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 THE SECURITIESx
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16817
Krupp Insured Plus-II Limited Partnership
Massachusetts 04-2955007
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(617) 423-2233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
March 31, December 31,
1998 1997
Participating Insured Mortgages ("PIMs") $108,261,010 $122,048,053
(Note 2)
Mortgage-Backed Securities ("MBS") (Note 3) 44,053,545 44,727,693
Total mortgage investments 152,314,555 166,775,746
Cash and cash equivalents 9,632,212 9,052,480
Interest receivable and other assets 1,063,057 1,180,660
Prepaid acquisition fees and expenses, net
of accumulated amortization of $7,660,722
and $8,293,080, respectively 2,150,454 2,481,160
Prepaid participation servicing fees, net of
accumulated amortization of $2,159,563 and
$2,707,314, respectively 540,428 636,931
Total assets $165,700,706 $180,126,977
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 28,599 $ 25,588
Partners' equity (deficit) (Note 5):
Limited Partners 164,229,748 178,597,484
(14,655,512 Limited Partner
interests outstanding)
General Partners (268,499) (265,315)
Unrealized gain on MBS 1,710,858 1,769,220
Total Partners' equity 165,672,107 180,101,389
Total liabilities and partners' equity $165,700,706 $180,126,977
The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months
Ended March 31,
1998 1997
Revenue:
Interest income - PIMs:
Base interest $2,242,067 $3,003,629
Additional interest 1,129,740 -
Interest income - MBS 849,925 804,591
Other Interest income 206,935 103,520
Total revenue 4,428,667 3,911,740
Expenses:
Asset management fee to an affiliate 288,497 355,452
Expense reimbursements to affiliates 42,576 34,541
Amortization of prepaid fees and
expenses 427,209 436,620
General and administrative 49,779 88,938
Total expenses 808,061 915,551
Net income $3,620,606 $2,996,189
Allocation of net income (Note 5):
Limited Partners $3,511,988 $2,906,303
Average net income per Limited Partner
interest (14,655,512 Limited Partner
interests outstanding) $ .24 $ .20
General Partners $ 108,618 $ 89,886
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,
1998 1997
Operating activities:
Net income $3,620,606 $2,996,189
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 427,209 436,620
Shared Appreciation Interest and
prepayment penalty (474,426) -
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 117,603 34,873
Increase (decrease) in liabilities 3,011 (14,661)
Net cash provided by operating activities 3,694,003 3,453,021
Investing activities:
Principal collections on PIMs including Shared
Appreciation Interest and prepayment penalty
income of $474,426 in 1998 14,261,469 315,160
Principal collections on MBS 615,786 406,447
Net cash provided by investing activities 14,877,255 721,607
Financing activity:
Quarterly Distributions (4,215,345) (4,211,201)
Special Distributions (13,776,181) -
Net cash used for financing activities (17,991,526) (4,211,201)
Net increase (decrease) in cash and cash equivalents 579,732 (36,573)
Cash and cash equivalents, beginning of period 9,052,480 7,921,270
Cash and cash equivalents, end of period $ 9,632,212 $7,884,697
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, 1997 for
additional information relevant to significant accounting policies
followed by the Partnership.
In the opinion of the General Partners of the Partnership, the
accompanying unaudited financial statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the Partnership's financial position as of March 31, 1998 and the
results of operations and cash flows for the three months ended March
31, 1998 and 1997.
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The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results which may be expected for the
full year. See Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this report.
2. PIMs
During the 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 $411,810 of Shared
Appreciation Interest and $637,002 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.
During March 1998, the Partnership received a prepayment penalty of
$62,616 and Minimum Additional and Shared Income Interest of $18,312
relating to the Longwood Villas PIM, with a corresponding prepayment of
the mortgage in the amount of $6,261,587 being received on April 15,
1998. The Partnership will pay a special distribution of $.43 per
Limited Partner Interest in the second quarter of 1998.
At March 31, 1998, the Partnership's PIM portfolio has a fair value of
$109,101,603 and gross unrealized gains of $840,593. The Partnership's
PIMs have maturities ranging from 2009 to 2031.
3. MBS
At March 31, 1998, the Partnership's MBS portfolio has an amortized cost
of $42,342,687 and gross unrealized gains of $1,710,858. The
Partnership's MBS have maturities ranging from 2007 to 2033.
Continued
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, 1998 is as follows:
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at December 31,1997 $178,597,484 $(265,315)$ 1,769,220 $180,101,389
Net income 3,511,988 108,618 - 3,620,606
Quarterly distributions (4,103,543) (111,802) - (4,215,345)
Special distributions (13,776,181) - - (13,776,181)
Decrease in
unrealized gain on MBS - - (58,362) (58,362)
Balance at March 31, 1998 $164,229,748 $(268,499) $1,710,858 $165,672,107
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Managements 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.
During the first quarter of 1998,the Partnership received prepayments of the
Westbrook Manor, Fallwood and Greenbrier Apartment PIMs along with Additional
Interest. On March 27, 1998,the Partnership made a special distribution to the
investors of $.94 per Limited Partner interest.
During March 1998,the Partnership received Additional Interest relating to the
Longwood Villas PIM, with a corresponding prepayment of the mortgage being
received on April 15, 1998. The Partnership will pay a special distribution of
$.43 per Limited Partner Interest in the second quarter of 1998.
The General Partners have been informed that the first mortgage loan on Lily
Flagg may be prepaid during the second quarter 1998. When the transaction
takes place, the Partnership will receive a 1% prepayment penalty. Upon
receipt the Partnership will distribute the repayment proceeds and the
prepayment penalty to the Limited Partners.
Based on current projections,the General Partners believe the Partnership can
maintain the current distribution rate for the foreseeable future. However,
in the event of additional PIM prepayments the Partnership would be required
to distribute any proceeds from the prepayments as a special distribution
which may cause an adjustment to the distribution rate to reflect the
anticipated future cash inflows from the remaining mortgage investments.
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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.
The Partnership includes in cash and cash equivalents approximately $9 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.
Operations
The following discussion relates to the operations of the Partnership during
the three months ended March 31, 1998 and 1997.
Net income increased approximately $624,000 for the three months ended March
31, 1998 as compared to the same period in 1997. The increase is primarily
attributed to Additional Interest related to the prepayment of Westbrook
Manor, Fallwood, Greenbrier Apartment and Longwood Villas PIMs in the amount
of $1,129,740 ($655,314 was Minimum Additional Interest and Shared Income
Interest while $474,426 was Shared Appreciation Interest). In addition, other
interest income significantly increased due to the Partnership having higher
average short-term investment balances during the first quarter of 1998 as
compared to the same period in 1997.These increases were somewhat offset by a
decline in PIM interest income resulting from the prepayments of the Colonial,
Lakeside and Pine Ridge Apartment PIMs in 1997 and Westbrook Manor, Fallwood
and Greenbriar Apartment PIMs in 1998.
In addition, the decrease in base interest on PIMs and the increase in
interest on MBS was due to a transaction in 1997 involving the Lily Flagg PIM.
The Partnership converted its investment from a PIM into a multi-family
insured mortgage during third quarter of 1997. The Partnership funds a
portion of distributions with MBS and PIM principal collections,which reduces
the invested assets generating income for the Partnership. As the invested
assets decline so will interest income on MBS, base interest income on PIMs
and other interest income.
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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
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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: April 23, 1998
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