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 June 30, 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 0-16817
Krupp Insured Plus-II Limited Partnership
Massachusetts 04-2955007
(State or other jurisdiction of ( I R S 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
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-II LIMITED PARTNERSHIP
<TABLE>
BALANCE SHEETS
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
<S> <C> <C>
Participating Insured Mortgages ("PIMs") $141,149,037 $151,717,926
(Note 2)
Mortgage-Backed Securities and multi-family
insured mortgages("MBS") (Note 3) 40,476,582 41,283,769
Total mortgage investments 181,625,619 193,001,695
Cash and cash equivalents 8,466,911 7,921,270
Interest receivable and other assets 1,296,080 1,604,301
Prepaid acquisition fees and expenses, net
of accumulated amortization of $8,106,629
and $8,279,914, respectively 3,139,751 3,888,963
Prepaid participation servicing fees, net of
accumulated amortization of $2,619,056 and
$2,629,406, respectively 894,486 1,136,190
Total assets $195,422,847 $207,552,419
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 12,810 $ 18,900
Partners' equity (deficit) (Note 4):
Limited Partners 194,999,836 207,196,050
(14,655,512 Limited Partner
interests outstanding)
General Partners (230,067) (217,867)
Unrealized gain on MBS 640,268 555,336
Total Partners' equity 195,410,037 207,533,519
Total liabilities and partners' equity $195,422,847 $207,552,419
</TABLE>
-2-
<PAGE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Interest income - PIMs:
Base interest $2,931,125 $3,072,256 $5,934,754 $6,099,956
Participation interest 783,195 - 783,195 16,010
Interest income - MBS 794,547 850,168 1,599,138 1,716,123
Other interest income 125,272 90,899 228,792 180,003
Total revenues 4,634,139 4,013,323 8,545,879 8,012,092
Expenses:
Asset management fee to an
affiliate 351,761 363,490 707,213 728,908
Expense reimbursements to
affiliates 42,576 48,729 77,117 107,564
Amortization of prepaid
expenses and fees 554,296 436,620 990,916 873,239
General and administrative 66,968 31,038 155,906 84,019
Total expenses 1,015,601 879,877 1,931,152 1,793,730
Net income $ 3,618,538 $3,133,446 $6,614,727 $6,218,362
Allocation of net income
(Note 4):
Limited Partners $ 3,509,982 $3,039,442 $6,416,285 $6,031,811
Average net income per
Limited Partner interest
(14,655,512 Limited Partner
interests outstanding) $ .24 $ .21 $ .44 $ .41
General Partners $ 108,556 $ 94,004 $ 198,442 $ 186,551
</TABLE>
-4-
<PAGE>
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income $ 6,614,727 $ 6,218,362
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of discounts on short-term
Investments - (10,829)
Amortization of prepaid expenses and fees 990,916 873,239
Shared appreciation income (334,250) -
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 308,221 318,130
Decrease in liabilities (6,090) (6,736)
Net cash provided by operating
activities 7,573,524 7,392,166
Investing activities:
Principal collections on PIMs including shared
appreciation income of $334,250 in 1997 10,903,139 594,561
Principal collections on MBS 892,119 1,396,934
Maturity of short-term investment - 500,000
Short-term investment - (488,210)
Net cash provided by investing
activities 11,795,258 2,003,285
Financing activities:
Special distributions (10,405,413) -
Quarterly distributions (8,417,728) (8,418,654)
Net cash provided by financing
activities (18,823,141) (8,418,654)
Net increase in cash and cash equivalents 545,641 976,797
Cash and cash equivalents, beginning of period 7,921,270 5,963,681
Cash and cash equivalents, end of period $ 8,466,911 $ 6,940,478
</TABLE>
-6-
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, 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 June 30, 1997, its
results of operations for the three and six months ended June 30, 1997
and 1996 and its cash flows for the six months ended June 30, 1997 and
1996.
The results of operations for the three and six months ended June 30,
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
On June 17, 1997, the Partnership received a prepayment of the Lakeside
Apartments PIM. The Partnership received the outstanding
principal balance of $9,935,167, a prepayment penalty of $99,000, shared
appreciation interest of $235,000 and prior shared interest income of
$335,000. As a result of the prepayment, the Partnership has fully
amortized the remaining prepaid fees and expenses associated with this PIM
and retired them. On June 27, 1997, the Partnership made a special
distribution of $.71 per Limited Partner interest with the proceeds from
the outstanding principal proceeds, the prepayment penalty and the shared
appreciation.
At June 30, 1997, the Partnership's PIM portfolio has a fair value of
$144,508,154 and gross unrealized gains and losses of $3,475,401 and
$116,284, respectively. The Partnership's PIMs have maturities
ranging from 2009 to 2031.
3. MBS
At June 30, 1997, the Partnership's MBS portfolio has an amortized
cost of $39,836,314 and gross unrealized gains and losses of $862,505
and $222,237, respectively. The Partnership's MBS have maturities
ranging from 2007 to 2033.
<PAGE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June
30, 1997 is as follows:
<TABLE>
Total
<CAPTION>
Limited General Unrealized Partners'
Partners Partners Gain Equity Total
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $207,196,050 $(217,867) $ 555,336 $207,533,519
Net income 6,416,285 198,442 - 6,614,727
Quarterly distributions (8,207,086) (210,642) - (8,417,728)
Special distributions (10,405,413) - - (10,405,413)
Change in unrealized gain
on MBS - - 84,932 84,932
Balance at June 30, 1997 $194,999,836 $(230,067) $ 640,268 $195,410,037
</TABLE>
<PAGE>
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 $4.2
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 downward adjustments to the distributions paid to investors.
The General Partners periodically review the distribution rate to
determine whether an adjustment 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.
In June, the Lakeside Apartments PIM was repaid when the borrower
refinanced the property. In addition to the outstanding balance due on
the first mortgage, the Partnership received approximately $570,000 of
additional interest earned both on property operations and as a result of
an increase in appreciation and a $99,000 prepayment penalty. In June,
the Partnership made a special distribution of $.71 per limited partner
interest resulting from the repayment of the Lakeside Apartments PIM.
Based on current projections, the General Partners believe the Partnership
can maintain the current quarterly 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 the prepayment of the PIM. Since then, the borrower has
informed the General Partners that a sale most likely will not occur until
1998. The borrower s request for discharge of the loan s participation
feature to improve the marketability of the property has been granted by
the General Partners in exchange for a full payment of all additional
interest earned through the date of the discharge of approximately
$425,000, which is expected to occur during the third quarter of 1997.
<PAGE>
For the first five years of the PIMs the borrowers were 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.
Operations
The following discussion relates to the operation of the Partnership
during the three and six months ended June 30, 1997 and 1995 (Amounts in
thousands).
Net income increased for the three months ended June 30, 1997, as
compared to same period in 1996 by approximately $486,000. This resulted
from an increase in participation interest and other interest income of
$783,000 and $35,000, respectively. The Partnership received approximately
$235,000 in Shared Appreciation Interest, $335,000 for prior years Shared
Income Interest and a $99,000 prepayment penalty from the repayment of the
Lakeside Apartments PIM. During the first six months of 1997, the
Partnership has received participation income from six properties
totalling $297,000. This was offset by decreases in base interest of
$141,000 and interest income on MBS of $56,000 and increases in
amortization expense and general and adminstrative expense of $118,000 and
$17,000, rspectively.
Net income increased for the six months ended June 30, 1997, as compared
to the same period in 1996 by approximately $397,000. The six month
variances were similar to the three month variances discussed above.
The Partnership funds a portion of distributions with MBS and PIM
principal collections which reduces the invested assets generating
interest income for the Partnership.
<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: August 5, 1997
-15-
<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 LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,466,911
<SECURITIES> 181,625,619<F1>
<RECEIVABLES> 1,296,080
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,034,237<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 195,422,847
<CURRENT-LIABILITIES> 12,810
<BONDS> 0
0
0
<COMMON> 194,769,769<F3>
<OTHER-SE> 640,268<F4>
<TOTAL-LIABILITY-AND-EQUITY> 195,422,847
<SALES> 0
<TOTAL-REVENUES> 8,545,879<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,931,152<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,614,727
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,614,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,614,727
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $141,149,037 and
Mortgage-Backed Securities ("MBS") of $40,476,582.
<F2>Includes prepaid acquisition fees and expenses of $11,246,380 net of
accumulated amortization of $8,106,629 and prepaid participation servicing fees
of $3,513,542 net of accumulated amortization of $2,619,056.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($230,067) and Limited Partners equity of $194,999,836.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $990,916 of amortization of prepaid fees and expenses.
<F7>Net income allocated $198,442 to the General Partners and $6,416,285 to the
Limited Partners. Average net income per Limited Partner interest is $.44 on
14,655,512 Limited Partner interests outstanding.
</FN>
</TABLE>
