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 March 31, 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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
BALANCE SHEETS
ASSETS
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Participating Insured Mortgages ("PIMs") $152,636,458 $152,929,361
(Note 2)
Mortgage-Backed Securities and multi-family
insured mortgages("MBS") (Note 3) 43,144,165 44,597,272
Total mortgage investments 195,780,623 197,526,633
Cash and cash equivalents 6,226,118 5,963,681
Short-term investment (Note 4) 491,272 498,160
Interest receivable and other assets 2,001,364 2,029,363
Prepaid acquisition fees and expenses, net
of accumulated amortization of $7,285,905
and $6,954,567, respectively 4,882,972 5,214,310
Prepaid participation servicing fees, net of
accumulated amortization of $2,313,558 and
$2,208,277, respectively 1,452,038 1,557,319
Total assets $210,834,387 $212,789,466
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 5,361 $ 14,760
Partners' equity (deficit) (Note 5):
Limited Partners 210,537,771 211,648,945
(14,655,512 Limited Partner
interests outstanding)
General Partners (168,964) (155,589)
Unrealized gain on MBS 460,219 1,281,350
Total Partners' equity 210,829,026 212,774,706
Total liabilities and partners' equity $210,834,387 $212,789,466
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
Revenue:
Interest income - PIMs:
<S> <C> <C>
Base interest $3,027,700 $3,061,537
Participation interest 16,010 16,146
Interest income - MBS 865,955 904,564
Other interest income 89,104 81,648
Total revenue 3,998,769 4,063,895
Expenses:
Asset management fee to an affiliate 365,418 368,913
Expense reimbursements to affiliates 58,835 62,082
Amortization of prepaid fees and
expenses 436,619 436,620
General and administrative 52,981 36,901
Total expenses 913,853 904,516
Net income $3,084,916 $3,159,379
Allocation of net income (Note 5):
Limited Partners $2,992,369 $3,064,598
Average net income per Limited Partner
interest (14,655,512 Limited Partner
interests outstanding) $ .20 $ .21
General Partners $ 92,547 $ 94,781
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
Operating activities:
<S> <C> <C>
Net income $3,084,916 $ 3,159,379
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of discounts on short-term
investments (4,902) -
Amortization of prepaid fees and expenses 436,619 436,620
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 27,999 164,859
Decrease in liabilities (9,399) (5,542)
Net cash provided by operating activities 3,535,233 3,755,316
Investing activities:
Principal collections on PIMs 292,903 272,285
Principal collections on MBS 631,976 385,915
Maturity of short-term investment 500,000 -
Short-term investment (488,210) -
Net cash provided by investing activities 936,669 658,200
Financing activity:
Distributions (4,209,465) (4,215,255)
Net increase in cash and cash equivalents 262,437 198,261
Cash and cash equivalents, beginning of period 5,963,681 5,453,210
Cash and cash equivalents, end of period $6,226,118 $ 5,651,471
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
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 March 31, 1996 and
the results of operations and cash flows for the three months ended
March 31, 1996 and 1995.
The results of operations for the three months ended March 31, 1996
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, 1996, the Partnership's PIM portfolio has a fair value of
approximately $156,091,000 and gross unrealized gains and losses of
approximately $3,851,000 and $396,000, respectively. The
Partnership's PIMs have maturities ranging from 2009 to 2031.
3. MBS
At March 31, 1996, the Partnership's MBS portfolio has an amortized
cost of approximately $42,684,000 and gross unrealized gains and
losses of approximately $884,000 and $424,000, respectively. The
Partnership's MBS have maturities ranging from 2007 to 2033.
4. Short-term Investment
The Partnership s short-term investment consists of a banker s
acceptance with a maturity greater than three months and less than one
year. The Partnership carries the short-term investment at amortized
cost, which approximates fair value. The Partnership intends to hold
its short-term investment until maturity.
<PAGE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
5. Changes in Partners' Equity
A summary of changes in Partners' Equity for the three months ended
March 31, 1996 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $211,648,945 $(155,589) $1,281,350 $ 212,774,706
Net income 2,992,369 92,547 - 3,084,916
Distributions (4,103,543) (105,922) _ (4,209,465)
Decrease in
unrealized gain on MBS - - (821,131) (821,131)
Balance at March 31, 1996 $210,537,771 $(168,964) $ 460,219 $210,829,026
</TABLE>
<PAGE>
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 $4.2
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 adjustments to the 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 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.
The borrower of the Lily Flagg Apartments PIM approached the
Partnership about a potential sale of the property and repayment of the
PIM, however, there are no definite terms. The General Partners cannot
predict whether the sale will ultimately occur. The Harbor House Apartments
PIM has experienced operating deficits that could adversely affect the
borrowers ability to meet debt service payments if they continue. In the
event, the borrower could not meet debt service payments 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 accumulated participation interest. The General
Partners will monitor this situation closely.
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 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 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.
<PAGE>
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 three
months ended March 31, 1996 and the period from inception to March 31,
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>
Three Months Ended Inception to
March 31, 1996 March 31, 1996
Distributable Cash Flow:
<S> <C> <C>
Income for tax purposes $ 3,369 $143,140
Items not requiring (not providing)
the use of operating funds:
Amortization of prepaid expenses,
fees and organization costs 153 7,595
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") $ 3,522 $149,047
Limited Partners Share of DCF $ 3,416 $144,575
Limited Partners Share of DCF per Limited
Partner interest ( Unit ) $ .23 $ 9.86 (b)
General Partners Share of DCF $ 106 $ 4,472
Net Proceeds from Capital Transactions:
Principal collections on PIMs and
PIM sale proceeds including Shared
Appreciation Income/ prepayment penalties $ 293 $ 46,995
Principal collections on MBS and MBS
sale proceeds 632 59,913
Reinvestment of MBS and PIM principal
collections and sale proceeds - (41,966)
Gain on sale of MBS - 377
Total Net Proceeds from Capital
Transactions $ 925 $ 65,319
Cash available for distribution
(DCF plus proceeds from Capital
Transaction) $ 4,447 $214,366
</TABLE>
<PAGE>
<TABLE>
Distributable Cash Flow and Net Cash Proceeds From Capital Transactions, Continued
<CAPTION>
Distributions:
<S> <C> <C>
Limited Partners $ 4,104 (a) $205,786 (a)
Limited Partners Average per Unit $ .28 (a) $ 14.04 (a)(b)
General Partners $ 106 (a) $ 4,472 (a)
Total Distributions $ 4,210 $210,258
</TABLE>
(a) Includes an estimate of the May 1996 distribution.
(b) Limited Partners average per Unit return of capital as of May
1996 is $4.18 [$14.04 - $9.86]. 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 operation of the Partnership during
the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
(Amounts in thousands)
1996 1995
Interest income - PIMs:
<S> <C> <C>
Base interest $3,028 $3,062
Participation interest 16 16
Interest income on MBS 866 904
Other interest income 89 82
Partnership expenses (477) (468)
Distributable Cash Flow 3,522 3,596
Amortization of prepaid fees and expenses (437) (437)
Net income $3,085 $3,159
</TABLE>
Net income decreased slightly during the three months ended March 31, 1996
as compared to the three months ended March 31, 1995. 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.
<PAGE>
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
<PAGE>
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. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer of
Krupp Plus Corporation, a General Partner.
Date: April 23, 1996
<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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,717,390
<SECURITIES> 195,780,623<F1>
<RECEIVABLES> 2,001,364
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,335,010<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 210,834,387
<CURRENT-LIABILITIES> 5,361
<BONDS> 0
0
0
<COMMON> 210,368,807<F3>
<OTHER-SE> 460,219<F4>
<TOTAL-LIABILITY-AND-EQUITY> 210,834,387
<SALES> 0
<TOTAL-REVENUES> 3,998,769<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 913,853<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,084,916
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,084,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,084,916
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $152,636,458 and
mortgage-backed securities ("MBS") of $43,144,165.
<F2>Includes prepaid acquisition fees and expenses of $12,168,877 net of
accumulated amortization of $6,954,567 and prepaid participation servicing fees
of $3,765,596 net of accumulated amortization of $2,313,558.
<F3>Represents total equity of General and Limited Partners. General
Partners'deficit of ($168,964) and Limited Partners' equity of $210,537,771.
<F4>Unrealized gain on MBS.
<F6>Includes $436,619 of amortization related to prepaid fees and expenses.
<F5>Represents interest income on investments in mortgages and cash.
<F7>Net income allocated $92,547 to General Partners and $2,992,369 to Limited
Partners. Average net income per Limited Partner interest is $.20 on
14,655,512 Limited Partner interests outstanding.
</FN>
</TABLE>
