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 March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16817
Krupp Insured Plus-II Limited Partnership
Massachusetts 04-2955007
(State or other jurisdiction of (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
March 31, December 31,
1997 1996
Participating Insured Mortgages ("PIMs") $151,402,766 $151,717,926
(Note 2)
Mortgage-Backed Securities and multi-family
insured mortgages("MBS") (Note 3) 40,496,162 41,283,769
Total mortgage investments 191,898,928 193,001,695
Cash and cash equivalents 7,884,697 7,921,270
Interest receivable and other assets 1,569,428 1,604,301
Prepaid acquisition fees and expenses, net
of accumulated amortization of $8,611,252
and $8,279,914, respectively 3,557,625 3,888,963
Prepaid participation servicing fees, net of
accumulated amortization of $2,734,688 and
$2,629,406, respectively 1,030,908 1,136,190
Total assets $205,941,586 $207,552,419
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 4,239 $ 18,900
Partners' equity (deficit) (Note 5):
Limited Partners 205,998,810 207,196,050
(14,655,512 Limited Partner
interests outstanding)
General Partners (235,639) (217,867)
Unrealized gain on MBS 174,176 555,336
Total Partners' equity 205,937,347 207,533,519
Total liabilities and partners' equity $205,941,586 $207,552,419
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 March 31,
1997 1996
Revenue:
Interest income - PIMs:
Base interest $3,003,629 $3,027,700
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Participation interest - 16,010
Interest income - MBS 804,591 865,955
Other interest income 103,520 89,104
Total revenue 3,911,740 3,998,769
Expenses:
Asset management fee to an affiliate 355,452 365,418
Expense reimbursements to affiliates 34,541 58,835
Amortization of prepaid fees and
expenses 436,620 436,619
General and administrative 88,938 52,981
Total expenses 915,551 913,853
Net income $2,996,189 $3,084,916
Allocation of net income (Note 5):
Limited Partners $2,906,303 $2,992,369
Average net income per Limited Partner
interest (14,655,512 Limited Partner
interests outstanding) $ .20 $ .20
General Partners $ 89,886 $ 92,547
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
1997 1996
Operating activities:
Net income $2,996,189 $ 3,084,916
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of discounts on short-term
investments - (4,902)
Amortization of prepaid fees and expenses 436,620 436,619
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 34,873 27,999
Decrease in liabilities (14,661) (9,399)
Net cash provided by operating activities 3,453,021 3,535,233
Investing activities:
Principal collections on PIMs 315,160 292,903
Principal collections on MBS 406,447 631,976
Maturity of short-term investment - 500,000
Short-term investment - (488,210)
Net cash provided by investing activities 721,607 936,669
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Financing activity:
Distributions (4,211,201) (4,209,465)
Net increase(decrease) in cash and cash equivalents (36,573) 262,437
Cash and cash equivalents, beginning of period 7,921,270 5,963,681
Cash and cash equivalents, end of period $7,884,697 $ 6,226,118
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this report on
Form 10-Q pursuant to the Rules and Regulations of the Securities and
Exchange Commission. However, in the opinion of the general partners,
Krupp Plus Corporation and Mortgage Services Partners Limited
Partnership, (collectively the "General Partners") of Krupp Insured
Plus-II Limited Partnership (the "Partnership"), the disclosures
contained in this report are adequate to make the information
presented not misleading. See Notes to Financial Statements included
in the Partnership's Form 10-K for the year ended December 31, 1996
for additional information relevant to significant accounting policies
followed by the Partnership.
In the opinion of the General Partners of the Partnership, the
accompanying unaudited financial statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the Partnership's financial position as of March 31, 1997 and
the results of operations and cash flows for the three months ended
March 31, 1997 and 1996.
The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results which may be expected
for the full year. See Management's Discussion and Analysis of
Financial Condition and Results of Operations included in this report.
2. PIMs
At March 31, 1997, the Partnership's PIM portfolio has a fair value of
$152,108,272 and gross unrealized gains and losses of $1,875,910 and
$1,170,404, respectively. The Partnership's PIMs have maturities
ranging from 2009 to 2031.
3. MBS
At March 31, 1997, the Partnership's MBS portfolio has an amortized
cost of $40,321,986 and gross unrealized gains and losses of $729,107
and $554,931, respectively. The Partnership's MBS have maturities
ranging from 2007 to 2033.
Continued
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KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the three months ended
March 31, 1997 is as follows:
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at December 31, 1996 $207,196,050 $(217,867) $ 555,336 $207,533,519
Net income 2,906,303 89,886 - 2,996,189
Distributions (4,103,543) (107,658) - (4,211,201)
Decrease in
unrealized gain on MBS - - (381,160) (381,160)
Balance at March 31, 1997 $205,998,810 $(235,639) $ 174,176 $205,937,347
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 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
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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 the prepayment of the PIM. Since then, the borrower has
informed the General Partners that a sale most likely will not occur
until 1998 but requested a discharge of the loan s participation feature
to improve the marketability of the property. The General Partners have
agreed in principal to the borrower s request in exchange for a full
payment of all additional interest earned through the date of the
discharge, which is expected to occur during the second quarter of 1997.
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 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 three
months ended March 31, 1997 and the period from inception to March 31,
1997. 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
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per Unit amounts).
Three Months Ended Inception to
March 31, 1997 March 31, 1997
Distributable Cash Flow:
Income for tax purposes $3,288 $156,945
Items not requiring (not providing)
the use of operating funds:
Amortization of prepaid expenses,
fees and organization costs 145 8,165
Acquisition expenses paid from offering
proceeds charged to operations - 690
Shared appreciation income/ prepayment - (2,001)
penalties
Gain on sale of MBS - (377)
Total Distributable Cash Flow ("DCF") $3,433 $163,422
Limited Partners Share of DCF $3,330 $158,519
Limited Partners Share of DCF per Limited
Partner interest ( Unit ) $ .23 $ 10.82 (b)
General Partners Share of DCF $ 103 $ 4,903
Net Proceeds from Capital Transactions:
Principal collections on PIMs and
PIM sale proceeds including Shared
Appreciation Income/ prepayment penalties $ 315 $ 48,228
Principal collections on MBS and MBS
sale proceeds 406 62,274
Distributable Cash Flow and Net Cash Proceeds From Capital Transactions, Continued
Reinvestment of MBS and PIM principal
collections and sale proceeds - (41,966)
Gain on sale of MBS - 377
Total Net Proceeds from Capital
Transactions $ 721 $ 68,913
Cash available for distribution
(DCF plus proceeds from Capital
Transaction) $4,154 $232,335
Distributions:
Limited Partners $4,104 (a) $222,200 (a)
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Limited Partners Average per Unit $ .28 (a) $ 15.16 (a)(b)
General Partners $ 103 (a) $ 4,903 (a)
Total Distributions $4,207 $227,103
(a) Includes an estimate of the May 1997 distribution.
(b) Limited Partners average per Unit return of capital as of May 1997 is
$4.34 [$15.16 - $10.82]. 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 months ended March 31, 1997 and 1996.
(Amounts in thousands)
1997 1996
Interest income - PIMs:
Base interest $3,004 $3,028
Participation interest - 16
Interest income on MBS 805 866
Other interest income 103 89
Partnership expenses (479) (477)
Distributable Cash Flow 3,433 3,522
Amortization of prepaid fees and expenses (437) (437)
Net income $2,996 $3,085
Net income decreased slightly during the three months ended March 31, 1997
as compared to the three months ended March 31, 1996. Most of the decrease
can be attributed to a reduction in the interest earned on MBS which is a
result of prepayments and scheduled payments received on the MBS. The
Partnership funds a portion of its distributions with MBS and PIM principal
collections which reduces the invested assets generating income for the
Partnership. As the invested assets decline so will interest income on MBS,
base interest income on PIMs and other interest income.
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
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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 GeneralPartner.
Date: April 23, 1997
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