,585,515, a demand note and accrued interest payable to an affiliate of $661,070 and expense reimbursements to an affiliate of $674,385. KELP recorded a gain on extinguishment of debt which was equivalent to the releases. {D}KELP was named in a lawsuit filed during 1996, in which the plaintiff has stated a claim for a brokerage commission in the amount of $260,000 as a result of the sale of Village Green Apartments. In 1993, the plaintiff fortuitously found a party interested in purchasing Village Green Apartments from the defendant, however, no purchase was ultimately negotiated, as the prospective purchaser would not meet KELP's asking price. In October, 1995, negotiations were rekindled and KELP entered into a purchase and sale agreement and consummated the sale in March, 1996. The plaintiffs have filed suit seeking a full commission, $260,000, calculated as 5% of the selling price, related to the sale. The plaintiffs did not have a written brokerage agreement and were not the procuring cause of the ultimate sale of the property, however they did introduce the parties to the ultimate transaction. The outcome of this litigation cannot be presently determined, however the Partnership has recorded a provision of $260,000 at March 31, 1998. Continued KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (4)Bad Debt Expense, Provision for Credit Losses and Accrued Interest Reserves At March 31, 1998, the General Partners of the Partnership recognized bad debt expense on its mortgage notes receivable of $305,364, based on the difference between the net sales proceeds received from the sale of KELP's properties and the carrying values of the loans. At December 31, 1997, the General Partners of the Partnership had cumulative provisions for credit losses of $15,851,013 recorded on its mortgage notes receivable and $14,638,760 recorded as uncollectible interest on accrued interest receivable. These cumulative provisions were recorded against the carrying value of the assets in order to reflect management's estimates of the underlying property values. (5)Summary of Changes in Partners' Equity A summary of changes in Partners' equity (deficit) for the three months ended March 31, 1998 is as follows: Limited General Partners' Partners Partners Equity Balance at December 31, 1997 $ 8,999,051 $(211,732)$ 8,787,319 Net loss (285,454) (2,883) (288,337) Distributions (150,295)(1,518) (151,813) Balance at March 31, 1998 $ 8,563,302 $(216,133) $ 8,347,169 (6)Related Party Transactions The Partnership reimburses affiliates of the General Partners for certain expenses incurred in connection with the activities of the Partnership, including communications, bookkeeping and clerical work necessary in maintaining relations with Limited Partners, and accounting, tax and computer services necessary for the maintenance of the books and records of the Partnership. Due to affiliates consisted of expense reimbursements of $266,716 at March 31, 1998. (7)Subsequent Event On May 12, 1998, the original General Partners of KELP remitted $2,790,388, to the Partnership, as per the Collateral Pledge Agreement discussed in Note 3. KRUPP INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This 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 Pursuant to its disposition strategy, on January 30, 1998 the General Partner of KELP sold KELP's remaining properties to unaffiliated third parties. KELP's properties were included in a package with twelve other properties owned by affiliates of KELP's General Partner. The total selling price of the fourteen properties was $138,000,000, of which KELP received $5,027,200 for the sale of its properties, less its share of the closing costs. KELP used the net proceeds from the sale to pay down the mortgage notes payable to the Partnership (see Note 3). The sale of KELP's properties is considered cause for Dissolution of KELP, as defined by KELP's Partnership Agreement. Accordingly, KELP's General Partner expects to liquidate KELP in 1998. As a result of the sale of KELP's properties, certain notes totaling $2,790,388, issued by the original General Partners of KELP, which had been pledged to the Partnership under a Collateral Pledge Agreement, were paid by the original General Partners of KELP subsequent to year-end (see Note 7). The sale of KELP's properties and the subsequent pay down of the Partnership's mortgage notes receivable, together represent an Event Causing Dissolution, as defined by the Partnership Agreement. The Partnership anticipates making a special distribution of $225 per Unit in the second quarter of 1998, based upon approximately 80% of the proceeds of the sale and estimated liquidation value of remaining Partnership assets. Once all necessary reserves and contingent liabilities are funded, the remaining proceeds will be distributed. All Partnership affairs are expected to be completed by year-end. Operations Net income, net of bad debt expense from mortgage notes receivable, decreased for the three months ended March 31, 1998 when compared to the same period in 1997, as total revenue decreased and total expenses remained relatively stable. Total revenue decreased during the three months ended March 31, 1998, as compared to the three months ended March 31, 1997, due to a decrease in interest income on mortgage notes receivable as a result of the sale of KELP's properties (see Note 3). This decrease was partially offset by an increase in interest income earned on cash equivalents as a result of higher cash and cash equivalent balances available for investment. KELP's net sales proceeds of $4,778,696 were used to pay down the mortgage notes payable to the Partnership. Total expenses, net of bad debt expense from mortgage notes receivable, remained relatively stable when comparing the first three months of 1998 to the first three months of 1997. 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 (a)Exhibits Response: None (b)Reports on Form 8-K Date Event Reported Financial Statements Filed January 30, 1998 Disposition of properties Pro Forma Balance Sheet at September 30, 1997. Pro Forma Statements of Income (Loss) for the nine months ended September 30, 1997 and for the year ended December 31, 1996. 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 Institutional Mortgage Fund Limited Partnership (Registrant) BY:/s/Wayne H. Zarozny Wayne H. Zarozny Treasurer and Chief Accounting Officer of the Krupp Corporation, a General Partner. DATE: May 14, 1998