UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-16817
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Krupp Insured Plus-II Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2955007
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 523-0066
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Depositary
Receipts representing Units of Limited Partner Interests.
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates:
Not applicable, as securities are non-voting.
Documents incorporated by reference: See Part IV, Item 14
The exhibit index is located on pages 10-11.
PART I
This form 10-K 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.
ITEM 1. BUSINESS
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Krupp Insured Plus-II Limited Partnership (the "Partnership") is a Massachusetts
limited partnership which was formed on October 29, 1986. The Partnership raised
approximately $292 million through a public offering of limited partner
interests evidenced by units of depositary receipts ("Units") and used the
investable proceeds primarily to acquire participating insured mortgages
("PIMs") and mortgage-backed securities ("MBS"). The Partnership considers
itself to be engaged only in the industry segment of investment in mortgages.
The Partnership's investments in PIMs on multi-family residential properties
consist of a MBS guaranteed as to principal and basic interest. These MBS were
issued or originated under or in connection with the housing program of the
Government National Mortgage Association ("GNMA"). PIMs provide the Partnership
with monthly payments of principal and basic interest and also provide for
Partnership participation in the current revenue stream and in residual value,
if any, from a sale or other realization of the underlying property
(participation interest). The borrower conveys these rights to the Partnership
through a subordinated promissory note and mortgage. The participation features
are neither insured nor guaranteed.
The Partnership also acquired MBS and insured mortgages collateralized by
single-family or multi-family mortgage loans issued or originated by GNMA,
Fannie Mae, HUD or the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie
Mae and FHLMC guarantee the principal and basic interest of the Fannie Mae and
FHLMC MBS, respectively. GNMA guarantees the timely payment of principal and
basic interest on its MBS, and HUD insures the pooled mortgage loans underlying
the GNMA MBS and its own direct mortgage loans.
Although the Partnership will terminate no later than December 31, 2026, it is
expected that the value of the PIMs generally will be realized by the
Partnership through repayment or sale as early as ten years from the dates of
the closings of the permanent loans and that the Partnership will realize the
value of all of its other investments within that time frame thereby resulting
in a dissolution of the Partnership significantly prior to December 31, 2026.
The Partnership's investments are not expected to be subject to seasonal
fluctuations. Any ultimate realization of the participation features of the PIMs
are subject to similar risks associated with equity real estate investments,
including: reliance on the owner's operating skills, ability to maintain
occupancy levels, control operating expenses, maintain the properties and
provide adequate insurance coverage; adverse changes in general economic
conditions, adverse local conditions, and changes in governmental regulations,
real estate zoning laws, or tax laws; and other circumstances over which the
Partnership may have little or no control.
The requirements for compliance with federal, state and local regulations to
date have not had an adverse effect on the Partnership's operations, and no
adverse effect is anticipated in the future.
As of December 31, 2000, there were no personnel directly employed by the
Partnership.
ITEM 2. PROPERTIES
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None
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings to which the Partnership is a
party or to which any of its investments is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 2000 was approximately
12,800. One of the objectives of the Partnership is to provide quarterly
distributions of cash flow generated by its investments in mortgages. The
Partnership anticipates that future operations will continue to generate cash
available for distribution. Adjustments may be made to the distribution rate in
the future due to the realization and payout of the existing mortgages.
On March 30, 2000, the Partnership paid a special distribution of $.58 per
Limited Partner interest from the prepayment proceeds received during February
2000 on the Greenhouse Apartments PIM in the amount of $8,428,984. The
underlying property was foreclosed on by the first mortgage lender during
January 1999. The Partnership continued to receive its full principal and basic
interest payments due on the PIM while the underlying mortgage was in default
because those payments were guaranteed by GNMA. The Partnership did not receive
any participation interest from this transaction.
On January 11, 2000, the Partnership paid a special distribution of $.43 per
Limited Partner interest from the Saratoga Apartments PIM prepayment proceeds
received in December 1999 in the amount of $6,204,960. The underlying property
value had not increased sufficiently to meet the criteria for the Partnership to
earn any participation interest.
During 1999, the Partnership made special distributions consisting primarily of
principal proceeds from the Stanford Court, Hillside Court, Carlyle Court,
Waterford Court, Country Meadows and Le Coeur du Monde PIM prepayments.
The Partnership may make special distributions in the future if PIMS prepay or a
sufficient amount of cash is available from MBS and PIM principal collections.
The Partnership made the following distributions to its Partners during the two
years ended December 31, 2000 and 1999:
2000 1999
Amount Per Unit Amount Per Unit
------------- -------- -------------- --------
Quarterly Distributions:
Limited Partners $ 5,862,204 $ .40 $ 11,138,189 $ .76
General Partners 97,176 217,645
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5,959,380 11,355,834
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Special Distributions:
Limited Partners 14,802,066 $ 1.01 51,587,401 $3.52
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Total Distributions $ 20,761,446 $ 62,943,235
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ITEM 6. SELECTED FINANCIAL DATA
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The following table sets forth selected financial information regarding the
Partnership's financial position and operating results. This information should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements and
Supplementary Data, which are included in Item 7 and Item 8, (Appendix A) of
this report, respectively.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total revenues $ 3,520,446 $ 7,822,665 $ 15,335,618 $ 16,672,558 $ 15,855,280
Net income 2,770,378 6,146,718 12,017,670 12,972,600 12,331,212
Net income allocated to:
Limited Partners ("LP") 2,687,267 5,962,316 11,657,140 12,583,422 11,961,276
Average per LP interest .18 .41 .80 .86 .82
General Partners 83,111 184,402 360,530 389,178 369,936
Total assets at:
December 31 42,256,448 60,161,993 117,626,762 180,126,977 207,552,419
Distributions to:
Quarterly to LPs 5,862,204 11,138,189 16,414,173 16,414,173 16,414,171
Average per LP interest .40 .76 1.12 1.12 1.12
Specials to LPs 14,802,066 51,587,401 56,716,830 24,767,815 -
Average per LP interest 1.01 3.52 3.87 1.69 -
General Partners 97,176 217,645 385,355 436,626 432,214
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are the quarterly
distributions paid to investors of approximately $1.5 million. Funds for
investor distributions come from the monthly principal and interest payments
received on the PIMs and MBS, the principal prepayments of the PIMs and MBS, and
interest earned on the Partnership's cash and cash equivalents. In general, the
General Partners try to set a distribution rate that provides for level
quarterly distributions. To the extent that quarterly distributions do not fully
utilize the cash available for distribution and cash balances increase, the
General Partners may adjust the distribution rate or distribute such funds
through a special distribution. The portion of distributions attributable to the
principal collections reduces the capital resources of the Partnership. As the
capital resources decrease, the total cash flows to the Partnership also will
decrease and over time will result in periodic 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. At this time the General Partners have determined that the
Partnership can maintain its current distribution rate of $.10 per Limited
Partner interest per quarter.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's PIM investments also may provide
participation interest if the underlying properties operate successfully. The
Partnership may receive a share in any operating cash flow that exceeds debt
service obligations and capital needs or a share in any appreciation in value
when the properties are sold or refinanced. However, this participation is
neither guaranteed nor insured, and it is dependent upon whether property
operations or its terminal value meet certain criteria.
On March 30, 2000, the Partnership paid a special distribution of $.58 per
Limited Partner interest from the prepayment proceeds received during February
2000 on the Greenhouse Apartments PIM in the amount of $8,428,984. The
underlying property was foreclosed on by the first mortgage lender during
January 1999. The Partnership continued to receive its full principal and basic
interest payments due on the PIM while the underlying mortgage was in default
because those payments were guaranteed by GNMA. The Partnership did not receive
any participation interest from this transaction.
On January 11, 2000, the Partnership paid a special distribution of $.43 per
Limited Partner interest from the Saratoga Apartments PIM prepayment proceeds
received in December 1999 in the amount of $6,204,960. The underlying property
value had not increased sufficiently to meet the criteria for the Partnership to
earn any participation interest.
On November 22, 1999, the Partnership paid a special distribution of $.72 per
Limited Partner interest from the Le Coeur du Monde Apartments PIM prepayment
proceeds received in October 1999 in the amount of $9,422,001. The Partnership
also received $472,587 of accrued and unpaid participation interest attributable
to property operations from its Le Coeur du Monde PIM investment and $1,102,701
of participation interest attributable to the Partnership's share in the
increase in the property's value.
On June 18, 1999, the Partnership paid a special distribution of $.83 per
Limited Partner interest from the Country Meadows Apartments PIM prepayment
proceeds received in May 1999 in the amount of $12,015,224. The underlying
property value had not increased sufficiently to meet the criteria for the
Partnership to earn any participation interest. The Partnership did receive a
$60,076 prepayment premium for the early payoff of the Country Meadows PIM.
On February 26, 1999, the Partnership paid a special distribution of $1.97 per
Limited Partner interest from the prepayments of the Stanford Court, Hillside
Court, Carlyle Court and Waterford Court Apartments PIMs. On January 25, 1999,
the Partnership received prepayments of the Stanford Court, Hillside Court,
Carlyle Court and Waterford Court Apartments PIMs in the amounts of $6,609,242,
$4,266,759, $7,696,897 and $9,394,386, respectively. In addition to the
prepayments, the Partnership received $860,052 of Shared Appreciation Interest
and prepayment penalties and $432,877 of Minimum Additional Interest and Shared
Income Interest during December 1998.
During 1998, the Partnership made three special distributions. The Partnership
made special distributions of $.94, $1.63 and $1.30 per Unit in March 1998, July
1998 and December 1998, respectively. The March 1998 special distribution
consisted of the prepayment proceeds from the Fallwood, Greenbrier and
Westbrooks PIMs. The July 1998 special distributions consisted of the prepayment
proceeds from the Longwood Villas and Harbor House PIMs and the prepayment
proceeds from the Brookside insured mortgage. The December 1998 special
distribution consisted of the prepayment proceeds from the Walden Village PIM
and the Lily Flagg insured mortgage.
The Partnership's only remaining PIM investments are the GNMA securities backed
by the first mortgage loans on the Denrich and Richmond Park Apartments. Both
properties are thirty years old, and as they have aged, rental rate increases
have not kept pace with the increasing costs of maintenance, repairs and
replacements. Denrich Apartments does not compete successfully in the
Philadelphia neighborhood where it is located. Occupancy, which generally
fluctuates in the mid 80% range, is adversely affected by cash constraints that
have lead to extensive deferred maintenance. Denrich Apartments operated under a
long term workout agreement with the Partnership that expired at the end of
2000. The General Partners anticipate the workout will be renegotiated and
extended under similar terms during 2001.
Richmond Park maintains its position in the stable, older Cleveland suburb where
it is located. Occupancy generally hovers in the low 90% range, but because the
neighborhood does not support significant rental rate increases, the property
only generates sufficient cash flow for adequate maintenance and not enough to
provide for major capital improvements. Based on these conditions, the General
Partners do not expect the Partnership will receive participation interest from
either of the remaining PIM investments.
During the first five years, owners are prohibited from prepaying the first
mortgage loans underlying the PIMs. During the second five years, borrowers may
prepay the loans by incurring a prepayment penalty. The Partnership has the
option to call certain PIMs by accelerating their maturity if they are not
prepaid by the tenth year after permanent funding. The General Partners 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, the interest-rate environment and availability of financing will
affect those decisions.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by GNMA,
Fannie Mae, FHLMC or 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 represent interests 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.
At December 31, 2000 the Partnership includes in cash and cash equivalents
approximately $2.8 million of commercial paper, which is issued by entities with
a credit rating equal to one of the top two rating categories of a nationally
recognized statistical rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
December 31, 2000, the Partnership's PIMs and MBS comprise the majority of the
Partnership's assets. As such, decreases in interest rates may accelerate the
prepayment of the Partnership's investments. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the Partnership forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For PIMs, the Partnership incorporates prepayment assumptions into
planning as individual properties notify the Partnership of the intent to prepay
or as they mature.
The table below provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates ("WAIR") by expected maturity dates. The expected
maturity date is contractual maturity adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands)
Total
2001 2002 2003 2004 2005 Thereafter Face Fair
Value Value
Interest-sensitive assets:
MBS $ 1,381 $ 1,224 $ 1,092 $ 982 $ 890 $ 15,566 $ 21,135 $ 21,451
WAIR 7.66% 7.66% 7.66% 7.66% 7.66% 7.66% 7.66%
PIMs 271 292 315 340 367 15,957 17,542 17,588
WAIR 7.59% 7.59% 7.59% 7.59% 7.59% 7.59% 7.59%
-------- -------- -------- -------- --------- ----------- --------- ----------
Total Interest-
sensitive assets $ 1,652 $ 1,516 $ 1,407 $ 1,322 $ 1,257 $ 31,523 $ 38,677 $ 39,039
======== ======== ======== ======== ========= =========== ========= ==========
Results of Operations
The following discussion relates to the operation of the Partnership during
the years ended December 31, 2000, 1999 and 1998.
(Amounts in thousands)
2000 1999 1998
---- ---- ----
Interest income on PIMs:
Basic interest $ 1,360 $ 3,682 $ 7,417
Participation interest - 1,635 3,753
Interest income on MBS 1,685 1,826 3,083
Other interest income 475 680 1,083
Partnership expenses (628) (778) (1,287)
Amortization of prepaid fees and
expenses (122) (898) (2,031)
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Net Income $ 2,770 $ 6,147 $ 12,018
========= ========= =========
Net income decreased during 2000 as compared to 1999 primarily due to lower
basic and participation interest on PIMs. This was partially offset by a
decrease in amortization. The reduction in basic interest on PIMs is due to
the payoff of the Greenhouse PIM in 2000 and the payoffs of the Saratoga,
Le Coeur du Monde, Country Meadows, Stanford Court, Hillside Court, Carlyle
Court and Waterford Court PIMs in 1999. Participation interest was higher
in 1999 than 2000 as the loans that paid off in 1999 generated higher
Shared Appreciation Interest and prepayment premiums than the Greenhouse
PIM which paid off in 2000. The decrease in amortization was also related
to the payoff activity in 1999 which resulted in the write-off of the
remaining deferred expenses attributed to those loans.
Net income decreased during 1999 as compared to 1998 primarily due to
significantly lower interest income on PIMs, MBS and other interest income.
This was partially offset by decreases in partnership expenses and
amortization. The reduction in basic interest on PIMs is due to the payoff
of the Carlyle Court, Hillside Court, Stanford Court, Waterford Court,
Country Meadows and Le Coeur du Monde PIMs in 1999, and the Westbrook
Manor, Fallwood, Greenbrier, Harbor House, Walden Village and Longwood
Villas PIMs during 1998. Participation interest was higher in 1998 as
compared to 1999 due primarily to the Partnership realizing Shared
Appreciation Interest and/or prepayment premiums from the prepayments of
the Westbrook Manor, Fallwood, Greenbrier, Walden Village, Harbor House and
Longwood Villas PIMs and the Brookside and Lily Flagg insured mortgages
which were in excess of those amounts received when the Carlyle Court,
Hillside Court, Stanford Court, Waterford Court, Country Meadows and
LeCouer du Monde PIMs prepaid during 1999. The reduction in interest income
on MBS is due primarily to the payoff of the Lily Flagg and Brookside
multi-family MBS during 1998 along with continuing prepayments on the
Partnership's single-family MBS. The decrease in Partnership expenses was
due to a decrease in asset management fees which were a result of the PIM
prepayments mentioned above that reduced the asset base. Amortization also
decreased due to the PIM prepayments. Other interest income decreased in
1999 as compared to 1998 due to significantly lower average cash balances
available for short-term investing in 1999 versus 1998.
As the Partnership distributes principal collections on MBS and PIMs
through quarterly or special distributions, the invested assets of the
Partnership will decline which should result in a continuing decline in net
income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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The Partnership has no directors or executive officers. Information as to the
directors and executive officers of Krupp Plus Corporation which is a General
Partner of the Partnership and is the general partner of Mortgage Services
Partners Limited Partnership, which is the other General Partner of the
Partnership, is as follows:
Position with
Name and Age Krupp Plus Corporation
Douglas Krupp (54) President, Co-Chairman of the Board and Director
George Krupp (56) Co-Chairman of the Board and Director
Peter F. Donovan (47) Senior Vice President
Ronald Halpern (59) Senior Vice President
Carol Mills (51) Vice President
Robert A. Barrows (43) Vice President and Treasurer
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer
of The Berkshire Group, an integrated real estate financial services firm
engaged in real estate acquisitions, property management, investment
sponsorship, venture capital investing, mortgage banking and financial
management, and ownership of three operating companies through private equity
investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire
Group was established as The Krupp Companies in 1969 and he has served as the
Chief Executive Officer since 1992. He is a graduate of Bryant College where he
received an honorary Doctor of Science in Business Administration in 1989.
George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group, an
integrated real estate financial services firm engaged in real estate
acquisitions, property management, investment sponsorship, venture capital
investing, mortgage banking and financial management, and ownership of three
operating companies through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish
High School in Waltham, Massachusetts since September of 1997. Mr. Krupp
attended the University of Pennsylvania and Harvard University and holds a
Master's Degree in History from Brown University. Douglas and George Krupp are
brothers.
Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage Finance which
position he has held since January of 1998 and in this capacity, he oversees the
strategic growth plans of this mortgage banking firm. Berkshire Mortgage Finance
is the 11th largest commercial mortgage servicer in the United States with a
servicing and asset management portfolio of $11.5 billion. Previously he served
as President of Berkshire Mortgage Finance from January of 1993 to January of
1998 and in that capacity he directed the production, underwriting, servicing
and asset management activities of the firm. Prior to that, he was Senior Vice
President of Berkshire Mortgage Finance and was responsible for all
participating mortgage originations. Before joining the firm in 1984, he was
Second Vice President, Real Estate Finance for Continental Illinois National
Bank & Trust, where he managed a $300 million construction loan portfolio of
commercial properties. Mr. Donovan received a B.A. from Trinity College and an
M.B.A. degree from Northwestern University. Mr. Donovan is currently a member of
the Advisory Council for Fannie Mae.
Ronald Halpern is President and COO of Berkshire Mortgage Finance. He has served
in these positions since January of 1998 and in this capacity, he is responsible
for the overall operations of the Company. Prior to January of 1998, he was
Executive Vice President, managing the underwriting, closing, portfolio
management and servicing departments for Berkshire Mortgage Finance. Before
joining the firm in 1987, he held senior management positions with the
Department of Housing and Urban Development in Washington D.C. and several HUD
regional offices. Mr. Halpern has over 30 years of experience in real estate
finance which includes his experience as prior Chairman of the MBA Multifamily
Housing Committee. He holds a B.A. degree from the University of the City of New
York and J.D. degree from Brooklyn Law School.
Robert A. Barrows is Senior Vice President and Chief Financial Officer of
Berkshire Mortgage Finance. Mr. Barrows has held several positions within The
Berkshire Group since joining the company in 1983 and is currently responsible
for accounting, financial reporting, treasury and management information systems
for Berkshire Mortgage Finance. Prior to joining The Berkshire Group, he was an
audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S.
degree from Boston College and is a Certified Public Accountant.
Carol J.C. Mills is Senior Vice President for Loan Management of Berkshire
Mortgage Finance and in this capacity, she is responsible for the Loan Servicing
and Asset Management functions of Berkshire Mortgage Finance. She manages the
estimated $11.5 billion portfolio of loans. Ms. Mills joined Berkshire in
December 1997 as Vice President and was promoted to Senior Vice President in
January 1999. From January 1989 through November 1997, Ms. Mills was Vice
President of First Winthrop Corporation and Winthrop Financial Associates, in
Cambridge, MA. Ms. Mills earned a B.A. degree from Mount Holyoke College and a
Master of Architecture degree from Harvard University. Ms. Mills is a member of
the Real Estate Finance Association, New England Women in Real Estate and the
Mortgage Bankers Association.
ITEM 11. EXECUTIVE COMPENSATION
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The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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As of December 31, 2000, no person owned of record or was known by the General
Partners to own beneficially more than 5% of the Partnership's 14,655,512
outstanding Limited Partner interests. The only interests held by management or
its affiliates consist of its General Partner and Corporate Limited Partner
Interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Information required under this Item is contained in Note F to the Partnership's
Notes To Financial Statements presented in Appendix A to this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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(a) 1. Financial Statements - see Index to Financial Statements and
Schedule included under Item 8, Appendix A, page F-2 to this report.
2. Financial Statement Schedule - see Index to Financial Statements and
Schedule included under Item 8, Appendix A, page F-2 to this report.
All other schedules are omitted as they are not applicable, not
required or the information is provided in the Financial Statements
or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601 of
Regulation S-K:
(4) Instruments defining the rights of security holders including indentures:
(4.1)Amended and Restated Agreement of Limited Partnership dated as of May 29,
1987 [Exhibit A to Prospectus included in Post Effective Amendment No. 1 of
Registrant's Registration Statement on Form S-11 dated June 18, 1987 (File
No. 33-9889)].*
(4.2)Second Amendment to Agreement of Limited Partnership dated as of June 17,
1987 [Exhibit 4.6 in Post Effective Amendment No. l of Registrant's
Registration Statement on Form S-11 dated June 18, 1987 (File No.
33-9889)].*
(4.3)Subscription Agreement whereby a subscriber agrees to purchase Units and
adopts the provisions of the Amended and Restated Agreement of Limited
Partnership [Exhibit D to Prospectus included in Post Effective Amendment
No. 1 of Registrant's Registration Statement on Form S-11 dated June 18,
1987 (File No. 33-9889)].*
(4.4)Copy of Amended Certificate of Limited Partnership filed with the
Massachusetts Secretary of State on April 28, 1987. [Exhibit 4.4 in
Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated
May 14, 1987 (File No. 33-9889)].*
(10) Material Contracts:
(10.1) Form of agreement between the Partnership and Krupp Mortgage Corporation.
[Exhibit 10.3 in Amendment No. 1 of Registrant's Registration Statement on
Form S-11 dated May 14, 1987 (File No. 33-9889)].*
Denrich Apartments
(10.2) Prospectus for GNMA Pool No. 267075 (PL). [Exhibit 10.29 to Registrant's
Report on Form 10-K for the year ended December 31, 1988 (File No.
0-16817)].*
(10.3) Subordinated Multifamily Mortgage (including Subordinated Promissory
Note) dated November 3, 1988 between Arthur J. Stagnaro and Krupp Insured
Plus-II Limited Partnership. [Exhibit 10.30 to Registrant's Report on Form
10-K for the year ended December 31, 1988 (File No. 0-16817)].*
(10.4) Modification Agreement dated June 28, 1995 between Arthur J. Stagnaro and
Krupp Insured Plus-II Limited Partnership [Exhibit 10.1 to Registrant's
Report on Form 10-Q for the quarter ended June 30, 1995 (File No.
0-16817)].*
Richmond Park Apartments
(10.5) Prospectus for GNMA Pool No. 260865 (PL) [Exhibit 1 to Registrant's
Report on Form 8-K dated August 30, 1989 (File No. 0-16817)].*
(10.6) Subordinated Multifamily Open-Ended Mortgage (including Subordinated
Promissory Note) dated July 14, 1989 between Carl Milstein, Trustee, Irwin
Obstgarten, Al Simon and Krupp Insured Plus-II Limited Partnership.
[Exhibit 2 to Registrant's Report on Form 8-K dated August 30, 1989 (File
No. 0-16817)]*
(10.7) Participation Agreement dated July 31, 1989 between Krupp Insured
Mortgage Limited Partnership and Krupp Insured Plus-II Limited Partnership.
[Exhibit 3 to Registrant's Report on Form 8-K dated August 30, 1989 (File
No. 0-16817)].*
* Incorporated by reference.
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 2000, the
Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on the 9th day of March,
2001.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
By: Krupp Plus Corporation,
a General Partner
By: /s/ Douglas Krupp
- --------------------------------------
Douglas Krupp, President, Co-Chairman
(Principal Executive Officer) and
Director of Krupp Plus Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on the 9th day of March, 2001.
Signatures Title(s)
/s/ Douglas Krupp President, Co-Chairman (Principal Executive Officer)
- ------------------------- and Director of Krupp Plus Corporation,
Douglas Krupp a General Partner
/s/ George Krupp Co-Chairman (Principal Executive Officer)
- ------------------------- and Director of of Krupp Plus Corporation,
George Krupp a General Partner
/s/ Peter F. Donovan Senior Vice President of Krupp Plus Corporation,
- ------------------------- a General Partner
Peter F. Donovan
/s/ Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Plus
- ------------------------- Corporation, a General Partner
Robert A. Barrows
APPENDIX A
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 2000
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3
Balance Sheets at December 31, 2000 and 1999 F-4
Statements of Income and Comprehensive Income for
the Years Ended December 31, 2000, 1999 and 1998 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 2000, 1999 and 1998 F-6
Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998 F-7
Notes to Financial Statements F-8 - F-16
All schedules are omitted as they are not applicable or not
required, or the information is provided in the financial
statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Krupp Insured Plus-II Limited Partnership:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Krupp
Insured Plus- II Limited Partnership (the "Partnership") at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 23, 2001
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
---- ----
Participating Insured Mortgages ("PIMs")
(Notes B, C and H) $ 17,541,596 $ 26,224,388
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, D and H) 21,247,646 22,277,956
------------- -------------
Total mortgage investments 38,789,242 48,502,344
Cash and cash equivalents (Notes B, C and H) 3,125,710 11,093,183
Interest receivable and other assets 275,591 378,286
Prepaid acquisition fees and expenses, net of
accumulated amortization of $733,572 and $1,203,575
respectively (Note B) 65,905 179,095
Prepaid participation servicing fees, net of
accumulated amortization of $0 and $200,032,
respectively (Note B) - 9,085
------------- -------------
Total assets $ 42,256,448 $ 60,161,993
============= ==============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 17,889 $ 19,948
------------- -------------
Partners' equity (deficit) (Notes A, C and E):
Limited Partners 42,383,344 60,360,347
(14,655,512 Limited Partner interest outstanding)
General Partners (337,448) (323,383)
Accumulated comprehensive income (Note B) 192,663 105,081
------------- -------------
Total Partners' equity 42,238,559 60,142,045
------------- -------------
Total liabilities and Partners' equity $ 42,256,448 $ 60,161,993
============= =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Revenues:
Interest income - PIMs:
Basic interest $ 1,360,247 $ 3,681,868 $ 7,416,814
Participation interest - 1,634,686 3,752,675
Interest income - MBS 1,685,246 1,826,026 3,083,259
Other interest income 474,953 680,085 1,082,870
--------------- ---------------- --------------
Total revenues 3,520,446 7,822,665 15,335,618
--------------- ---------------- -------------
Expenses:
Asset management fee to an affiliate (Note F) 299,983 496,464 981,223
Expense reimbursement to affiliates (Note F) 125,209 94,160 57,448
Amortization of prepaid fees and expenses (Note B) 122,275 898,457 2,031,454
General and administrative 202,601 186,866 247,823
--------------- ---------------- --------------
Total expenses 750,068 1,675,947 3,317,948
--------------- ---------------- --------------
Net income (Notes E and G) 2,770,378 6,146,718 12,017,670
Other Comprehensive Income:
Net change in unrealized gain on MBS 87,582 (435,431) (1,228,708)
--------------- ---------------- -------------
Total Comprehensive Income $ 2,857,960 $ 5,711,287 $ 10,788,962
=============== ================ =============
Allocation of net income (Notes E and G.):
Limited Partners $ 2,687,267 $ 5,962,316 $ 11,657,140
=============== ================ =============
Average net income per Limited Partner
Interest (14,655,512 Limited Partner $ .18 $ .41 $ .80
=============== ================ =============
interests outstanding)
General Partners $ 83,111 $ 184,402 $ 360,530
=============== ================ =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
-------- -------- ------ -------
Balance at December 31, 1997 $ 178,597,484 $ (265,315) $ 1,769,220 $ 180,101,389
Net income 11,657,140 360,530 - 12,017,670
Quarterly distributions (16,414,173) (385,355) - (16,799,528)
Special distributions (56,716,830) - - (56,716,830)
Change in unrealized gain on MBS - - (1,228,708) (1,228,708)
------------- ----------- ----------- -------------
Balance at December 31, 1998 117,123,621 (290,140) 540,512 117,373,993
Net income 5,962,316 184,402 - 6,146,718
Quarterly distributions (11,138,189) (217,645) - (11,355,834)
Special distributions (51,587,401) - - (51,587,401)
Change in unrealized loss on MBS - - (435,431) (435,431)
------------- ----------- ----------- -------------
Balance at December 31, 1999 60,360,347 (323,383) 105,081 60,142,045
Net income 2,687,267 83,111 - 2,770,378
Quarterly distributions (5,862,204) (97,176) - (5,959,380)
Special distributions (14,802,066) - - (14,802,066)
Change in unrealized gain on MBS - - 87,582 87,582
------------- ----------- ----------- -------------
Balance at December 31, 2000 $ 42,383,344 $ (337,448) $ 192,663 $ 42,238,559
============= =========== =========== =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------- ------- --------
Operating activities:
Net income $ 2,770,378 $ 6,146,718 $ 12,017,670
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 122,275 898,457 2,031,454
Shared Appreciation Interest and prepayment
premiums - (1,162,777) (2,390,707)
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 102,695 352,543 449,831
(Decrease) increase in liabilities (2,059) (232,821) 227,181
------------- ------------- -------------
Net cash provided by operating activities 2,993,289 6,002,120 12,335,429
------------- ------------- -------------
Investing activities:
Principal collections on PIMs including Shared Appreciation
Interest and prepayment premiums of $1,162,777 in 1999
and $2,255,077 in 1998, respectively 8,682,792 57,196,596 42,044,923
Principal collections on MBS including
prepayment premiums of $135,630 in 1998 1,117,892 2,078,965 18,842,263
------------- -------------- --------------
Net cash provided by investing activities 9,800,684 59,275,561 60,887,186
------------- -------------- --------------
Financing activities:
Quarterly distributions (5,959,380) (11,355,834) (16,799,528)
Special distributions (14,802,066) (51,587,401) (56,716,830)
------------- -------------- -------------
Net cash used for financing activities (20,761,446) (62,943,235) (73,516,358)
------------- -------------- ------------
Net increase (decrease) in cash and equivalents (7,967,473) 2,334,446 (293,743)
Cash and cash equivalents, beginning of year 11,093,183 8,758,737 9,052,480
------------- -------------- ------------
Cash and cash equivalents, end of year $ 3,125,710 $ 11,093,183 $ 8,758,737
============= ============== =============
Non cash activities:
Increase (decrease) in Fair Value of MBS $ 87,582 $ (435,431) $ (1,228,708)
============= ============== =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Insured Plus-II Limited Partnership (the "Partnership") was formed on
October 29, 1986 by filing a Certificate of Limited Partnership in The
Commonwealth of Massachusetts. The Partnership was organized for the purpose
of investing in multi-family loans and mortgage backed securities. The
Partnership issued all of the General Partner Interests to Krupp Plus
Corporation and Mortgage Services Partners Limited Partnership in exchange
for capital contributions aggregating $3,000. The Partnership terminates on
December 31, 2026, unless terminated earlier upon the occurrence of certain
events as set forth in the Partnership Agreement.
The Partnership commenced the public offering of Limited Partner interests
on May 29, 1987 and completed its public offering having sold 14,655,412
Limited Partner interests for $292,176,381 net of purchase volume discounts
of $931,859 as of May 27, 1988. In addition, Krupp Depository Corporation
owns one hundred Limited Partner interests.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those used for
federal income tax purposes (Note G).
Basis of Presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
MBS
The Partnership, in accordance with Financial Accounting Standards Board's
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"), classifies its MBS portfolio as available-for-sale.
As such the Partnership carries its MBS at fair market value and reflects
any unrealized gains (losses) as a separate component of Partners' Equity.
The Partnership amortizes purchase premiums or discounts over the life of
the underlying mortgages using the effective interest method.
The Federal Housing Administration ("FHA") insured mortgage is carried at
amortized cost. The Partnership holds this loan at amortized cost since it
is fully insured by the FHA.
PIMs
The Partnership accounts for the MBS portion of its PIMs in accordance with
FAS 115 under the classification of held to maturity. The Partnership
carries the Government National Mortgage Association ("GNMA") MBS at
amortized cost.
Basic interest on PIMs is recognized based on the stated coupon rate of the
GNMA MBS. Participation income is recognized as earned and when deemed
collectible by the Partnership.
Cash and Cash Equivalents
The Partnership includes all short-term investments with maturities of three
months or less at the date of acquisition in cash and cash equivalents. The
Partnership invests its cash primarily in commercial paper and money market
funds with a commercial bank and has not experienced any loss to date on its
invested cash.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
B. Significant Accounting Policies, continued
Prepaid Fees and Expenses
Prepaid fees and expenses consist of acquisition fees and expenses and
participation servicing fees paid for the acquisition and servicing of PIMs.
The Partnership amortizes prepaid acquisition fees and expenses using a
method that approximates the effective interest method over a period of ten
to twelve years, which represents the actual maturity or anticipated payoff
of the underlying mortgage.
The Partnership amortized prepaid participation servicing fees using a
method that approximated the effective interest method over a ten-year
period beginning at final endorsement of the loan.
Upon the repayment of a PIM, any unamortized acquisition fees and expenses
and unamortized participation servicing fees related to such loan are
expensed.
Income Taxes
The Partnership is not liable for federal or state income taxes because
Partnership income is allocated to the partners for income tax purposes. If
the Partnership's tax returns are examined by the Internal Revenue Service
or state taxing authority and such an examination results in a change in
Partnership taxable income, such change will be reported to the partners.
Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
contingent assets and liabilities and revenues and expenses during the
period. Actual results could differ from those estimates.
C. PIMs
At December 31, 2000 and 1999, the Partnership had investments in two PIMs
and three PIMs, respectively. The Partnership's PIMs consist of a GNMA MBS
representing the securitized first mortgage loan on the underlying property
and participation interests in the revenue stream and appreciation of the
underlying property above specified base levels. The borrower conveys these
participation features to the Partnership generally through a subordinated
promissory note and mortgage (the "Agreement").
The Partnership receives guaranteed monthly payments of principal and basic
interest on the GNMA MBS and HUD insures the first mortgage loan underlying
the GNMA MBS.
The borrower usually cannot prepay the first mortgage loan during the first
five years and usually may prepay the first mortgage loan thereafter subject
to a 9% prepayment premium in years six through nine, a 1% prepayment
premium in year ten and no prepayment premium thereafter. The Partnership
may receive income related to its participation interests in the underlying
property, however, these amounts are neither insured nor guaranteed.
Generally, the participation features consist of the following: (i) "Minimum
Additional Interest" rates ranging from .5% to .75% per annum calculated on
the unpaid principal balance of the first mortgage on the underlying
property , (ii) "Shared Income Interest" is 25% of the monthly gross rental
income generated by the underlying property in excess of a specified base,
but only to the extent that it exceeds the amount of Minimum Additional
Interest received during such month and (iii) "Shared Appreciation Interest"
is 25% of any increase in the value of the underlying property in excess of
a specified base. Payment of Minimum Additional Interest and Shared
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
---------------
C. PIMs, continued
Income Interest from the operations of the property is limited to 50% of net
revenue or Surplus Cash as defined by HUD.
The total amount of Minimum Additional Interest, Shared Income Interest and
Shared Appreciation Interest payable on the maturity date by the underlying
borrower usually cannot exceed 50% of any increase in value of the property.
Shared Appreciation Interest is payable when one of the following occurs:
(1) the sale of the underlying property to an unrelated third party on a
date which is later than five years from the date of the Agreement, (2) the
maturity date or accelerated maturity date of the Agreement, or (3)
prepayment of amounts due under the Agreement and the insured mortgage.
Under the Agreement, the Partnership, upon giving twelve months written
notice, can accelerate the maturity date of the Agreement and insured
mortgage to a date not earlier than ten years from the date of the Agreement
for (a) the payment of all participation interest due under the Agreement as
of the accelerated maturity date, or (b) the payment of all participation
interest due under the Agreement plus all amounts due on the first mortgage
note on the property.
On March 30, 2000, the Partnership paid a special distribution of $.58 per
Limited Partner interest from the prepayment proceeds received during
February 2000 on the Greenhouse Apartments PIM in the amount of $8,428,984.
The underlying property was foreclosed on by the first mortgage lender
during January 1999. The Partnership continued to receive its full principal
and basic interest payments due on the PIM while the underlying mortgage was
in default because those payments were guaranteed by GNMA. The Partnership
did not receive any participation interest from this transaction.
On January 11, 2000, the Partnership paid a special distribution of $.43 per
Limited Partner interest from the Saratoga Apartments PIM prepayment
proceeds received in December 1999 in the amount of $6,204,960. The
underlying property value had not increased sufficiently enough to meet the
criteria for the Partnership to earn any participation interest.
In September 1999, the Partnership received Shared Appreciation Interest and
accrued Minimum Additional and Shared Income Interest of $1,102,701 and
$472,587, respectively in connection with the Le Coeur du Monde PIM. The
Partnership also received $279,447 relating to repayment of interest rate
rebates. The Partnership received the principal proceeds of $9,422,001 in
October. The principal proceeds and Shared Appreciation Interest were
distributed to the Limited Partners through a special distribution of $.72
per Limited Partner interest on November 22, 1999.
On June 18, 1999, the Partnership made a special distribution of $.83 per
Limited Partner interest with the proceeds of the Country Meadows PIM. The
Partnership received principal of $12,015,224 and a prepayment premium of
$60,076 from this prepayment.
On February 26, 1999, the Partnership made a special distribution to the
Limited Partners of $1.97 per Limited Partner Interest. This special
distribution was the result of the prepayment of the Stanford Court,
Hillside Court, Carlyle Court and Waterford Court Apartments PIMs. The
Partnership received principal of $27,967,284 during January 1999, Shared
Appreciation Interest and prepayment premiums of $860,052 and accrued
Minimum Additional and Shared Income Interest of $432,877 during December
1998 from these prepayments.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
---------------
C. PIMs, continued
On October 19, 1998, the Partnership received a prepayment on the Walden
Village Apartments PIM of $6,990,486. Also, the Partnership received a
prepayment premium of $165,599. On December 4, 1998, the Partnership made a
special distribution to the investors of $.49 per Limited Partner interest.
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 a prepayment
premium 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 premium of $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 December 31, 2000 and 1999 there were no loans within the Partnership's
portfolio that were delinquent as to principal or interest.
The Partnership's PIMs consisted of the following at December 31, 2000 and
1999:
Investment Basis at
December 31,
--------------
Original Interest Maturity Monthly
GNMA Face Amount Rates (a) Dates (f) Payment (g) 2000 1999
- ---- -------------- ------------- ---------------- -------------- ------------ --------------
Denrich
Apartments
Philadelphia,
PA $ 3,500,000 8% 12/15/23 $ 24,800 $ 3,148,969 $ 3,193,146
(b)(d)
(e)(h)
Richmond Park
Richmond
Heights, OH 16,000,000 7.50% 8/15/24 107,600 14,392,627 14,597,481
(b)(d)(e)(i)
The Greenhouse
Omaha, NE 8,810,900 8.50% 2/15/30 64,500 - 8,433,761
-------------- (c)(d)(e) -------------- --------------
$ 28,310,900 $ 17,541,596 $ 26,224,388
============== ============== ==============
(j) (j)
(a) Represents the permanent interest rate of the GNMA MBS. In addition, the
Partnership receives participation interest consisting of (i) Minimum
Additional Interest, (ii) Shared Income Interest and (iii) Shared
Appreciation Interest.
(b) Minimum Additional Interest is at a rate of .5% per annum calculated on the
unpaid principal balance of the first mortgage note.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
C. PIMs, continued
(c) Minimum Additional Interest was at a rate of .75% per annum calculated on
the unpaid principal balance of the first mortgage note.
(d) Shared Income Interest is based on 25% of monthly gross rental income over
a specified base amount.
(e) Shared Appreciation Interest is based on 25% of any increase in the
value of the project over the specified base value.
(f) The Partnership's GNMA MBS have call provisions, which allow the
Partnership to accelerate their respective maturity date.
(g) The normal monthly payment consisting of principal and basic interest is
payable monthly at level amounts over the term of the GNMA MBS. The GNMA
MBS generally may not be prepaid during the first five years and may be
prepaid subject to a 9% prepayment premium in years six through nine, a 1%
prepayment premium in year ten and no prepayment premium after year ten.
(h) On June 28, 1995, the Partnership entered into a temporary basic interest
rate reduction agreement on the Denrich Apartments PIM. Beginning July 1,
1995, the basic interest rate decreased from 8% per annum to 6.25% per
annum for thirty months, then increased to 6.75% per annum for the
following thirty-six month period and then will increase to the original
rate of 8% per annum. The difference between basic interest at the original
interest rate and the reduced rates will accumulate and be payable from
surplus cash or from the net proceeds of a sale or refinancing. These
accumulated amounts will be due and payable prior to any distributions to
the borrower or payment of participation interest to the Partnership. Also
under the agreement, the Base Value for calculating Shared Appreciation
Interest decreased from $4,025,000 to $3,500,000.
(i) The Partnership holds a 62% interest in this PIM while the remaining
portion is held by Krupp Insured Mortgage Limited Partnership, an
affiliate.
(j) The aggregate cost of PIMs for federal income tax purposes is $17,541,596.
A reconciliation of the carrying value of PIMs for each of the three years
in the period ended December 31, 2000 is as follows:
2000 1999 1998
---- ---- ----
Balance at beginning of period $ 26,224,388 $ 82,258,207 $ 122,048,053
Deductions during period:
Prepayments and
principal collections (8,682,792) (56,033,819) (39,789,846)
------------ -------------- --------------
Balance at end of period $ 17,541,596 $ 26,224,388 $ 82,258,207
============ ============== ==============
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in 2 states. The apartment complexes range in size
from 91 to 736 units.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
D. MBS
On October 15, 1998, the Partnership received a repayment on the Lily
Flagg MBS of $11,721,863. A prepayment premium of $117,330 was received on
September 17, 1998. On December 2, 1998, the Partnership made a special
distribution to investors of $.81 per Limited Partner interest.
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 premium of $18,300. The Partnership
made a special distribution of $.32 per Limited Partner interest on July
24, 1998.
At December 31, 2000, the Partnership's MBS portfolio has an amortized
cost of $9,407,384 and unrealized gains and losses of $233,123 and
$40,460, respectively. At December 31, 2000, the Partnership's insured
mortgage had an amortized cost of $11,647,599 and an unrealized gain of
$203,833. At December 31, 1999, the Partnership's MBS portfolio had an
amortized cost of $10,409,242 and unrealized gains and losses of $247,471
and $142,390, respectively. At December 31, 1999, the Partnership's
insured mortgage had an amortized cost of $11,763,633 and an unrealized
loss of $126,930. The portfolio has maturities ranging from 2007 to 2030.
Unrealized
Maturity Date Fair Value Gain/(Loss)
------------- ------------- ----------
2001 - 2005 $ - $ -
2006 - 2010 1,360,442 83,183
2011 - 2030 20,091,037 313,313
------------ -------------
Total $ 21,451,479 $ 396,496
============ =============
E. Partners' Equity
Profits and losses from Partnership operations and Distributable Cash Flow
are allocated 97% to the Unitholders and Corporate Limited Partner (the
"Limited Partners") and 3% to the General Partners.
Upon the occurrence of a capital transaction, as defined in the
Partnership Agreement, net cash proceeds will be distributed first, to the
Limited Partners until they have received a return of their total invested
capital, second, to the General Partners until they have received a return
of their total invested capital, third, 99% to the Limited Partners and 1%
to the General Partners until the Limited Partners receive an amount equal
to any deficiency in the 11% cumulative return on their invested capital
that exists through fiscal years prior to the date of the capital
transaction, fourth, to the class of General Partners until they have
received an amount equal to 4% of all amounts of cash distributed under
all capital transactions and fifth, 96% to the Limited Partners and 4% to
the General Partners.
Profits arising from a capital transaction, will be allocated in the same
manner as related cash distributions. Losses from a capital transaction
will be allocated 97% to the Limited Partners and 3% to the General
Partners.
During 2000, 1999 and 1998 the Partnership made quarterly distributions
totaling $.40, $.76 and $1.12 per Limited Partner interest, respectively.
The Partnership made special distributions of $1.01, $3.52 and $3.87 per
Limited Partner interest in 2000, 1999 and 1998, respectively.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
E. Partners' Equity, continued
As of December 31, 2000, the following cumulative partner contributions and
allocations have been made since the inception of the Partnership:
Corporate Accumulated
Limited General Comprehensive
Unitholders Partner Partners Income Total
---------------- --------------- ------------- ------------- --------------
Capital
contributions $ 292,176,381 $ 2,000 $ 3,000 $ - $ 292,181,381
Syndication
costs (15,580,734) - - - (15,580,734)
Quarterly
distributions (243,888,375) (1,700) (5,829,562) - (249,719,637)
Special
distributions (167,804,464) (1,145) - - (167,805,609)
Net income 177,480,142 1,239 5,489,114 - 182,970,495
Unrealized
gains on MBS - - - 192,663 192,663
-------------- ------------ ------------ ------------ --------------
Total at
December 31
2000 $ 42,382,950 $ 394 $ (337,448) $ 192,663 $ 42,238,559
============== ============ ============ ============ ==============
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General Partners or their
affiliates are entitled to an asset management fee for the management of the
Partnership's business, equal to .75% per annum of the value of the
Partnership's actual and committed mortgage assets, payable quarterly. The
General Partners may also receive an incentive management fee in an amount
equal to .3% per annum on the Partnership's total invested assets provided
the Unitholders have received their specified non-cumulative annual return on
their Invested Capital. Total fees payable to the General Partners for
management services shall not exceed 10% of Distributable Cash Flow over the
life of the Partnership. Additionally, the Partnership reimburses affiliates
of the General Partners for certain costs incurred in connection with
maintaining the books and records of the Partnership the preparation and
mailing of financial reports, tax information and other communications to
investors and legal fees and expenses.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
G. Federal Income Taxes
The reconciliation of the income reported in the accompanying financial
statements with the income reported in the Partnership's 2000 federal
income tax return is as follows:
Net income per statement of income $ 2,770,378
Less: Book to tax difference for amortization of
prepaid fees and expenses (505,771)
---------------
Net income for federal income tax purposes $ 2,264,607
===============
The allocation of the 2000 net income for federal income tax purposes is
as follows:
Portfolio
Income
Unitholders $ 2,196,654
Corporate Limited Partner 15
General Partners 67,938
---------------
$ 2,264,607
For the years ended December 31, 2000, 1999 and 1998 the average per unit
net income to the Unitholders for federal income tax purposes was $.15,
$.33 and $.68 respectively.
The basis of the Partnership's assets for financial reporting purposes is
less than its tax basis by approximately $929,000 and $1,523,000 at
December 31, 2000 and 1999, respectively. The basis of the Partnership's
liabilities for financial reporting purposes are the same as its tax
basis at December 31, 2000 and 1999, respectively.
H. Fair Value Disclosures of Financial Instruments
The Partnership uses the following methods and assumptions to estimate
the fair value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
MBS
The Partnership estimates the fair value of MBS based on quoted market
prices while it estimates the fair value of insured mortgages based on
quoted prices of MBS with similar interest rates. Based on the estimated
fair value determined using these methods and assumptions, the
Partnership's investments in MBS had gross unrealized gains and losses of
approximately $437,000 and $40,000 at December 31, 2000 and $247,000 and
$269,000 at December 31, 1999.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
H. Fair Value Disclosures of Financial Instruments, continued
-----------------------------------------------
PIMs
As there is no active trading market for these investments, Management
estimates the fair value of the PIMs using quoted market prices of MBS
having a similar interest rate. Management does not include any
participation interest in the Partnership's estimated fair value arising
from the properties as Management does not believe it can predict the
time of realization of the feature with any certainty. Based on the
estimated fair value determined using these methods and assumptions, the
Partnership's investments in PIMs had gross unrealized gains of
approximately $46,000 at December 31, 2000 and gross unrealized gains of
approximately $478,000 at December 31, 1999.
At December 31, 2000 and 1999, the estimated fair values of the
Partnership's financial instruments are as follows (amounts rounded to
nearest thousand):
2000 1999
---- ----
Fair Carrying Fair Carrying
Value Value Value Value
--------- --------- --------- ----------
Cash and cash equivalents $ 3,126 $ 3,126 $ 11,093 $ 11,093
MBS and insured mortgages 21,451 21,248 22,151 22,278
PIMs 17,588 17,542 26,702 26,224
--------- --------- --------- ----------
$ 42,165 $ 41,916 $ 59,946 $ 59,595
========= ========= ========= ==========
Unaudited 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 by Section 17 of the Partnership
Agreement, and the source of cash distributions for the year ended December 31,
2000 and the period from inception through December 31, 2000. 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.
Year Ended Through Inception
12/31/00 12/31/00
-------- ---------
(Amounts in thousands, except per Unit amounts)
Distributable Cash Flow:
- -----------------------
Income for tax purposes $ 2,265 $ 184,093
Items not requiring (not providing) the use of
operating funds:
Amortization of prepaid fees and expenses 628 16,634
Acquisition expenses paid from offering
proceeds charged to operations - 690
Shared Appreciation Income/prepayment premiums 1 (6,157)
Gain on sale of MBS - (377)
--------- ----------
Total Distributable Cash Flow ("DCF") $ 2,894 $ 194,883
========= ==========
Limited Partners Share of DCF $ 2,808 $ 189,037
========= ==========
Limited Partners Share of DCF per Unit $ .19 $ 12.90
========= ==========
General Partners Share of DCF $ 86 $ 5,846
========= ==========
Net Proceeds from Capital Transactions:
- --------------------------------------
Principal collections on PIMs and PIM sale proceeds
including Shared Appreciation Income/prepayment premiums $ 8,683 $ 174,260
Principal collections on MBS and MBS sale proceeds 1,118 93,527
Reinvestment of MBS and PIM principal collections
and sale proceeds - (41,966)
Gain on sale of MBS - 377
------------ ----------
Total Net Proceeds from Capital Transactions $ 9,801 $ 226,198
========= ==========
Cash available for distribution
(DCF plus proceeds from Capital Transactions) $ 12,695 $ 421,081
========= ===========
Distributions:
Limited Partners $ 14,362(a) $ 413,161(b)
========= ==========
Limited Partners Average per Unit $ .98(a) $ 28.19(b)(c)
========= ==========
General Partners $ 86(a) $ 5,846(b)
========= ==========
Total Distributions $ 14,448 $ 419,007
========= ==========
(a) Represents all distributions paid in 2000 except the January 2000
special distribution and the February 2000 quarterly distribution and
includes an estimate of the quarterly distribution to be paid in
February 2001.
(b) Includes an estimate of the quarterly distribution to be paid in
February 2001.
(c) Limited Partners average per Unit return of capital as of February 2001
is $15.29 [$28.19 - $12.90] 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.