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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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
(Exact name of registrant as specified in its charter)
Massachusetts 04-2915281
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
SEC 1296 (01-04) Potential persons who are to respond to the collection of
information contained in this form are not required to respond
unless the form displays a currently valid OMB control number.
-1-
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. When used in this Form 10-Q, the words "believes," "anticipates,"
"expects," "plans," "intends," "estimates," "continue," "may" or "will" (or the
negative of such words) and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties, including but not limited to the following: federal, state or
local regulations; adverse changes in general economic or local conditions;
pre-payments of mortgages; uninsured losses and potential conflicts of interest
between the Partnership and its Affiliates, including the General Partners. The
Company's filings with the Securities and Exchange Commission, including its
Annual Report on Form 10-K for the year ended December 31, 2003, contain
additional information concerning such risk factors. Actual results in the
future could differ materially from those described in any forward-looking
statements as a result of the risk factors set forth above, and the risk factors
described in the Annual Report.
-2-
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION AT JUNE 30, 2004
AND
BALANCE SHEET AT DECEMBER 31, 2003
ASSETS
June 30, December 31,
2004 2003
------------ ------------
Participating Insured Mortgages ("PIMs") (Note 2) $ -- $ 13,001,521
Mortgage-Backed Securities ("MBS") (Note 3) 4,089 598,579
------------ ------------
Total mortgage investments 4,089 13,600,100
Cash and cash equivalents 1,375,971 869,608
Interest receivable and other assets 602 85,556
------------ ------------
Total assets $ 1,380,662 $ 14,555,264
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 131,137 $ 70,194
------------ ------------
Partners' equity (deficit)(Note 4):
Limited Partners
(7,500,099 Limited Partner interests outstanding) 1,491,480 14,700,952
General Partners (241,955) (250,667)
Accumulated comprehensive income -- 34,785
------------ ------------
Total net assets in liquidation at June 30, 2004 and
total Partner's equity at December 31, 2003 $ 1,249,525 14,485,070
============ ------------
Total liabilities and Partners' equity $ 14,555,264
============
The accompanying notes are an integral
part of the financial statements
-3-
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Liquidation as of June 30, 2004)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues:
Interest income - PIMs
Basic interest $ 238,876 $ 240,930 $ 478,234 $ 482,365
Participation interest 341,243 -- 341,243 --
Interest income - MBS 9,346 145,407 21,180 251,227
Gain on sale of MBS 30,376 -- 30,376 --
Other interest income 6,453 6,247 8,746 17,956
--------- --------- --------- ---------
Total revenues 626,294 392,584 879,779 751,548
--------- --------- --------- ---------
Expenses:
Asset management fee to an affiliate 16,784 32,815 41,998 70,218
Expense reimbursements to affiliates 26,966 16,167 67,204 48,829
Estimated costs of liquidation (Note 1) 109,564 -- 109,564 --
General and administrative 31,452 23,360 52,032 55,614
--------- --------- --------- ---------
Total expenses 184,766 72,342 270,798 174,661
--------- --------- --------- ---------
Net income 441,528 320,242 608,981 576,887
Other comprehensive income:
Net decrease in unrealized gain on MBS (47,169) (568,509) (34,785) (630,001)
--------- --------- --------- ---------
Total comprehensive income (loss) $ 394,359 $(248,267) $ 574,196 $ (53,114)
========= ========= ========= =========
Allocation of net income (Note 4):
Limited Partners $ 428,283 $ 310,634 $ 590,712 $ 559,580
========= ========= ========= =========
Average net income per Limited Partner
interest (7,500,099 Limited Partner
interests outstanding) $ .06 $ .04 $ .08 $ .07
========= ========= ========= =========
General Partners $ 13,245 $ 9,608 $ 18,269 $ 17,307
========= ========= ========= =========
The accompanying notes are an integral
part of the financial statements
-4-
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(In Liquidation as of June 30, 2004)
For the Six Months
Ended June 30,
-----------------------------
2004 2003
------------ ------------
Operating activities:
Net income $ 608,981 $ 576,887
Adjustments to reconcile net income to net cash
provided by operating activities:
Shared Appreciation Interest (341,243) --
Amortization of discounts (168) --
Gain on sale of MBS (30,376) --
Changes in assets and liabilities:
Decrease in interest receivable and other assets 84,954 53,596
Increase (decrease) in liabilities 60,943 (14,465)
------------ ------------
Net cash provided by operating activities 383,091 616,018
------------ ------------
Investing activities:
Principal collections on MBS 49,247 7,737,374
Proceeds from sale of MBS 541,002 --
Principal collections on PIMs including Shared Appreciation
Interest of $341,243 in 2004 13,342,764 54,570
------------ ------------
Net cash provided by investing activities 13,933,013 7,791,944
------------ ------------
Financing activities:
Quarterly distributions (459,564) (771,645)
Special distribution (13,350,177) (1,875,025)
------------ ------------
Net cash used for financing activities (13,809,741) (2,646,670)
------------ ------------
Net increase in cash and cash equivalents 506,363 5,761,292
Cash and cash equivalents, beginning of period 869,608 573,389
------------ ------------
Cash and cash equivalents, end of period $ 1,375,971 $ 6,334,681
============ ============
Non cash activities:
Decrease in unrealized gain on MBS $ (34,785) $ (630,001)
============ ============
The accompanying notes are an integral
part of the financial statements
-5-
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(In Liquidation as of June 30, 2004)
1. Accounting Policies
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America 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, 2003 for additional information relevant
to significant accounting policies followed by the Partnership.
As a result of the payoff of the Vista Montana Apartments PIM on June 10,
2004, the Partnership is in the process of winding up its business, which
it expects to complete in the third quarter of 2004 with a Terminating
Capital Transaction distribution to the partners. In connection therewith,
the Partnership has changed its basis of accounting as of June 30, 2004
from the going-concern basis to the liquidation basis of accounting. The
liquidation basis of accounting requires that assets and liabilities be
stated at their estimated net realizable value and that estimated costs of
liquidating the Partnership be provided to the extent that they are
reasonably determinable. The Partnership estimates that the costs to
liquidate will be approximately $110,000, which primarily relate to the
remaining general and administrative expenses to be incurred through the
anticipated liquidation of the Partnership in the third quarter of 2004.
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 June 30, 2004, its results of
operations for the three and six months ended June 30, 2004 and 2003 and
its cash flows for the six months ended June 30, 2004 and 2003.
The results of operations for the three and six months ended June 30, 2004
are not necessarily indicative of the results which may be expected
through the anticipated liquidation in the third quarter of 2004. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this report.
2. PIMs
On June 10, 2004, the borrower of the Vista Montana Apartments PIM paid
off the Subordinated Promissory Note. On June 10, 2004, the Partnership
received $341,243 of Shared Appreciation Interest. On June 16, 2004, the
Partnership received $12,952,669 representing the principal proceeds on
the insured first mortgage loan. On June 28, 2004, the Partnership paid a
special distribution of $1.78 per Limited Partner interest from the
proceeds received.
3. MBS
On June 23, 2004, the Partnership sold its remaining MBS portfolio for
$543,579, including accrued interest of $2,577. The gain realized from the
sale was $30,376.
At the time of the sale, the MBS portfolio had an amortized cost of
$510,626 and a face value of $507,583. After the sale, the Partnership
received $4,089 in additional face value from the July pass-through
payment.
-6-
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(In Liquidation as of June 30, 2004)
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June 30,
2004 is as follows:
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
------------ ------------ ------------- ------------
Balance at December 31, 2003 $ 14,700,952 $ (250,667) $ 34,785 $ 14,485,070
Net income 590,712 18,269 -- 608,981
Quarterly distributions (450,007) (9,557) -- (459,564)
Special distribution (13,350,177) -- -- (13,350,177)
Change in unrealized gain on MBS -- -- (34,785) (34,785)
------------ ------------ ------------ ------------
Balance at June 30, 2004 $ 1,491,480 $ (241,955) $ -- $ 1,249,525
============ ============ ============ ============
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes contained in the Partnership's 2003
Annual Report on Form 10-K and in this report on Form 10-Q.
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this report on Form 10-Q
constitute "forward-looking statements" within the meaning of the Federal
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the Partnership's actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include,
among other things, federal, state or local regulations; adverse changes in
general economic or local conditions; pre-payments of mortgages; uninsured
losses and potential conflicts of interest between the Partnership and its
Affiliates, including the General Partners.
Liquidity and Capital Resources
On June 10, 2004, the borrower of the Vista Montana Apartments PIM paid off the
Subordinated Promissory Note. On June 10, 2004, the Partnership received
$341,243 of Shared Appreciation Interest. On June 16, 2004, the Partnership
received $12,952,669 representing the principal proceeds on the insured first
mortgage loan. On June 28, 2004, the Partnership paid a special distribution of
$1.78 per Limited Partner interest from the proceeds received.
On June 23, 2004, the Partnership sold its remaining MBS portfolio for $543,579
including accrued interest of $2,577. The gain realized from the sale was
$30,376.
As a result of the payoff of the Vista Montana PIM, the Partnership is in the
process of winding up its business, which it expects to complete in the third
quarter of 2004 with a Terminating Capital Transaction distribution to the
partners. In connection therewith, the Partnership has changed its basis of
accounting as of June 30, 2004 from the going-concern basis to the liquidation
basis of accounting.
At June 30, 2004, the Partnership had liquidity consisting of cash and cash
equivalents of approximately $1.4 million as well as interest earned on the
Partnership's cash and cash equivalents. The Partnership anticipates that these
sources will be adequate to provide the Partnership with sufficient liquidity to
meet its obligations during its liquidation and complete the Terminating Capital
Transaction.
The proceeds from the sale of the MBS will be included with other amounts
available for distribution from the Terminating Capital Transaction and will be
distributed to the Limited Partners during the third quarter of 2004 in a final
liquidating distribution.
The Partnership is in the process of winding up its business and expects to make
a Terminating Capital Transaction distribution, as defined in the Partnership
Agreement, to the partners in the third quarter of 2004. Upon the occurrence of
a Terminating Capital Transaction, the Partnership Agreement provides that
losses from the Terminating Capital Transaction shall be allocated first to the
Limited Partners and General Partners to the extent of any then existing
positive account balances (or if the amount would be insufficient to reduce
those positive capital account balances to zero, then in proportion to any
positive account balances). The Advisor has estimated that the loss from the
Terminating Capital Transaction will be approximately $175,000. As of December
31, 2003, the General Partners had deficit account balances of approximately
$815,000 and the Limited Partners had positive account balances of approximately
$16,049,000. Therefore, all estimated losses from the Terminating Capital
Transaction will be allocated, for tax purposes, to the Limited Partners to
reduce their positive capital accounts. Amounts available for distribution from
the Terminating Capital Transaction will be distributed to the Limited Partners.
Upon the dissolution and termination of the Partnership, the General Partners
will contribute to the Partnership an amount equal to the remaining deficit
balance in their capital accounts. The General Partners have estimated that the
deficit balance will be approximately $825,000 which, after satisfaction of any
other obligations of the Partnership, will also be distributed to the Limited
Partners.
Critical Accounting Policies
The Partnership's critical accounting policy relates to the Partnership's
estimates included in its liquidation basis accounting statements. The
Partnership's policy is as follows:
The Partnership is in the process of winding up its business, which it expects
to complete in the third quarter of 2004. In connection therewith, the
Partnership has changed its basis of accounting as of June 30, 2004 from the
going-concern basis to the liquidation basis of accounting. The liquidation
basis of accounting requires that assets and liabilities be stated at their
estimated net realizable
-8-
value and that estimated costs of liquidating the Partnership be provided to the
extent that they are reasonably determinable. The Partnership estimates that the
costs to liquidate will be approximately $110,000, which primarily relates to
the remaining general and administrative expenses to be incurred through the
anticipated liquidation of the Partnership in the third quarter of 2004. This
amount has been included in the Partnership's liabilities at June 30, 2004.
Results of Operations
Net income of the Partnership increased for the three months ended June 30, 2004
as compared to the same period ending June 30, 2003 primarily due to an increase
in participation income and a decrease in asset management fees. This was
partially offset by a decrease in interest income on MBS and the recording of
the estimated liquidation costs of the Partnership. Participation income
increased due to the collection of Shared Appreciation Interest from the Vista
Montana PIM payoff in June of 2004. Asset management fees decreased due to
principal collections, prepayments and the sale of the MBS at the end of June
2004. Interest income on MBS decreased due to the payoff of the Briar Ridge
Apartments MBS in June of 2003. The recording of estimated liquidation costs is
due to the Partnership changing its basis of accounting from the going-concern
basis to the liquidation basis. Due to this change, the Partnership recorded an
estimate in the second quarter of the remaining general and administrative
expenses to be incurred through the anticipated liquidation in the third quarter
of 2004.
Net income of the Partnership increased for the six months ended June 30, 2004
as compared to the same period ending June 30, 2003 primarily due to an increase
in participation income and a decrease in asset management fees. This was
partially offset by a decrease in interest income on MBS, an increase in expense
reimbursement to affiliates and the recording of the estimated liquidation costs
of the Partnership. Participation income increased due to the collection of
Shared Appreciation Interest from the Vista Montana PIM payoff in June of 2004.
Asset management fees decreased due to principal collections, prepayments and
the sale of the MBS at the end of June 2004. Interest income on MBS decreased
primarily due to the payoff of the Briar Ridge Apartments MBS in June of 2003.
Expense reimbursement to affiliates increased due to an increase in the costs of
services associated with the wind-down of the Partnership's activities and
anticipated liquidation of the Partnership's assets. The recording of estimated
liquidation costs is due to the Partnership changing its basis of accounting
from the going-concern basis to the liquidation basis. Due to this change, the
Partnership recorded an estimate in the second quarter of the remaining general
and administrative expenses to be incurred through the anticipated liquidation
in the third quarter of 2004.
Off Balance Sheet Arrangements
The Partnership has no off balance sheet arrangements as described in Item 303
(a)(4)(ii) of Regulation S-K and did not have any such arrangements during the
period covered by this report on Form 10-Q.
Contractual Obligations
The Partnership has no contractual obligations as contemplated by Item 303(a)(5)
of Regulation S-K and did not have any such arrangements either during the
period covered by this report on Form 10-Q or during the Partnership's most
recent completed fiscal year.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Assessment of Credit Risk
The Partnership's remaining investments in MBS are guaranteed and/or insured by
the Federal Home Loan Mortgage Corporation ("FHLMC") 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.
FHLMC is a federally chartered corporation that guarantees obligations
originated under its programs. These obligations are not guaranteed by the U.S.
Government or the Federal Home Loan Bank Board. However, FHLMC is one of the
largest corporations in the United States, and has significant experience in
mortgage securitizations. In addition, its MBS carry the highest credit rating
given to financial instruments.
At June 30, 2004, the Partnership includes in cash and cash equivalents
approximately $1.2 million of commercial paper, which is issued by entities with
a credit rating equal to one of the top two rating categories of a nationally
recognized statistical rating organization.
-9-
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of June 30, 2004, the Senior Vice President and Chief Accounting Officer of
The Krupp Corporation, a general partner of the Partnership, carried out an
evaluation of the effectiveness of the design and operation of the Partnership's
disclosure controls and procedures. The Senior Vice President and the Chief
Accounting Officer concluded that the Partnership's disclosure controls and
procedures were effective as of the date of their evaluation, in timely alerting
them to material information relating to the Partnership required to be included
in this Quarterly Report on Form 10-Q.
(b) Changes in Internal Controls
There were no significant changes in the Partnership's internal controls or in
other factors that could significantly affect such internal controls subsequent
to the date of the evaluation described in paragraph (a) above.
-10-
KRUPP INSURED PLUS LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(31.1) Senior Vice President Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
(31.2) Chief Accounting Officer Certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
(32.1) Senior Vice President Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(32.2) Chief Accounting Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
-11-
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/ Alan Reese
---------------------------------
Alan Reese
Vice-President (Chief Accounting Officer)
of The Krupp Corporation, a General
Partner of the Registrant.
Date: August 11, 2004
-12-