UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
Participating Insured Mortgages ("PIMs") $152,334,800 $152,929,361
(Note 2)
Mortgage-Backed Securities and multi-family
insured mortgages("MBS") (Note 3) 41,864,525 44,597,272
Total mortgage investments 194,199,325 197,526,633
Cash and cash equivalents 6,940,478 5,963,681
Short-term investment (Note 4) 497,199 498,160
Interest receivable and other assets 1,711,233 2,029,363
Prepaid acquisition fees and expenses, net
of accumulated amortization of $7,617,242
and $6,954,567, respectively 4,551,635 5,214,310
Prepaid participation servicing fees, net of
accumulated amortization of $2,418,841 and
$2,208,277, respectively 1,346,755 1,557,319
Total assets $209,246,625 $212,789,466
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 8,024 $ 14,760
Partners' equity (deficit) (Note 5):
Limited Partners 209,473,670 211,648,945
(14,655,512 Limited Partner
interests outstanding)
General Partners (180,606) (155,589)
Unrealized gain (loss) on MBS (54,463) 1,281,350
Total Partners' equity 209,238,601 212,774,706
Total liabilities and partners' equity $209,246,625 $212,789,466
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Revenues:
Interest income - PIMs:
Base interest $3,072,256 $3,056,156 $6,099,956 $6,117,693
Participation interest - 138,383 16,010 154,529
Interest income - MBS 850,168 901,150 1,716,123 1,805,714
Other interest income 90,899 86,168 180,003 167,816
Total revenues 4,013,323 4,181,857 8,012,092 8,245,752
Expenses:
Asset management fee to an
affiliate 363,490 371,778 728,908 740,691
Expense reimbursements to
affiliates 48,729 62,082 107,564 124,164
Amortization of prepaid
expenses and fees 436,620 436,619 873,239 873,239
General and administrative 31,038 82,136 84,019 119,037
Total expenses 879,877 952,615 1,793,730 1,857,131
Net income $3,133,446 $3,229,242 $6,218,362 $6,388,621
Allocation of net income (Note 5):
Limited Partners $3,039,442 $3,132,364 $6,031,811 $6,196,962
Average net income per
Limited Partner interest
(14,655,512 Limited Partner
interests outstanding) $ .21 $ .21 $ .41 $ .42
General Partners $ 94,004 $ 96,878 $ 186,551 $ 191,659
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
1996 1995
Operating activities:
Net income $ 6,218,362 $ 6,388,621
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of discounts on short-term
Investments (10,829) -
Amortization of prepaid expenses and fees 873,239 873,239
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 318,130 214,926
Increase (decrease) in liabilities (6,736) 882
Net cash provided by operating
activities 7,392,166 7,477,668
Investing activities:
Principal collections on PIMs 594,561 547,743
Principal collections on MBS 1,396,934 786,327
Maturity of short-term investment 500,000 -
Short-term investment (488,210) -
Net cash provided by investing
activities 2,003,285 1,334,070
Financing activity
Quarterly distributions (8,418,654) (8,419,168)
Net increase in cash and cash equivalents 976,797 392,570
Cash and cash equivalents, beginning of period 5,963,681 5,453,210
Cash and cash equivalents, end of period $ 6,940,478 $ 5,845,780
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, 1995
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, 1996, its
results of operations for the three and six months ended June 30, 1996
and 1995 and its cash flows for the six months ended June 30, 1996 and
1995.
The results of operations for the three and six months ended June 30,
1996 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
At June 30, 1996, the Partnership's PIM portfolio has a fair value of
approximately $152,462,000 and gross unrealized gains and losses of
approximately $1,299,000 and $1,172,000, respectively. The
Partnership's PIMs have maturities ranging from 2009 to 2031.
3. MBS
At June 30, 1996, the Partnership's MBS portfolio has an amortized
cost of $41,918,988 and gross unrealized gains and losses of $680,769
and $735,232, respectively. The Partnership's MBS have maturities
ranging from 2007 to 2033.
4. Short-term Investment
The Partnership s short-term investment consists of a banker s
acceptance with a maturity greater than three months and less than one
year. The Partnership carries the short-term investment at amortized
cost, which approximates fair value. The Partnership intends to hold
its short-term investment until maturity.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
5. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June
30, 1996 is as follows:
Limited
Partners General
Partners Unrealized
Gain (Loss) Total
Partners
Equity
Balance at December 31, 1995 $211,648,945 $(155,589) $1,281,350 $212,774,706
Net income 6,031,811 186,551 - 6,218,362
Distributions (8,207,086) (211,568) - (8,418,654)
Change in unrealized gain
(loss) on MBS - - (1,335,813) (1,335,813)
Balance at June 30, 1996 $209,473,670 $(180,606) $ (54,463) $209,238,601
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 to the distribution rate is necessary based
on projected future cash flows. In general, the General Partners try to
set a distribution rate that provides for level quarterly distributions of
cash available for distribution. To the extent quarterly distributions
differ from the cash available for distribution, the General Partners may
adjust the distribution rate or distribute funds through a special
distribution.
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 PIM prepayments the Partnership would be
required to distribute any proceeds from the prepayments as a special
distribution which may cause an adjustment to the distribution rate to
reflect the anticipated future cash inflows from the remaining mortgage
investments.
During the first quarter of 1996, the borrower of the Lily Flagg
Apartments PIM approached the Partnership about a potential sale of the
property and prepayment of the PIM, but no sale appears imminent. The
borrower continues to pursue a sale of the property, however, the General
Partners cannot predict when a sale of the property will ultimately occur.
The Harbor House Apartments PIM has experienced operating deficits
that could adversely affect the borrower s ability to meet debt service
payments if they continue. In the event, the borrower could not meet debt
service payments the insured mortgage would be repaid through an insurance
claim. While the Partnership would receive principal and basic interest on
the insured mortgage, it would not receive any accumulated participation
interest. The General Partners will monitor this situation closely.
The General Partners are closely monitoring the bankruptcy proceedings
of the borrower of the Greenhouse Apartments PIM and believe there may be
some progress by the end of the third quarter. Upon resolution of the
bankruptcy, the Partnership will most likely receive an insurance claim for
the outstanding principal of the Greenhouse Apartments PIM and then
distribute these insurance claim proceeds to investors as a special
distribution. At this time the General Partners do not anticipate
receiving any participation income from this PIM.
For the first five years of the PIMs the borrowers are prohibited from
prepaying. For the second five years, the borrowers can prepay the loans
and pay the greater of a prepayment penalty or all participation interest.
The participation features of the PIMs are neither insured nor guaranteed
and if prepayment of a PIM results from an insurance claim the Partnership
would not receive any participation interest. The Partnership has the
option to call certain PIMs by accelerating their maturity if the loans are
not prepaid by the tenth year after permanent funding. The Partnership
will determine the merits of exercising the call option for each PIM as
economic conditions warrant. Such factors as the condition of the asset,
local market conditions, interest rates and available financing will have
an impact on this decision.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured
by the Government National Mortgage Association ( GNMA ), the Federal
National Mortgage Association ( FNMA ), the Federal Home Loan Mortgage
Corporation ( FHLMC ) or the United States Department of Housing and Urban
Development ( HUD ) and therefore the certainty of their cash flows and the
risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
FNMA is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and
is wholly-owned by the twelve Federal Home Loan Banks. These obligations
are not guaranteed by the U.S. Government or the Federal Home Loan Bank
Board. GNMA guarantees the timely payment of principal and basic interest
on the securities it issues, which represents interest in pooled mortgages
insured by HUD. Obligations insured by HUD, an agency of the U.S.
Government, are backed by the full faith and credit of the U.S. Government.
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 six
months ended June 30, 1996 and the period from inception to June 30, 1996.
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).
Six Months Ended Inception to
June 30, 1996 June 30, 1996
Distributable Cash Flow:
Income for tax purposes $ 7,065 $146,836
Items not requiring (not providing)
the use of operating funds:
Amortization of prepaid expenses,
fees and organization costs 305 7,747
Acquisition expenses paid from offering
proceeds charged to operations - 690
Shared appreciation income/ prepayment
penalties - (2,001)
Gain on sale of MBS - (377)
Total Distributable Cash Flow ("DCF") $ 7,370 $152,895
Limited Partners Share of DCF $ 7,149 $148,308
Limited Partners Share of DCF per Limited
Partner interest ( Unit ) $ .49 $ 10.12 (b)
General Partners Share of DCF $ 221 $ 4,587
Net Proceeds from Capital Transactions:
Principal collections on PIMs and
PIM sale proceeds including Shared
Appreciation Income/ prepayment penalties $ 595 $ 47,297
Principal collections on MBS and MBS
sale proceeds 1,397 60,678
Reinvestment of MBS and PIM principal
collections and sale proceeds - (41,966)
Gain on sale of MBS - 377
Total Net Proceeds from Capital
Transactions $ 1,992 $ 66,386
Cash available for distribution
(DCF plus proceeds from Capital
Transaction) $ 9,362 $219,281
Distributions:
Limited Partners $ 8,207 (a) $209,889 (a)
Limited Partners Average per Unit $ .56 (a) $ 14.32 (a)(b)
General Partners $ 221 (a) $ 4,587 (a)
Total Distributions $ 8,428 $214,476
(a) Includes an estimate of the August 1996 distribution.
(b) Limited Partners average per Unit return of capital as of
August 1996 is $4.20 [$14.32 - $10.12]. Return of capital
represents that portion of distributions which are 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 six months ended June 30, 1996 and 1995 (Amounts in
thousands).
For the For the
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Interest income - PIMs:
Base interest $3,072 $3,056 $6,100 $6,118
Participation interest 279 138 295 154
Interest income on MBS 850 902 1,716 1,806
Other interest income 91 86 180 168
Partnership expenses (444) (516) (921) (984)
Distributable Cash Flow 3,848 3,666 7,370 7,262
Decrease in accrued partici-
pation income receivable (279) - (279) -
Amortization of prepaid fees
and expenses (436) (436) (873) (873)
Net income $3,133 $3,230 $6,218 $6,389
Net income decreased slightly during the three and six months ended June
30, 1996 as compared to the three and six months ended June 30, 1995 due
primarily to lower interest income. The Partnership funds a portion of
distributions with MBS and PIM principal collections which reduces the
invested assets generating interest income for the Partnership. As the
invested assets decline so will interest income on MBS, base interest
income on PIMs and other interest income.
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.
Date: July 25, 1996