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, 1998
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.
<TABLE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
BALANCE SHEETS
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
<S> <C> <C>
Participating Insured Mortgages ("PIMs") $ 89,648,463 $122,048,053
(Note 2)
Mortgage-Backed Securities and multi-family
insured mortgages("MBS") (Note 3) 38,601,615 44,727,693
------------ ------------
Total mortgage investments 128,250,078 166,775,746
Cash and cash equivalents 33,234,357 9,052,480
Interest receivable and other assets 950,240 1,180,660
Prepaid acquisition fees and expenses, net
of accumulated amortization of $6,749,952
and $8,293,080, respectively 1,476,002 2,481,160
Prepaid participation servicing fees, net of
accumulated amortization of $2,190,410 and
$2,707,314, respectively 353,413 636,931
----------- -----------
Total assets $164,264,090 $180,126,977
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 18,797 $ 25,588
------------ ------------
Partners' equity (deficit) (Note 4):
Limited Partners 163,150,602 178,597,484
(14,655,512 Limited Partner
interests outstanding)
General Partners (282,162) (265,315)
Unrealized gain on MBS 1,376,853 1,769,220
------------ ------------------
Total Partners' equity 164,245,293 180,101,389
------------ ------------
Total liabilities and partners' equity $164,264,090 $180,126,977
============ ============
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- -------------------
1998 1997 1998 1997
---------- ---------- ----------- -------
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $1,872,864 $2,931,125 $4,114,931 $5,934,754
Participation interest 1,018,517 783,195 2,148,257 783,195
Interest income - MBS 1,021,379 794,547 1,871,304 1,599,138
Other interest income 369,565 125,272 576,500 228,792
---------- --------- ---------- ----------
Total revenues 4,282,325 4,634,139 8,710,992 8,545,879
---------- ---------- ---------- ----------
Expenses:
Asset management fee to an
affiliate 251,499 351,761 539,996 707,213
Expense reimbursements to
affiliates (33,980) 42,576 8,596 77,117
Amortization of prepaid
expenses and fees 861,467 554,296 1,288,676 990,916
General and administrative 85,402 66,968 135,181 155,906
---------- --------- ---------- ----------
Total expenses 1,164,388 1,015,601 1,972,449 1,931,152
---------- --------- ---------- --------------
Net income $3,117,937 $3,618,538 $6,738,543 $6,614,727
Net change in unrealized gain
on (334,005) 466,092 (392,367) 84,932
---------- ---------- ---------- ----------
Total comprehensive income $2,783,932 $4,084,630 $6,346,176 $6,699,659
========== ========== ========== ==========
Allocation of net income (Note 4):
Limited Partners $3,024,399 $3,509,982 $6,536,387 $6,416,285
========== ========== ========== ==========
Average net income per
Limited Partner interest
(14,655,512 Limited Partner
interests outstanding) $ .21 $ .24 $ .45 $ .44
========== ========== ========== ==========
General Partners $ 93,538 $ 108,556 $ 202,156 $ 198,442
========== ========== ========== ==========
The accompanying notes are an integral
part of thefinancial statements.
</TABLE>
<PAGE>
<TABLE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
Operating activities:
<S> <C> <C>
Net income $6,738,543 $ 6,614,727
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of prepaid expenses and fees 1,288,676 990,916
Shared appreciation income (1,247,726) (334,250)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 230,420 308,221
Decrease in liabilities (6,791) (6,090)
---------- -------------
Net cash provided by operating
activities 7,003,122 7,573,524
---------- ---------
Investing activities:
Principal collections on PIMs including shared appreciation income and
prepayment penalties of $1,229,426 in 1998 and shared appreciation
income of $334,250 in 1997 33,629,016 10,903,139
Principal collections on MBS including a
prepayment penalty of $18,300 in 1998 5,752,011 892,119
----------- ----------
Net cash provided by investing
activities 39,381,027 11,795,258
----------- -----------
Financing activities:
Special distributions (13,776,181) (10,405,413)
Quarterly distributions (8,426,091) (8,417,728)
----------- -----------
Net cash used for financing activities (22,202,272) (18,823,141)
----------- -----------
Net increase in cash and cash equivalents 24,181,877 545,641
Cash and cash equivalents, beginning of period 9,052,480 7,921,270
----------- ---------------
Cash and cash equivalents, end of period $33,234,357 $ 8,466,911
=========== ===========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<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, 1997 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, 1998, its
results of operations for the three and six months ended June 30, 1998
and 1997 and its cash flows for the six months ended June 30, 1998 and
1997.
The results of operations for the three and six months ended June 30,
1998 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 second quarter of 1998, the Partnership received prepayments
of the Harbor House and Longwood Villas Apartments PIMs. The Partnership
received the outstanding principal balance of $12,146,408 and shared
appreciation income of $750,000 from the Harbor House PIM and the
outstanding principal balance of $6,261,587 from the Longwood Villas
PIM. During the first quarter of 1998, the Partnership received a
prepayment penalty $62,616 from the Longwood Villas PIM. The Partnership
made a special distribution of $.43 per Limited Partner interest
relating to the Longwood Villas Apartments PIM on July 17, 1998 and a
special distribution of $.88 per Limited Partner interest for the Harbor
House Apartment PIM prepayment was made on July 24, 1998.
During the first quarter of 1998, the Partnership received prepayments
of the Westbrook Manor, Fallwood and Greenbrier Apartment PIMs in the
amounts of $4,841,446, $6,505,922, and $2,196,031, respectively. In
addition to the prepayments, the Partnership received $416,810 of Shared
Appreciation Interest and $632,002 of Minimum Additional Interest and
Shared Income Interest. On March 27, 1998, the Partnership made a
special distribution to the investors of $.94 per Limited Partner
interest.
At June 30, 1998, the Partnership's PIM portfolio has a fair value of
$90,156,536 and gross unrealized gains of $508,073. The Partnership's
PIMs have maturities ranging from 2009 to 2031. At June 30, 1998 there
are no insured mortgage loans within the Partnership's portfolio that
are delinquent with respect to principal or interest payments.
Continued
<PAGE>
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
3. MBS
On June 19, 1998, the Partnership received a prepayment of the Brookside
insured mortgage in the amount of $4,605,549, representing the
outstanding principal balance and a prepayment penalty of $18,300. The
Partnership made a special distribution of $.32 per limited partner
interest on July 24, 1998.
At June 30, 1998, the Partnership's MBS portfolio has an amortized cost
of $37,224,762 and gross unrealized gains of $1,376,853. The
Partnership's MBS have maturities ranging from 2007 to 2033.
In June 1997, Statement of Financial Accounting Standards No. 130,
'Reporting Comprehensive Income' (FASB 130), was issued establishing
standards for reporting and displaying comprehensive income and its
components effective January 1, 1998. FASB 130 requires comprehensive
income and its components, as recognized under accounting standards, to
be displayed in a financial statement with the same prominence as other
financial statements, if material. Accordingly, unrealized gains
(losses) on the Partnership's available-for sale securities have been
included in other comprehensive income.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June
30, 1998 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $178,597,484 $(265,315) $1,769,220 $180,101,389
Net income 6,536,387 202,156 - 6,738,543
Quarterly distributions (8,207,088) (219,003) - (8,426,091)
Special distributions (13,776,181) - - (13,776,181)
Change in unrealized gain
on MBS - - (392,367) (392,367)
------------- ---------- ---------- ------------
Balance at June 30, 1998 $163,150,602 $(282,162) $1,376,853 $164,245,293
============ ========= ========== ============
</TABLE>
5. Subsequent Event
Lily Flagg
On July 15, 1998, the Partnership received a partial repayment on the
Lily Flagg MBS of approximately $651,000. The remaining balance is
scheduled for payment in the third quarter of 1998. At that time, the
Partnership will receive a 1% prepayment penalty.
<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 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.
During the second quarter of 1998, the Partnership received prepayments of
the Harbor House and Longwood Villas Apartments PIMs and the Brookside insured
mortgage, along with Additional Interest. On July 17, 1998 and July 24, 1998,
the Partnership made special distributions in the amounts of $.43 and $1.20 per
Limited Partner interest, relating to the Longwood Villas Apartment PIM, and the
Harbor House PIM and Brookside Apartments insured mortgage, respectively.
During the first quarter of 1998, the Partnership received prepayments of
the Westbrook Manor, Fallwood and Greenbrier Apartment PIMs along with
Additional Interest. On March 27, 1998, the Partnership made a special
distribution to the investors of $.94 per Limited Partner interest.
The Partnership received a partial repayment on the Lily Flagg MBS of
approximately $651,000 on July 15, 1998. The remaining balance is scheduled for
payment in the third quarter of 1998. At that time, the Partnership will receive
a 1% prepayment penalty. In addition to the Lily Flagg prepayment, the
Partnership has also been notified of potential payoffs on the Le Couer du
Monde, Walden Village, Carlyle Court, Hillside Court and Waterford Court
Apartments PIMs during 1998. If any of these transactions take place, the
Partnership would receive unpaid participation interest earned on prior years
operations and either its share of any increase in the properties' value or a
prepayment penalty. Any repayment proceeds and prepayment penalties would be
distributed to the Limited Partners 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 additional 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.
<PAGE>
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"), Fannie Mae, 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.
Fannie Mae 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, 1998 and 1997.
Net income decreased for the three months ended June 30, 1998 as compared
to the same period in 1997 by approximately $501,000. This decrease was due
primarily to prepayments of PIMs, which caused a decrease in base interest on
PIMs and an increase in amortization of prepaid expenses and fees. This was
offset in part by an increase in participation interest, which resulted from
such prepayments. The significant decrease in base interest on PIMs was caused
primarily by prepayments of the Harbor House, Fallwood, Westbrook, Greenbrier
and Longwood Villas PIMs during the first half of 1998 and the Lakeside,
Colonial and Pine Ridge PIMs in 1997. In addition, base interest on PIMs
decreased and interest on MBS increased due to the conversion of the Lily Flagg
PIM from a PIM into a multi-family insured mortgage during the third quarter of
1997. The Partnership realized an increase in participation income of
approximately $235,000 in the second quarter of 1998 as compared to 1997 due
primarily to $750,000 of shared appreciation income realized from the Harbor
House Apartment PIM. The Partnership realized an additional $269,000 from the
Stanford, Carlyle and Waterford Apartment PIMs and the Brookside MBS which
exceeded the amount of participation income realized during the same period of
1997. Other interest income increased due to the Partnership having higher
average short-term investment balances as a result of the prepayments mentioned
above during the three months ended June 30, 1998 as compared to the same period
in 1997. During the second quarter of 1998, the Partnership received a rebate
for expense reimbursements related to 1997. The decrease in asset management
fees of $100,000 resulted from the 1998 PIM prepayments reducing the asset base.
Net income increased for the six months ended June 30, 1998 as compared to
the same period in 1997 by approximately $124,000. This increase was due
primarily to participation interest received on PIM prepayments. This was offset
by lower base interest on PIMs and an increase in amortization of prepaid
expenses and fees. The increase in participation interest of approximately
$1,365,000 is from the additional interest received from the prepayment of the
Harbor House, Fallwood, Westbrook, Greenbrier and Longwood Villas PIMs and the
Brookside insured mortgage totaling $1,248,000. In addition, other interest
income significantly increased due to the Partnership having higher average
short-term investment balances during the six months ended June 30, 1998 as
compared to the same period in 1997 caused by the prepayment activity during the
first half of 1998. Also contributing to the decrease in base interest on PIMs
was the conversion of the Lily Flagg PIM in 1997 into an insured mortgage. This
resulted in higher interest income on MBS in 1998 as compared to 1997. During
the six months ended June 30 1998, the Partnership received a rebate for expense
reimbursements related to 1997. Asset management fees decreased $167,000 as a
result of the prepayments described above.
Interest income on PIMs and MBS will continue to decline as principal
collections reduce the outstanding balance of the portfolios. 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: August 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial infomation extracted from the balance
sheet and statement if 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> 6-MOS
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Jun-30-1998
<CASH> 33,234,357
<SECURITIES> 128,250,078<F1>
<RECEIVABLES> 950,240
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,829,415<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 164,264,090
<CURRENT-LIABILITIES> 18,797
<BONDS> 0
0
0
<COMMON> 162,868,440<F3>
<OTHER-SE> 1,376,853<F4>
<TOTAL-LIABILITY-AND-EQUITY> 164,264,090
<SALES> 0
<TOTAL-REVENUES> 8,710,992<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,972,449<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,738,543
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,738,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,738,543
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $89,648,463 and
Mortgage-Backed Securities ("MBS") of $38,601,615.
<F2>Includes prepaid acquisition fees and expenses of $8,225,954 net of
accumulated amortization of $6,749,952 and prepaid participation servicing
fees of $2,543,823 netof accumulated amortization of $2,190,410.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($282,162) and Limited Partners equity of $163,150,602.
<F4>Unrealized gains on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,288,676 of amortization of prepaid fees and expenses.
<F7>Net income allocated $202,156 to the General Partners and $6,536,387 to the
Limited Partners. Average net income per Limited Partner interest is $.45
on 14,655,512 Limited Partner interests outstanding.
</FN>
</TABLE>
