UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
Participating Insured Mortgages ("PIMs") (Note 2) $153,213,749 $154,042,671
Mortgage-Backed Securities ("MBS") (Note 3) 44,138,503 45,499,166
Total mortgage investments 197,352,252 199,541,837
Cash and cash equivalents 5,632,750 5,453,210
Other investment (Note 1) 491,107 -
Interest receivable and other assets 1,949,162 2,183,929
Prepaid acquisitions expenses, net of
accumulated amortization of $6,623,231 and
$5,629,220, respectively 5,545,646 6,539,657
Prepaid participation servicing fees, net of
accumulated amortization of $2,102,994 and
$1,787,147, respectively 1,662,602 1,978,449
Total assets $212,633,519 $215,697,082
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 22,438 $ 15,394
Partners' equity (deficit) (Note 4):
Limited Partners
(14,655,512 Limited Partner interests
outstanding) 212,751,192 215,786,604
General Partners (140,111) (104,916)
Total Partners' equity 212,611,081 215,681,688
Total liabilities and Partners' equity $212,633,519 $215,697,082
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenues:
Interest income - PIMs:
Base interest $3,035,989 $3,566,486 $ 9,153,682 $ 9,959,471
Participation interest 95,283 861,319 249,812 1,108,519
Interest income - MBS 893,700 925,650 2,699,414 3,140,128
Other interest income 86,636 60,294 254,452 243,484
Total revenues 4,111,608 5,413,749 12,357,360 14,451,602
Expenses:
Asset management fee to an
affiliate 374,401 401,390 1,115,092 1,201,267
Expense reimbursements to
affiliates 62,082 129,996 186,246 389,988
Amortization of prepaid expenses
and fees 436,619 462,059 1,309,858 1,392,799
General and administrative 65,044 36,186 184,081 146,660
Total expenses 938,146 1,029,631 2,795,277 3,130,714
Net income $3,173,462 $4,384,118 $ 9,562,083 $11,320,888
Allocation of net income (Note 4):
Limited Partners $3,078,259 $4,252,594 $ 9,275,221 $10,981,261
Average net income per Limited
Partner interest (14,655,512
Limited Partner interests
outstanding) $ .21 $ .29 $ .63 $ .75
General Partners $ 95,203 $ 131,524 $ 286,862 $ 339,627
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
1995 1994
Operating activities:
Net income $ 9,562,083 $ 11,320,888
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of other investment discount (920) -
Amortization of prepaid expenses and fees 1,309,858 1,392,799
Shared appreciation income - (737,235)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 234,767 173,496
Increase in liabilities 7,044 3,044
Net cash provided by operating activities 11,112,832 12,152,992
Investing activities:
Principal collections on PIMs 828,922 790,796
Principal collections on MBS 1,360,663 5,403,382
Other investment (490,187) -
PIM prepayment including shared appreciation
income of $737,235 - 11,863,000
Investment in MBS - (139,480)
Net cash provided by investing activities 1,699,398 17,917,698
Financing activities:
Quarterly distributions (12,632,690) (17,984,690)
Special distributions - (5,129,430)
Net cash used for financing activities (12,632,690) (23,114,120)
Net increase in cash and cash equivalents 179,540 6,956,570
Cash and cash equivalents, beginning of period 5,453,210 10,395,094
Cash and cash equivalents, end of period $ 5,632,750 $ 17,351,664
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this report on
Form 10-Q pursuant to the Rules and Regulations of the Securities and
Exchange Commission. However, in the opinion of the General Partners,
Krupp Plus Corporation and Mortgage Services Partners Limited
Partnership, (collectively the "General Partners") of Krupp Insured
Plus-II Limited Partnership (the "Partnership"), the disclosures
contained in this report are adequate to make the information presented
not misleading. See Notes to Financial Statements included in the
Partnership's Form 10-K for the year ended December 31, 1994 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 primarily of normal recurring accruals) necessary to
present fairly the Partnership's financial position as of September 30,
1995, its results of operations for the three and nine months ended
September 30, 1995 and 1994 and its cash flows for the nine months
ended September 30, 1995 and 1994.
The results of operations for the three and nine months ended September
30, 1995 are not 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.
Other Investment
Other investment consists of a banker's acceptance with an original
maturity greater than three months. The Partnership carries the other
investment at amortized cost, which approximates fair value, due to the
short period of time to maturity.
Reclassification
Certain prior period balances have been reclassified to be consistent
with current year presentation.
2. PIMs
On June 28, 1995, the Partnership entered into a temporary interest
rate reduction agreement on the Denrich Apartments PIM. Beginning July
1, 1995, the interest rate will decrease from 8% per annum to 6.25% per
annum for thirty months, then increase to 6.75% per annum for the
following thirty-six month period and then increase to the original
interest rate of 8% per annum. The difference between interest at the
original interest rate and the reduced interest 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 level
for calculating Shared Appreciation Interest decreased from $4,025,000
to $3,500,000.
Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
3. MBS
At September 30, 1995, the Partnership's MBS portfolio has a market
value of approximately $44,808,000 and unrealized gains and losses of
approximately $1,027,000 and $358,000, respectively, and maturities
ranging from 2007 to 2033.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1995 is as follows:
Total
Limited General Partners'
Partners Partners Equity
Balance at December 31, 1994 $215,786,604 $(104,916) $215,681,688
Net income 9,275,221 286,862 9,562,083
Quarterly distributions (12,310,633) (322,057) (12,632,690)
Balance at September 30, 1995 $212,751,192 $(140,111) $212,611,081
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are regular
quarterly distributions paid to investors of approximately $4.1 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, as a result the
capital resources of the Partnership will continually decrease. As a
result of this decrease, the total cash inflows to the Partnership will
also decrease, which will result in periodic adjustments to the
distributions paid to investors.
Based on current projections, the General Partners believe the
Partnership can maintain the current distribution rate both on a short and
long term basis. However, in the event of a PIM prepayment the Partnership
would distribute any proceeds from the prepayment as a special distribution
and adjust the distribution rate to reflect the anticipated future cash
inflows from the remaining mortgages. The General Partners do not
anticipate any PIMs prepaying in the near future.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured
by the Federal National Mortgage Association ("FNMA"), Government National
Mortgage Association ("GNMA"), Federal Home Loan Mortgage Corporation
("FHLMC") and the Department of Housing and Urban Development ("HUD") and
therefore the certainty of their cash flows and the risk of material loss
of the amounts invested depends on the creditworthiness of these entities.
FNMA is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and
is wholly-owned by the twelve Federal Home Loan Banks. These obligations
are not guaranteed by the U.S. Government or the Federal Home Loan Bank
Board. GNMA guarantees the full and 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.
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
Shown below is the calculation of Distributable Cash Flow and Net Cash
Proceeds from Capital Transactions, as defined in Section 17 of the
Partnership Agreement, and the source of cash distributions for the nine
months ended September 30, 1995 and the period from inception to September
30, 1995. The General Partners provide certain of the information below to
meet requirements of the Partnership Agreement and because they believe
that it is an appropriate supplemental measure of operating performance.
However, Distributable Cash Flow and Net Cash Proceeds from Capital
Transactions should not be considered by the reader as a substitute to net
income as an indicator of the Partnership's operating performance or to
cash flows as a measure of liquidity.
(amounts in thousands, except
per Unit amounts)
Nine Months Ended Inception through
September 30, 1995 September 30, 1995
Distributable Cash Flow:
Income for tax purposes $10,414 $137,453
Items not requiring (not providing)
the use of operating funds:
Amortization of prepaid expenses,
fees and organization costs 458 6,229
Acquisition expenses paid from offering
proceeds charged to operations - 690
Shared appreciation income - (2,001)
Gain on sale of MBS - (377)
Total Distributable Cash Flow ("DCF") $10,872 $141,994
Limited Partners Share of DCF $10,546 $137,734
Limited Partners Share of DCF per Unit $ .72 $ 9.40 (b)
General Partners Share of DCF $ 326 $ 4,260
Net Proceeds from Capital Transactions:
Principal collections on PIMs and PIM sale
proceeds including Shared Appreciation Income $ 829 $ 46,418
Principal collections on MBS and MBS sale proceeds 1,361 58,487
Reinvestment of MBS and PIM principal
collections and sale proceeds - (41,994)
Gain on sale of MBS - 377
Total Net Proceeds from Capital Transactions $ 2,190 $ 63,288
Cash available for distribution
(DCF plus proceeds from Capital Transactions) $13,062 $205,282
Distributions:
Limited Partners $12,311 (a) $197,579 (a)
Limited Partners Average per Unit $ .84 (a) $ 13.48 (a)(b)
General Partners $ 327 (a) $ 4,261 (a)
Total Distributions $12,638 $201,840
(a) Includes an estimate of the November 1995 distribution.
(b) Limited Partners average per Unit return of capital as of
November 1995 is $4.08 [$13.48 - $9.40]. Return of capital
represents that portion of distributions which is not funded from
DCF such as proceeds from the sale of assets and substantially
all of the principal collections received from MBS and PIMs.
Operations
The following discussion relates to the operation of the Partnership
during the three and nine months ended September 30, 1995 and 1994 (amounts
in thousands).
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Interest income on PIMs:
Base interest $3,036 $3,566 $ 9,154 $ 9,959
Shared Income and Minimum
Additional interest 96 125 250 372
Interest income on MBS 893 926 2,699 3,140
Other interest income 86 60 254 243
Partnership expenses (501) (568) (1,485) (1,737)
Distributable Cash Flow 3,610 4,109 10,872 11,977
Shared Appreciation Interest - 737 - 737
Amortization of prepaid fees
and expenses (437) (462) (1,310) (1,393)
Net income $3,173 $4,384 $ 9,562 $11,321
Net income decreased for the three and nine months ended September 30, 1995
as compared to the corresponding periods in 1994 due primarily to the
payoff of the Mediterranean Village PIM of $11 million in September 1994,
which caused a decrease in base interest income on PIMs in 1995 and
provided $250,000 of Shared Income and Minimum Additional Interest and
$611,000 of Shared Appreciation Interest in 1994. During the second
quarter of 1994, the Partnership received $240,000 of participation
interest income from the Longwood Villas PIM consisting of $126,000 of
Shared Appreciation Interest and $114,000 of Shared Income and Minimum
Additional Interest. Interest income on MBS declined during the three and
nine months ended September 30, 1995 versus the corresponding periods in
1994 as a result of the significant prepayments that occurred during the
first half of 1994, which reduced the outstanding MBS balance. Net income
benefitted in 1995, as compared to 1994, from lower Partnership expenses
resulting from lower expenses reimbursements to affiliates and lower asset
management fees due to a declining asset base.
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
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
of the Registrant.
Date: October 24, 1995