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 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 0-15815 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, 1995 1994 Participating Insured Mortgages ("PIMs") $ 59,448,811 $ 59,837,946 Mortgage Backed Securities ("MBS") (Note 2) 28,375,993 29,648,678 Total mortgage investments 87,824,804 89,486,624 Cash and cash equivalents 2,491,756 2,931,523 Interest receivable and other assets 873,023 983,130 Prepaid acquisition fees and expenses, net of accumulated amortization of $4,232,579 and $3,658,625, respectively 1,887,929 2,461,883 Prepaid participation servicing fees, net of accumulated amortization of $1,846,776 and $1,701,854, respectively 553,223 698,145 Total assets $ 93,630,735 $ 96,561,305 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 12,023 $ 14,734 Partners' equity (Note 3): Limited Partners (7,500,099 Limited Partner interests outstanding) 93,783,656 96,689,550 General Partners (164,944) (142,979) Total Partners' equity 93,618,712 96,546,571 Total liabilities and Partners' equity $ 93,630,735 $ 96,561,305 The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF INCOME For the Three Months Ended For the Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Revenues Interest income - PIMs $1,118,398 $1,060,124 $3,362,494 $3,392,118 Interest income - MBS 612,974 654,697 1,868,392 2,002,880 Other interest income 37,109 33,861 119,330 203,341 Total revenues 1,768,481 1,748,682 5,350,216 5,598,339 Expenses: Asset management fee to an affiliate 167,148 171,581 499,089 516,416 Expense reimbursements to affiliates 29,556 61,885 88,665 185,654 Amortization of prepaid fees and expenses 239,625 239,624 718,876 718,876 General and administrative 28,465 16,727 80,498 79,950 Total expenses 464,794 489,817 1,387,128 1,500,896 Net income $1,303,687 $1,258,865 $3,963,088 $4,097,443 Allocation of net income (Note 3): Limited Partners $1,264,576 $1,221,099 $3,844,195 $3,974,520 Average net income per Limited Partner interest (7,500,099 Limited Partner interests outstanding) $ .17 $ .16 $ .51 $ .53 General Partners $ 39,111 $ 37,766 $ 118,893 $ 122,923 The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1995 1994 Operating activities: Net income $ 3,963,088 $ 4,097,443 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 718,876 718,876 Premium amortization MBS - 17,701 Changes in assets and liabilities: Decrease (increase) in interest receivable and other assets 110,107 (7,470) (Decrease) increase in liabilities (2,711) 7,313 Net cash provided by operating activities 4,789,360 4,833,863 Investing activities: Principal collections on MBS 1,272,685 4,441,344 Principal collections on PIMs 389,135 359,864 Net cash provided by investing activities 1,661,820 4,801,208 Financing activities: Quarterly distributions (6,890,947) (7,452,051) Special distributions - (7,950,106) Net cash used for financing activities (6,890,947) (15,402,157) Net decrease in cash and cash equivalents (439,767) (5,767,086) Cash and cash equivalents, beginning of period 2,931,523 8,775,797 Cash and cash equivalents, end of period $ 2,491,756 $ 3,008,711 The accompanying notes are an integral part of the financial statements. 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, 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 (consisting of only normal recurring accruals) 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 its 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. 2. MBS At September 30, 1995, the Partnership's MBS portfolio had a market value of approximately $29,087,000 with unrealized gains of approximately $711,000 and maturity dates ranging from 2004 to 2033. 3. Changes in Partners' Equity A summary of changes in Partners' equity for the nine months ended September 30, 1995 is as follows: Total Limited General Partners' Partners Partners Equity Balance at December 31, 1994 $96,689,550 $(142,979) $ 96,546,571 Net income 3,844,195 118,893 3,963,088 Quarterly distributions (6,750,089) (140,858) (6,890,947) Balance at September 30, 1995 $93,783,656 $(164,944) $ 93,618,712 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The most significant demands on the Partnership's liquidity are regular quarterly distributions paid to investors of approximately $2.3 million. Funds used for investor distributions come from interest received on the PIMs, MBS, cash and cash equivalents and the principal collections received on the PIMs and MBS. The Partnership funds a portion of the distribution from principal collections and as a result the capital resources of the Partnership will 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 quarterly distributions paid to investors. During the last half of 1994 and the first nine months of 1995 prepayments on the Partnership's MBS portfolio decreased dramatically as compared to the level of prepayments during 1993 and the beginning of 1994. The high level of MBS prepayments during 1993 and early 1994 caused such an increase in available cash that the Partnership made a special distribution of $1.06 per Unit during 1994. Also during 1994, the Partnership adjusted its distribution to $1.20 per Unit per year to reflect the anticipated cash inflows that would be available to fund distributions in the near term. During the nine months ended September 30, 1995, the Partnership received MBS principal collections of $1.3 million as compared to $4.4 million during the nine months ended September 30, 1994, reflecting a significantly lower level of prepayments. To date, this decrease in MBS principal collections has not adversely affected the Partnership's liquidity or its ability to maintain the current distribution rate of $1.20 per Unit per year. However, as the portion of distributions funded with principal collections on MBS and PIMs reduces the asset base of the Partnership, future cash inflows will decrease. To the extent cash inflows from operations decrease and prepayments do not increase sufficiently to offset the decrease in cash inflows, the Partnership will need to adjust the distribution rate accordingly. The Federal National Mortgage Association ("FNMA") is currently negotiating a loan workout with the underlying borrower of the Royal Palm Place Apartments PIM, which has a current face value of $5.9 million. Should the negotiations be unsuccessful FNMA would foreclose on the property and repay the Partnership the outstanding balance of the PIM. The Partnership would then distribute the proceeds to the Limited Partners as a special distribution. If the Partnership receives a repayment of the Royal Palm PIM it would reduce the asset base of the Partnership and future cash inflows from operating activities, so the Partnership would need to adjust the current distribution rate to reflect these lower cash inflows. Also, a repayment of the Royal Palm PIM as a result of a foreclosure would eliminate any future collection of additional interest related to the participation features by the Partnership. At this time, the General Partners cannot determine if the PIM will be restructured or paid off. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by 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 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. 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, 1995 and the period from inception to September 30, 1995. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. (amounts in thousands, except per Unit amounts) Nine Months Ended Inception through September 30, 1995 September 30, 1995 Distributable Cash Flow (Federal income tax basis): Income for tax purposes $ 4,580 $ 65,604 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid fees and expenses 102 4,729 Amortization of MBS premiums - 284 Acquisition expenses paid from offering proceeds charged to operations - 1,098 Gain on sale of MBS - (114) Total Distributable Cash Flow ("DCF") $ 4,682 $ 71,601 Limited Partners Share of DCF $ 4,542 $ 69,453 Limited Partners Share of DCF per Unit $ .61 $ 9.26 (b) General Partners Share of DCF $ 140 $ 2,148 Net Proceeds from Capital Transactions: Insurance claim proceeds and principal collections on PIMs $ 389 $ 46,272 Principal collections on MBS 1,273 38,275 Insurance claim proceeds and principal collections on PIMs and MBS reinvested in PIMs and MBS - (40,775) Gain on sale of MBS - 114 Total Net Proceeds from Capital Transactions $ 1,662 $ 43,886 Distributable Cash Flow and Net Cash Proceeds From Capital Transactions, Continued Nine Months Ended Inception through September 30, 1995 September 30, 1995 Cash available for distribution (DCF plus Net Proceeds from Capital Transactions) $ 6,344 $115,487 Distributions: Limited Partners $ 6,751 (a) $112,588 (a) Limited Partners Average per Unit $ .90 (a) $ 15.01 (a)(b) General Partners $ 140 (a) $ 2,148 (a) Total Distributions $ 6,891 $114,736 (a) This includes an estimate of the November 1995 distribution. (b) Limited Partners average per Unit return of capital as of November 1995 is $5.75 [$15.01 - $9.26] 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. Operations The following discussion relates to the operations of the Partnership during the three and nine months ended September 30, 1995 and 1994: (Rounded to $1,000) For the Three Months For the Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Interest income on PIMs $1,118 $1,060 $3,362 $3,392 Interest income on MBS 613 652 1,868 2,021 Other interest income 37 34 119 203 Partnership expenses (225) (251) (667) (782) Distributable Cash Flow 1,543 1,495 4,682 4,834 Amortization of MBS premium - 4 - (18) Amortization of prepaid fees and expenses (239) (240) (719) (719) Net income $1,304 $1,259 $3,963 $4,097 Net income decreased during the nine months ended September 30, 1995 as compared to the nine months ended September 30, 1994 primarily as a result of a lower average asset balance during 1995. Interest income on MBS decreased $153,000 during the nine months ended September 30, 1995 as compared to the corresponding period in 1994 due primarily to the significant prepayments of the mortgages underlying the MBS during 1993 and the first half of 1994. Interest income on PIMs and other interest income decreased $30,000 and $84,000, respectively, during the nine months ended September 30, 1995 versus the same period in 1994, but were offset by a $115,000 decrease in Partnership expenses during the nine months ended September 30, 1995 as compared to the same period in 1994. Partnership expenses decreased due to lower expense reimbursements to affiliates and a lower asset management fee due to a declining asset base. There was no material change in net income during the third quarter of 1995 as compared to the corresponding period in 1994. The decrease in interest income on MBS during the third quarter of 1995 as compared to the same period in 1994 reflects the slowdown of prepayments during the second half of 1994 and the first nine months of 1995. 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 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/Robert A. Barrows Robert A. Barrows Vice President and Chief Accounting Officer of The Krupp Corporation, a General Partner of the Registrant. Date: October 24, 1995