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, 1996
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 0-16817
Krupp Insured Plus-II Limited Partnership
Massachusetts 04-2955007
(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.
<PAGE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
BALANCE SHEETS
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
<S> <C> <C>
Participating Insured Mortgages ("PIMs") $152,029,541 $152,929,361
(Note 2)
Mortgage-Backed Securities and multi-family
insured mortgages("MBS") (Note 3) 41,215,607 44,597,272
Total mortgage investments 193,245,148 197,526,633
Cash and cash equivalents 7,726,558 5,963,681
Short-term investment - 498,160
Interest receivable and other assets 1,583,720 2,029,363
Prepaid acquisition fees and expenses, net
of accumulated amortization of $7,948,578
and $6,954,567, respectively 4,220,299 5,214,310
Prepaid participation servicing fees, net of
accumulated amortization of $2,524,124 and
$2,208,277, respectively 1,241,472 1,557,319
Total assets $208,017,197 $212,789,466
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 13,259 $ 14,760
Partners' equity (deficit) (Note 4):
Limited Partners 208,288,335 211,648,945
(14,655,512 Limited Partner
interests outstanding)
General Partners (205,817) (155,589)
Unrealized gain (loss) on MBS (78,580) 1,281,350
Total Partners' equity 208,003,938 212,774,706
Total liabilities and partners' equity $208,017,197 $212,789,466
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF INCOME
<PAGE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,960,655 $3,035,989 $9,060,611 $9,153,682
Participation interest 15,938 95,283 31,948 249,812
Interest income - MBS 830,751 893,700 2,546,874 2,699,414
Other interest income 102,177 86,636 282,180 254,452
Total revenues 3,909,521 4,111,608 11,921,613 12,357,360
Expenses:
Asset management fee to an
affiliate 365,514 374,401 1,094,422 1,115,092
Expense reimbursements to
affiliates 58,836 62,082 166,400 186,246
Amortization of prepaid
expenses and fees 436,619 436,619 1,309,858 1,309,858
General and administrative 40,090 65,044 124,109 184,081
Total expenses 901,059 938,146 2,694,789 2,795,277
Net income $3,008,462 $3,173,462 $9,226,824 $9,562,083
Allocation of net income (Note 4):
Limited Partners $2,918,208 $3,078,259 $8,950,019 $9,275,221
Average net income per
Limited Partner interest
(14,655,512 Limited Partner
interests outstanding) $ .20 $ .21 $ .61 $ .63
General Partners $ 90,254 $ 95,203 $ 276,805 $ 286,862
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months
Ended September 30,
1996 1995
Operating activities:
<S> <C> <C>
Net income $ 9,226,824 $ 9,562,083
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of discounts on short-term
<PAGE>
Investments (13,630) (920)
Amortization of prepaid expenses and fees 1,309,858 1,309,858
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 445,643 234,767
Increase (decrease) in liabilities (1,501) 7,044
Net cash provided by operating
activities 10,967,194 11,112,832
Investing activities:
Principal collections on PIMs 899,820 828,922
Principal collections on MBS 2,021,735 1,360,663
Maturity of short-term investments 1,000,000 -
Short-term investment (488,210) (490,187)
Net cash provided by investing
activities 3,433,345 1,699,398
Financing activity
Quarterly distributions (12,637,662) (12,632,690)
Net increase in cash and cash equivalents 1,762,877 179,540
Cash and cash equivalents, beginning of period 5,963,681 5,453,210
Cash and cash equivalents, end of period $ 7,726,558 $ 5,632,750
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II 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,
Krupp Plus Corporation and Mortgage Services Partners Limited
Partnership, (collectively the "General Partners") of Krupp Insured
Plus-II 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, 1995
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, 1996,
its results of operations for the three and nine months ended
September 30, 1996 and 1995 and its cash flows for the nine months
ended September 30, 1996 and 1995.
The results of operations for the three and nine months ended
September 30, 1996 are not necessarily indicative of the results which
<PAGE>
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 September 30, 1996, the Partnership's PIM portfolio has a fair
value of approximately $152,263,000 and gross unrealized gains and
losses of approximately $1,287,000 and $1,054,000, respectively. The
Partnership's PIMs have maturities ranging from 2009 to 2031.
3. MBS
At September 30, 1996, the Partnership's MBS portfolio has an
amortized cost of $41,294,187 and gross unrealized gains and losses of
$663,117 and $741,697, respectively. The Partnership's MBS have
maturities ranging from 2007 to 2033.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Limited
Partners General
Partners Unrealized
Gain (Loss) Total
Partners
Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $211,648,945 $(155,589) $1,281,350 $212,774,706
Net income 8,950,019 276,805 - 9,226,824
Distributions (12,310,629) (327,033) - (12,637,662)
Change in unrealized gain
(loss) on MBS - - (1,359,930) (1,359,930)
Balance at September 30,1996 $208,288,335 $(205,817) $ (78,580) $208,003,938
</TABLE>
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 $4.1
million. Funds used for investor distributions are generated from interest
income received on the PIMs, MBS, cash and short-term investments, and the
principal collections received on the PIMs and MBS. The Partnership funds
a portion of the distribution from principal collections causing the
capital resources of the Partnership to continually decrease. As a result
of this decrease, the total cash inflows to the Partnership will also
decrease, which will result in periodic downward adjustments to the
distributions paid to investors.
<PAGE>
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 the 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 for the foreseeable
future. 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.
During the first quarter of 1996, the borrower of the Lily Flagg
Apartments PIM approached the Partnership about a potential sale of the
property and prepayment of the PIM, but no sale appears imminent. The
borrower continues to pursue a sale of the property, however, the General
Partners cannot predict when a sale of the property will ultimately occur.
The borrower of the Colonial Park Apartments PIM entered into a
contract to sell the property to a buyer that will assume the first
mortgage loan and future obligations arising from the participation
features. In addition, the Partnership is negotiating a discounted payoff
of the participation interest accumulated through the sale date with the
original borrower. This sale will preserve a favorable coupon interest
rate for the Partnership and provide an opportunity to receive additional
participation interest from the future operations and sale or refinancing
of the property. The buyer intends to make capital improvements at the
property that should enhance its operations and value, and could ultimately
increase the participation interest the Partnership receives from this
investment.
The Harbor House Apartments PIM has experienced operating deficits,
however, property operations improved this year as a result of a new
management team that is controlling operating expenses. The General
Partners will continue to monitor this situation. In the event the
improved property operations do not continue, the borrower may not be able
to meet debt service payments. Should the borrower default, the insured
mortgage would be repaid through an insurance claim. While the Partnership
would receive principal and basic interest on the insured mortgage, it
would not receive any participation interest income.
The General Partners are closely monitoring the bankruptcy proceedings
of the borrower of the Greenhouse Apartments PIM and believe there may be
further progress by the end of the year. Upon resolution of the
bankruptcy, the Partnership will receive the outstanding principal of the
Greenhouse Apartments PIM either as a prepayment or an insurance claim and
then distribute these proceeds to investors as a special distribution. The
General Partners do not anticipate receiving any participation interest
income from this PIM.
For the first five years of the PIMs the borrowers are prohibited from
prepaying. For the second five years, the borrowers can prepay the loans
and pay the greater of a prepayment penalty or all participation interest.
The participation features of the PIMs are neither insured nor guaranteed
and if prepayment of a PIM results from an insurance claim the Partnership
would not receive any prepayment penalty nor any participation interest.
The Partnership has the option to call certain PIMs by accelerating their
<PAGE>
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 Government National Mortgage Association ( GNMA ), the Federal
National Mortgage Association ( FNMA ), 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 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 in Section 17 of the
Partnership Agreement, and the source of cash distributions for the nine
months ended September 30, 1996 and the period from inception to September
30, 1996. 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).
<TABLE>
<CAPTION>
Nine Months Ended Inception to
September 30, 1996 September 30, 1996
Distributable Cash Flow:
<S> <C> <C>
Income for tax purposes $10,418 $150,189
Items not requiring (not providing)
the use of operating funds:
Amortization of prepaid expenses,
fees and organization costs 458 7,900
Acquisition expenses paid from offering
proceeds charged to operations - 690
Shared appreciation income/ prepayment
penalties - (2,001)
Gain on sale of MBS - (377)
Total Distributable Cash Flow ("DCF") $10,876 $156,401
Limited Partners Share of DCF $10,550 $151,709
Limited Partners Share of DCF per Limited
<PAGE>
Partner interest ( Unit ) $ .72 $ 10.35 (b)
General Partners Share of DCF $ 326 $ 4,692
Net Proceeds from Capital Transactions:
Principal collections on PIMs and
PIM sale proceeds including Shared
Appreciation Income/ prepayment penalties $ 900 $ 47,602
Principal collections on MBS and MBS
sale proceeds 2,022 61,303
Reinvestment of MBS and PIM principal
collections and sale proceeds - (41,966)
Gain on sale of MBS - 377
Total Net Proceeds from Capital
Transactions $ 2,922 $ 67,316
Cash available for distribution
(DCF plus proceeds from Capital
Transaction) $13,798 $223,717
Distributions:
Limited Partners $12,311 (a) $213,993 (a)
Limited Partners Average per Unit $ .84 (a) $ 14.60 (a)(b)
General Partners $ 326 (a) $ 4,692 (a)
Total Distributions $12,637 $218,685
</TABLE>
(a) Includes an estimate of the November 1996 distribution.
(b) Limited Partners average per Unit return of capital as of
November 1996 is $4.25 [$14.60 - $10.35]. Return of capital
represents that portion of distributions which are 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 operation of the Partnership
during the three and nine months ended September 30, 1996 and 1995 (Amounts
in thousands).
<TABLE>
<CAPTION>
For the For the
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,960 $3,036 $9,060 $9,154
Participation interest 77 96 372 250
Interest income on MBS 831 893 2,547 2,699
Other interest income 102 86 282 254
Partnership expenses (464) (501) (1,385) (1,485)
Distributable Cash Flow 3,506 3,610 10,876 10,872
<PAGE>
Decrease in accrued partici-
pation income receivable (60) - (339) -
Amortization of prepaid fees
and expenses (437) (437) (1,310) (1,310)
Net income $3,009 $3,173 $9,227 $9,562
</TABLE>
Net income decreased slightly during the three and nine months ended
September 30, 1996 as compared to the three and nine months ended September
30, 1995 due primarily to lower PIM and MBS interest income. The
Partnership funds a portion of distributions with MBS and PIM principal
collections which reduces the invested assets generating interest income
for the Partnership. As the invested assets decline so will interest
income on MBS, base interest income on PIMs and other interest income.
KRUPP INSURED PLUS-II 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 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-II Limited Partnership
(Registrant)
BY: /s/ Robert A. Barrrows
Robert A. Barrows
Treasurer and Chief Accounting Officer
of Krupp Plus Corporation,
a General Partner.
<PAGE>
Date: October 25, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of income and is qualified in its entirety by reference to
such financial statements
</LEGEND>
<CIK> 0000805297
<NAME> KRUPP INSURED PLUS II LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,726,558
<SECURITIES> 193,245,148<F1>
<RECEIVABLES> 1,583,720
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,461,771<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 208,017,197
<CURRENT-LIABILITIES> 13,259
<BONDS> 0
0
0
<COMMON> 207,925,358<F3>
<OTHER-SE> 78,580
<TOTAL-LIABILITY-AND-EQUITY> 208,017,197
<SALES> 0
<TOTAL-REVENUES> 11,921,613<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,694,789<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,226,824
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,226,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,226,824
<EPS-PRIMARY> 0<F6>
<EPS-DILUTED> 0<F6>
<FN>
<F1>Includes the following investments: Participating Insured Mortgages ("PIMs")
$152,029,541 & Mortgage-Backed Securities ("MBS") $41,215,607
<F2>Includes the following prepaid acquisition fees & expenses of $4,220,299 net of
accumulated amortization of $7,948,578 and prepaid participating servicing of
$1,241,472 net of accumulated amortization of $2,524,124
<F3>Represents total equity of General Partners & Limited Partners of $(205,817)
and $208,288,335
<F4>Represents interest income on investments in mortgages & cash
<F5>Includes $1,309,858 of amortization related to prepaid fees & expenses
<F6>Net income allocated $276,805 to the General Partners & $8,950,109 to the
Limited Partners. Average net income per unit of Limited Partners interest is
$.61 on 14,655,512 units outstanding.
</FN>
</TABLE>
