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 September 30, 1994 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 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 INSURED PLUS LIMITED PARTNERSHIP BALANCE SHEETS ASSETS September 30, December 31, 1994 1993 Participating Insured Mortgages ("PIMs") $ 59,962,668 $ 60,322,532 Mortgage Backed Securities ("MBS") (Note 2) 30,193,172 34,652,217 Total mortgage investments 90,155,840 94,974,749 Cash and cash equivalents 3,008,711 8,775,797 Interest receivable and other assets 704,864 697,394 Prepaid acquisition fees and expenses, net of accumulated amortization of $3,467,307 and $2,893,353, respectively 2,653,201 3,227,155 Prepaid participation servicing fees, net of accumulated amortization of $1,653,546 and $1,508,624, respectively 746,453 891,375 Total assets $ 97,269,069 $108,566,470 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 12,689 $ 5,376 Partners' equity (Note 3) 97,256,380 108,561,094 Total liabilities and Partners' equity $ 97,269,069 $108,566,470 The accompanying notes are an integral part of the financial statements. -2- KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF INCOME For the Three Months Ended For the Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Revenues Interest income - PIMs $1,060,124 $1,138,429 $3,392,118 $3,146,340 Interest income - MBS 654,697 778,204 2,002,880 2,408,912 Other interest income 33,861 41,516 203,341 195,279 Total revenues 1,748,682 1,958,149 5,598,339 5,750,531 Expenses: Asset management fee to an affiliate 171,581 187,059 516,416 569,761 Expense reimbursements to affiliates 61,885 61,885 185,654 182,817 Amortization of prepaid expenses and fees 239,624 231,350 718,876 694,079 General and administrative 16,727 28,040 79,950 111,585 Total expenses 489,817 508,334 1,500,896 1,558,242 Net income $1,258,865 $1,449,815 $4,097,443 $4,192,289 Allocation of net income (Note 3): Average net income per Unit (7,499,999 Units outstanding) $ .16 $ .19 $ .53 $ .54 Corporate Limited Partner $ 16 $ 19 $ 53 $ 54 General Partners $ 37,766 $ 43,495 $ 122,923 $ 125,769 The accompanying notes are an integral part of the financial statements. -3- KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1994 1993 Operating activities: Net income $ 4,097,443 $ 4,192,289 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid expenses and fees 718,876 694,079 Premium amortization treasury note - 55,441 Premium amortization MBS 17,701 21,468 Changes in assets and liabilities: Increase in interest receivable and other assets (7,470) (342,833) Increase in liabilities 7,313 131,464 Net cash provided by operating activities 4,833,863 4,751,908 Investing activities: Decrease in other investments - 6,000,000 Principal collections on MBS 4,441,344 7,166,300 Proceeds from insurance claims on PIMs - 475,727 Investment in MBS - (5,266,522) Principal collections on PIMs 359,864 305,581 Net cash provided by investing activities 4,801,208 8,681,086 Financing activities: Quarterly distributions (7,452,051) (7,578,233) Special distributions (7,950,106) (4,950,065) Net cash used for financing activities (15,402,157) (12,528,298) Net increase (decrease) in cash and cash equivalents (5,767,086) 904,696 Cash and cash equivalents, beginning of period 8,775,797 5,395,292 Cash and cash equivalents, end of period $ 3,008,711 $ 6,299,988 The accompanying notes are an integral part of the financial statements. -4- 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, 1993 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 September 30, 1994, its results of operations for the three and nine months ended September 30, 1994 and 1993 and its cash flows for the nine months ended September 30, 1994 and 1993. The results of operations for the three and nine months ended September 30, 1994 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 period balances have been reclassified to be consistent with current year financial statement presentation. 2. MBS At September 30, 1994, the Partnership's MBS portfolio had a market value of approximately $30,022,000 with unrealized gains and losses of approximately $229,000 and $400,000, respectively. The Partnership does not expect to realize these gains or losses as it has the intent and ability to hold the MBS. Continued -5- KRUPP INSURED PLUS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued 3. Changes in Partners' Equity A summary of changes in Partners' equity for the nine months ended September 30, 1994 is as follows: Corporate Total Limited General Partners' Unitholders Partner Partners Equity Balance at December 31, 1993 $108,680,479 $1,528 $(120,913) $108,561,094 Net income 3,974,467 53 122,923 4,097,443 Quarterly distributions (7,304,559) (97) (147,395) (7,452,051) Special distributions (7,950,000) (106) - (7,950,106) Balance at September 30, 1994 $ 97,400,387 $1,378 $(145,385) $ 97,256,380 -6- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources During 1993 and the first half of 1994, the Partnership received significant prepayments on its MBS due to low market interest rates that facilitated the refinancing of the underlying mortgages. Due to this, the General Partners reviewed the Partnership's liquidity needs and determined that a special distribution of $1.06 per Unit should be paid and that the regular distribution rate should be adjusted to $1.20 per Unit per year (approximately $9 million per year and $2.25 million per quarter) commencing with the November 1994 distribution. The General Partners expect to periodically adjust the distribution rate as mortgage proceeds are received and subsequently distributed to the Limited Partners while also maintaining sufficient liquidity to meet the Partnership's anticipated needs. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and 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. The Government National Mortgage Association 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. -7- Distributable Cash Flow and Net Cash Proceeds From Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions, as defined by Section 17 of the Partnership Agreement, and the source of cash distributions for the nine months ended September 30, 1994 and the period from inception to September 30, 1994 (amounts in thousands, except per Unit amounts). Nine Months Ended Inception through September 30, 1994 September 30, 1994 Distributable Cash Flow: Net Income $ 4,097 $ 58,921 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid expenses, fees and organization costs 719 5,171 Amortization of MBS premiums 18 287 Acquisition expenses paid from offering proceeds charged to operations - 1,098 Gain on sale of MBS - (114) Total Distributable Cash Flow ("DCF") $ 4,834 $ 65,363 Limited Partners Share of DCF $ 4,689 $ 63,402 Limited Partners Share of DCF per Unit $ .63 $ 8.45 General Partners Share of DCF $ 145 $ 1,961 Net Proceeds from Capital Transactions: Insurance claim proceeds and principal collections on PIMs $ 360 $ 45,758 Principal collections on MBS 4,441 36,425 Insurance claim proceeds and principal collections on PIMs - (40,775) and MBS reinvested in PIMs and MBS Gain on sale of MBS - 114 Total Net Proceeds from Capital Transactions $ 4,801 $ 41,522 Cash available for distribution (DCF plus Net Proceeds from Capital Transactions) $ 9,635 $106,885 Distributions: Limited Partners $15,235 (a)(c) $103,766 (a) Limited Partners Average per Unit $ 2.03 (a) $ 13.83 (a)(b) General Partners 142 (a) 1,961 (a) Total Distributions $15,377 (c) 105,727 (a) This includes an estimate of the November 1994 distribution. (b) Limited Partners average per Unit return of capital as of November 1994 is $5.38 [$13.83 - $8.45] Return of capital represents that portion of distributions which is not funded from DCF such as proceeds from the sale of assets and substantially all of the principal collections received from MBS and PIMs. (c) Includes the special distribution of $1.06 per Unit. -8- Operations The following discussion relates to the operations of the Partnership during the three and nine months ended September 30, 1994 and 1993: (Rounded to $1,000) For the Three Months For the Nine Months Ended September 30, Ended September 30, 1994 1993 1994 1993 Interest income on PIMs $1,060,000 $1,138,000 $3,392,000 $3,146,000 Interest income on MBS 652,000 778,000 2,021,000 2,464,000 Other interest income 34,000 41,000 203,000 195,000 Partnership expenses (251,000) (276,000) (782,000) (864,000) Distributable Cash Flow $1,495,000 $1,681,000 $4,834,000 $4,941,000 Distributable Cash Flow did not change materially during the three and nine months ended September 30, 1994 as compared to the corresponding periods in 1993, even though interest income on PIMs and MBS did have significant changes during these periods. During the second quarter of 1993, the Partnership adjusted interest income on PIMs by approximately $293,000 pursuant to an agreement reducing the interest rate on the Vista Montana PIM from 8.875% to 7.375% per annum effective as of January 1, 1992. As a result, interest income on PIMs for the nine months ended September 30, 1994 shows a significant increase versus the corresponding period in 1993. Interest income on MBS decreased $126,000 and $443,000 during the three and nine months ended September 30, 1994, respectively, as compared to the corresponding periods in 1993 due primarily to significant prepayments of the mortgages underlying the MBS. The General Partners believe the rate of prepayments should decrease as a result of recent increases in interest rates. With lower prepayments the MBS portfolio will decrease at a slower rate, thereby reducing the rate at which interest income on MBS declines. -9- 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 -10- 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/Marianne Pritchard Marianne Pritchard Treasurer and Chief Accounting Officer of The Krupp Corporation, a General Partner of the Registrant. DATE: October 26, 1994 -11-