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, 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) (ZipCode)
(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.
<TABLE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<CAPTION>
BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
<S> <C> <C> <C>
Participating Insured Mortgages ("PIMs") $128,994,690 $151,717,926
(Notes 2 and 5)
Mortgage-Backed Securities and multi-family
insured mortgages("MBS") (Notes 3 and 5) 50,143,225 41,283,769
Total mortgage investments 179,137,915 193,001,695
Cash and cash equivalents 11,079,485 7,921,270
Interest receivable and other assets 1,269,854 1,604,301
Prepaid acquisition fees and expenses, net
of accumulated amortization of $8,416,332
and $8,279,914, respectively 2,830,048 3,888,963
Prepaid participation servicing fees, net of
accumulated amortization of $2,773,571 and
$2,629,406, respectively 739,971 1,136,190
Total assets $195,057,273 $207,552,419
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 18,123 $ 18,900
Partners' equity (deficit) (Note 4):
Limited Partners 194,029,401 207,196,050
(14,655,512 Limited Partner
interests outstanding)
General Partners (253,838) (217,867)
Unrealized gain (loss) on MBS 1,263,587 555,336
Total Partners' equity 195,039,150 207,533,519
Total liabilities and partners' equity $195,057,273 $207,552,419
</TABLE>
-2-
<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<CAPTION>
STATEMENTS OF INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
<S>
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,792,679 $2,960,655 $8,727,433 $9,060,611
Participation interest 465,023 15,938 1,248,218 31,948
Interest income - MBS 743,120 830,751 2,342,258 2,546,874
Other interest income 106,415 102,177 335,207 282,180
Total revenues 4,107,237 3,909,521 12,653,116 11,921,613
Expenses:
Asset management fee to an
affiliate 340,155 365,514 1,047,368 1,094,422
Expense reimbursements to
affiliates 42,576 58,836 119,693 166,400
Amortization of prepaid
expenses and fees 464,218 436,619 1,455,134 1,309,858
General and administrative 30,278 40,090 186,184 124,109
Total expenses 877,227 901,059 2,808,379 2,694,789
Net income $3,230,010 $3,008,462 $9,844,737 $9,226,824
Allocation of net income (Note 4):
Limited Partners $3,133,109 $2,918,208 $9,549,394 $8,950,019
Average net income per
Limited Partner interest
(14,655,512 Limited Partner
interests outstanding) $ .21 $ .20 $ .65 $ .61
General Partners $ 96,901 $ 90,254 $ 295,343 $ 276,805
</TABLE>
-4-
<PAGE>
<TABLE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
1997 1996
<S>
Operating activities:
<S> <C> <C>
Net income $ 9,844,737 $ 9,226,824
Adjustments to reconcile net income to
net cash provided by operating activities:
Shared appreciation interest and prepayment
penalty (334,250) -
Amortization of discounts on short-term
Investments - (13,630)
Amortization of prepaid expenses and fees 1,455,134 1,309,858
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 334,447 445,643
Decrease in liabilities (777) (1,501)
Net cash provided by operating
activities 11,299,291 10,967,194
Investing activities:
Principal collections on PIMs including shared
appreciation income of $334,250 in 1997 11,207,017 899,820
Principal collections on MBS 3,699,264 2,021,735
Maturity of short-term investments - 1,000,000
Short-term investment - (488,210)
Net cash provided by investing
activities 14,906,281 3,433,345
Financing activity
Special distributions (10,405,413) -
Quarterly distributions (12,641,944) (12,637,662)
Net cash used for financing activities (23,047,357) (12,637,662)
Net increase in cash and cash equivalents 3,158,215 1,762,877
Cash and cash equivalents, beginning of period 7,921,270 5,963,681
Cash and cash equivalents, end of period $11,079,485 $ 7,726,558
Supplemental disclosure of non-cash
investing activities:
Reclassification of investment
in PIM to an MBS $11,850,469 $ -
</TABLE>
-6-
<PAGE>
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, 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 September 30, 1997,
its results of operations for the three and nine months ended
September 30, 1997 and 1996 and its cash flows for the nine months
ended September 30, 1997 and 1996.
The results of operations for the three and nine months ended
September 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
During the third quarter of 1997, the Partnership received a $437,963
payment for all additional interest earned on the Lily Flagg
Apartments PIM though the date of discharge. The Partnership then
converted the investment in the PIM to an multi-family insured
mortgage.
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.
3. MBS
The Partnership received a prepayment on a multi-family MBS in the
amount of $2,318,901 and will make a special distribution during
November 1997 to the Limited Partners of record on October 15, 1997
for $.17 per unit per Limited Partner interest with the proceeds from
this prepayment.
At September 30, 1997, the Partnership's MBS portfolio has an
amortized cost of $48,879,638 and gross unrealized gains and losses of
$1,288,731 and $25,144, respectively. The Partnership's MBS have
maturities ranging from 2007 to 2033.
<PAGE>
Continued
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 nine months ended
September 30, 1997 is as follows:
<TABLE>
Total
<CAPTION>
Limited General Unrealized Partners
Partners Partners Gain (Loss) Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $207,196,050 $(217,867) $ 555,336 $207,533,519
Net income 9,549,394 295,343 - 9,844,737
Quarterly distributions (12,310,630) (331,314) - (12,641,944)
Special distributions (10,405,413) - - (10,405,413)
Change in unrealized gain
on MBS - - 708,251 708,251
Balance at September 30,1997 $194,029,401 $(253,838) $1,263,587 $195,039,150
</TABLE>
5. Subsequent Events
Colonial Apartments
On October 15, 1997, the Partnership received prepayment of The
Colonial Apartment PIM. The Partnership received the outstanding
first mortgage principal balance of $2,520,805 plus outstanding
interest. The Partnership expects to collect a prepayment penalty of
approximately $25,000 during the fourth quarter of 1997.
In November 1997, the Partnership will make a special distribution of
$.17 per unit per Limited Partner interest with the proceeds from this
prepayment.
MBS
On October 15, 1997, the Partnership received prepayment on multi-
family MBS in the amount of $2,425,094 and in November 1997, the
Partnership will make a special distribution of $.17 per unit per
Limited Partner interest with the proceeds from this prepayment.
-10-
<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.
The Partnership received three prepayments from two multi-family MBS in
the amounts of $2,318,901 and $2,425,094 and the Colonial Apartment PIM
first mortgage principal balance of $2,520,805. During November 1997, the
Partnership will combine these three prepayments and make a special
distribution to the Limited Partners of record on October 15, 1997.
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 future 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 borrowers 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 $437,963 payment for of all
additional interest earned through the date of the discharge which
occurred during the third quarter of 1997. The Partnership then converted
the Lily Flagg Apartments PIM to a multi-family insured mortgage.
The borrower on the Pine Ridge PIM informed the General Partners of
his intention to refinance the property and prepay the first mortgage loan
during the fourth quarter of 1997. An appraisal of the property will
determine how much additional interest will be payable to the Partnership
as a result of the loan prepayment.
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.
<PAGE>
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 nine months ended September 30, 1997 and 1996 (Amounts
in thousands).
Net income increased for the three months ended September 30, 1997, as
compared to same period in 1996 by $221,548. This resulted primarily from
an increase in participation interest of $449,085 net of decreases in base
interest on PIMs of $167,976 and interest income on MBS of $87,631. The
Partnership received $437,963 in Shared Income Interest from the
discharging of the participation features on the Lily Flagg Apartments PIM.
Net income increased for the nine months ended September 30, 1997, as
compared to same period in 1996 by $617,913. During the second quarter of
1997, the Partnership received from the repayment of the Lakeside
Apartments PIM $234,989 in Shared Appreciation Interest, $334,914 for prior
years Shared Income Interest and a $99,261 prepayment penalty. During the
third quarter of 1997, the Partnership received from Lily Flagg Apartments
PIM $437,963 in Shared Income Interest for the discharge of the
participation features. During the first nine months of 1997, the
Partnership received additional participation income from nine properties
totaling $324,919. This was offset by decreases in base interest of
$333,178 and interest income on MBS of $204,616 and increases in
amortization expense and general and administrative expense of $145,276 and
$62,075. The decreases in base interest and asset management fees are due
to the prepayments of the Lakeside Apartments PIM.
The Partnership funds a portion of distributions with MBS and PIM principal
collections which reduces the invested assets generating interest income
for the Partnership.
-13-
<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
-14-
<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. Barrrows
Robert A. Barrows
Treasurer and Chief Accounting
Officer of Krupp Plus Corporation, a
General Partner.
Date: October 28, 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 LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,079,485
<SECURITIES> 179,137,915<F1>
<RECEIVABLES> 1,269,854
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,570,019<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 195,057,273
<CURRENT-LIABILITIES> 18,123
<BONDS> 0
0
0
<COMMON> 193,775,563<F3>
<OTHER-SE> 1,263,587<F4>
<TOTAL-LIABILITY-AND-EQUITY> 195,057,273
<SALES> 0
<TOTAL-REVENUES> 12,653,116<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,808,379<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,844,737
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,844,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,844,737
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages("PIMs") of $128,994,690 and
Mortgage-Backed Securities ("MBS") of $50,143,225.
<F2>Includes prepaid acquisition fees and expenses of $11,246,380 net of
accumulated amortization of $8,416,332 and prepaid participation servicing fees
of $3,513,542 net of accumulated amortization of $2,773,571.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($253,838) and Limited Partners equity of $194,029,401.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,455,134 of amortization of prepaid fees and expenses.
<F7>Net income allocated $295,343 to the General Partners and $9,549,394 to the
Limited Partners. Average net income per Limited Partner interest is $.65 on
14,655,512 Limited Partner interests outstanding.
</FN>
</TABLE>
