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 March 31, 1997 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 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 INSURED PLUS LIMITED PARTNERSHIP BALANCE SHEETS ASSETS March 31, December 31, 1997 1996 Participating Insured Mortgages ("PIMs") $ 42,591,956 $ 42,745,790 (Note 2) Mortgage-Backed Securities and insured mortgage ("MBS") (Note 3) 26,505,242 27,147,213 Total mortgage investments 69,097,198 69,893,003 Cash and cash equivalents 2,079,566 1,757,197 Interest receivable and other assets 475,822 517,476 Prepaid acquisition fees and expenses, net of accumulated amortization of $3,807,461 and $4,196,787, respectively 678,458 832,838 Prepaid participation servicing fees, net of accumulated amortization of $836,445 and $802,641,respectively 239,205 273,009 Total assets $ 72,570,249 $ 73,273,523 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 3,282 $ 18,468 Partners' equity (deficit): Limited Partners 71,990,180 72,448,679 (7,500,099 Limited Partner interests outstanding) General Partners (229,381) (194,008) Unrealized gain on MBS 806,168 1,000,384 Total Partners' equity 72,566,967 73,255,055 Total liabilities and Partners' equity $ 72,570,249 $ 73,273,523 The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF INCOME For the Three Months Ended March 31, 1997 1996 Revenues: Interest income - PIMs $ 798,959 $1,108,558 Interest income - MBS 550,841 591,094 Other interest income 25,016 30,931 Total revenues 1,374,816 1,730,583 -2- Expenses: Asset management fee to an affiliate 126,471 162,502 Expense reimbursements to affiliates 16,337 27,752 Amortization of prepaid fees and expenses 188,184 239,625 General and administrative 47,395 27,105 Total expenses 378,387 456,984 Net income $ 996,429 $1,273,599 Allocation of net income (Note 4): Limited Partners $ 966,536 $1,235,391 Average net income per Limited Partner interest (7,500,099 Limited Partners interests outstanding) $ .13 $ .16 General Partners $ 29,893 $ 38,208 The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1997 1996 Operating activities: Net income $ 996,429 $ 1,273,599 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 188,184 239,625 Premium amortization MBS 2,768 870 Changes in assets and liabilities: Decrease in interest receivable and other assets 41,654 16,982 Decrease in liabilities (15,186) (9,233) Net cash provided by operating activities 1,213,849 1,521,843 Investing activities: Principal collections on MBS 444,987 435,605 Principal collections on PIMs 153,834 127,124 Net cash provided by investing activities 598,821 562,729 Financing activity: Quarterly distributions (1,490,301) (2,295,752) Net increase (decrease) in cash and cash equivalents 322,369 (211,180) Cash and cash equivalents, beginning of period 1,757,197 2,394,592 -3- Cash and cash equivalents, end of period $2,079,566 $ 2,183,412 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, 1996 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 March 31, 1997 and its results of operations and cash flows for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 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 March 31, 1997, the Partnership's PIMs have a fair value of $41,894,535 and gross unrealized gains and losses of $299,886 and $997,307, respectively. The PIMs have maturities ranging from 2006 to 2033. 3. MBS At March 31, 1997, the Partnership's MBS portfolio has an amortized cost of $25,699,074 and gross unrealized gains of $806,168 with maturities from 2004 to 2033. 4. Changes in Partners' Equity A summary of changes in Partners' Equity for the three months ended March 31, 1997 is as follows: Total Limited General Unrealized Partners' Partners Partners ain Equity -4- Balance at December 31, 1996 $ 72,448,679 $(194,008) $1,000,384 $73,255,055 Net income 966,536 29,893 - 996,429 Quarterly distributions (1,425,035) (65,266) - (1,490,301) Decrease in unrealized gain on MBS - - (194,216) (194,216) Balance at March 31, 1997 $ 71,990,180 $(229,381) $ 806,168 $72,566,967 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 demands on the Partnership's liquidity are regular quarterly distributions paid to investors of approximately $1.5 million. Funds used for investor distributions come from (i)interest received on the PIMs, MBS, cash and cash equivalents, (ii) the principal collections received on the PIMs and MBS and (iii) cash reserves. 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. The General Partners periodically review the distribution rate to determine whether an adjustment to the distribution rate 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 cash available for distribution, the General Partners may adjust the distribution rate or distribute funds through a special distribution. Based on current projections, the General Partners believe the Partnership can maintain the current distribution rate through 1997. However, in the event of PIM prepayments, the Partnership would be required to distribute any proceeds from the 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. As an ongoing result of the Partnership s agreement to a modification of the Royal Palm PIM in December of 1995, the Partnership will receive interest only payments on the FNMA MBS at an interest rate of 6.5% in 1997, thereafter interest rates will range from 7.0% to 8.775% per annum through maturity. Also, the Partnership received its pro-rata share of the principal payment totaling $250,000 due in January. -5- For the first five years of the PIMs the borrowers were prohibited from prepaying. For the second five years, the borrower can prepay the loan incurring a prepayment penalty. 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 Federal National Mortgage Association ( FNMA ), the Government National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or the United States 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 three months ended March 31, 1997 and the period from inception through March 31, 1997. 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). Three Months Ended Inception through March 31, 1997 March 31, 1997 Distributable Cash Flow: Income for tax purposes $ 954 $ 73,476 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid expenses and organization costs 230 6,255 Amortization of MBS premiums 3 287 -6- Acquisition expenses paid from offering proceeds charged to operations - 1,098 Gain on sale of MBS - (114) Total Distributable Cash Flow ("DCF") $1,187 $ 81,002 Limited Partners Share of DCF $1,151 $ 78,571 Limited Partners Share of DCF per Limited Partner interest ( Unit ) $ .16 $ 10.48 General Partners Share of DCF $ 36 $ 2,431 Net Proceeds from Capital Transactions: Insurance claim proceeds and principal collections on PIMs $ 154 $ 63,129 Principal collections on MBS 445 40,949 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 $ 599 $ 63,417 Cash available for distribution (DCF plus Net Proceeds from Capital Transactions) $1,786 $144,419 Distributions: (includes special distributions) Limited Partners $1,425 (a) $140,938 (a) Limited Partners Average per Unit $ .19 (a) $ 18.79 (a)(b) General Partners 36 (a) 2,431 (a) Total Distributions $1,461 $143,369 (a) Includes an estimate of the May 1997 distribution. (b) Limited Partners average per Unit return of capital as of May 1997 is $8.31 [$18.79 - $10.48]. 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 -7- The following discussion relates to the operations of the Partnership during the three months ended March 31, 1997 and 1996. (Amounts in thousands) 1997 1996 Interest income on PIMs $ 799 $ 1,109 Interest income on MBS 554 592 Other interest income 25 31 Partnership expenses (191) (218) Distributable Cash Flow 1,187 1,514 Amortization of MBS Premium (3) - Amortization of prepaid fees and expenses (188) (240) Net income $ 996 $ 1,274 Net income decreased during the first three months of 1997 as compared to the first three months of 1996 due primarily to lower interest income on MBS and PIMS. PIM interest income was lower due primarily to the distribution of the Mandalay PIM payoff proceeds in November 1996 while MBS interest income was lower due to prepayment and scheduled principal payments on MBS. Interest income on PIMs and MBS will continue to 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. -8- 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 -9- 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 Mortgage Accounting Officer of The Krupp Corporation, a General Partner of the Registrant. DATE: April 23, 1997 -10-