-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SiUC2Dh2AnOhZGndL3uTBJAmgFxTA+ccNXhvxMeKnUH+RBsf+65SGo6oSnpV4Epv UzePEfM1Zt3hJ8hWlte2Aw== 0000805297-96-000006.txt : 19960507 0000805297-96-000006.hdr.sgml : 19960507 ACCESSION NUMBER: 0000805297-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960506 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED PLUS II LTD PARTNERSHIP CENTRAL INDEX KEY: 0000805297 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 042955007 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16817 FILM NUMBER: 96556852 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 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 SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 KRUPP INSURED PLUS-II LIMITED PARTNERSHIP BALANCE SHEETS ASSETS
March 31, December 31, 1996 1995 Participating Insured Mortgages ("PIMs") $152,636,458 $152,929,361 (Note 2) Mortgage-Backed Securities and multi-family insured mortgages("MBS") (Note 3) 43,144,165 44,597,272 Total mortgage investments 195,780,623 197,526,633 Cash and cash equivalents 6,226,118 5,963,681 Short-term investment (Note 4) 491,272 498,160 Interest receivable and other assets 2,001,364 2,029,363 Prepaid acquisition fees and expenses, net of accumulated amortization of $7,285,905 and $6,954,567, respectively 4,882,972 5,214,310 Prepaid participation servicing fees, net of accumulated amortization of $2,313,558 and $2,208,277, respectively 1,452,038 1,557,319 Total assets $210,834,387 $212,789,466 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 5,361 $ 14,760 Partners' equity (deficit) (Note 5): Limited Partners 210,537,771 211,648,945 (14,655,512 Limited Partner interests outstanding) General Partners (168,964) (155,589) Unrealized gain on MBS 460,219 1,281,350 Total Partners' equity 210,829,026 212,774,706 Total liabilities and partners' equity $210,834,387 $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 Ended March 31, 1996 1995 Revenue: Interest income - PIMs: Base interest $3,027,700 $3,061,537 Participation interest 16,010 16,146 Interest income - MBS 865,955 904,564 Other interest income 89,104 81,648 Total revenue 3,998,769 4,063,895 Expenses: Asset management fee to an affiliate 365,418 368,913 Expense reimbursements to affiliates 58,835 62,082 Amortization of prepaid fees and expenses 436,619 436,620 General and administrative 52,981 36,901 Total expenses 913,853 904,516 Net income $3,084,916 $3,159,379 Allocation of net income (Note 5): Limited Partners $2,992,369 $3,064,598 Average net income per Limited Partner interest (14,655,512 Limited Partner interests outstanding) $ .20 $ .21 General Partners $ 92,547 $ 94,781
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, 1996 1995 Operating activities: Net income $3,084,916 $ 3,159,379 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 436,619 436,620 Changes in assets and liabilities: Decrease in interest receivable and other assets 27,999 164,859 Decrease in liabilities (9,399) (5,542) Net cash provided by operating activities 3,535,233 3,755,316 Investing activities: Principal collections on PIMs 292,903 272,285 Principal collections on MBS 631,976 385,915 Maturity of short-term investment 500,000 - Short-term investment (488,210) - Net cash provided by investing activities 936,669 658,200 Financing activity: Distributions (4,209,465) (4,215,255) Net increase in cash and cash equivalents 262,437 198,261 Cash and cash equivalents, beginning of period 5,963,681 5,453,210 Cash and cash equivalents, end of period $6,226,118 $ 5,651,471
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 March 31, 1996 and the results of operations and cash flows for the three months ended March 31, 1996 and 1995. The results of operations for the three months ended March 31, 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 March 31, 1996, the Partnership's PIM portfolio has a fair value of approximately $156,091,000 and gross unrealized gains and losses of approximately $3,851,000 and $396,000, respectively. The Partnership's PIMs have maturities ranging from 2009 to 2031. 3. MBS At March 31, 1996, the Partnership's MBS portfolio has an amortized cost of approximately $42,684,000 and gross unrealized gains and losses of approximately $884,000 and $424,000, 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 three months ended March 31, 1996 is as follows:
Total Limited General Unrealized Partners' Partners Partners Gain Equity Balance at December 31, 1995 $211,648,945 $(155,589) $1,281,350 $ 212,774,706 Net income 2,992,369 92,547 - 3,084,916 Distributions (4,103,543) (105,922) _ (4,209,465) Decrease in unrealized gain on MBS - - (821,131) (821,131) Balance at March 31, 1996 $210,537,771 $(168,964) $ 460,219 $210,829,026
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 $4.2 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 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. The borrower of the Lily Flagg Apartments PIM approached the Partnership about a potential sale of the property and repayment of the PIM, however, there are no definite terms. The General Partners cannot predict whether the sale will ultimately occur. The Harbor House Apartments PIM has experienced operating deficits that could adversely affect the borrowers 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. 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, 1996 and the period from inception to March 31, 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).
Three Months Ended Inception to March 31, 1996 March 31, 1996 Distributable Cash Flow: Income for tax purposes $ 3,369 $143,140 Items not requiring (not providing) the use of operating funds: Amortization of prepaid expenses, fees and organization costs 153 7,595 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") $ 3,522 $149,047 Limited Partners Share of DCF $ 3,416 $144,575 Limited Partners Share of DCF per Limited Partner interest ( Unit ) $ .23 $ 9.86 (b) General Partners Share of DCF $ 106 $ 4,472 Net Proceeds from Capital Transactions: Principal collections on PIMs and PIM sale proceeds including Shared Appreciation Income/ prepayment penalties $ 293 $ 46,995 Principal collections on MBS and MBS sale proceeds 632 59,913 Reinvestment of MBS and PIM principal collections and sale proceeds - (41,966) Gain on sale of MBS - 377 Total Net Proceeds from Capital Transactions $ 925 $ 65,319 Cash available for distribution (DCF plus proceeds from Capital Transaction) $ 4,447 $214,366
Distributable Cash Flow and Net Cash Proceeds From Capital Transactions, Continued
Distributions: Limited Partners $ 4,104 (a) $205,786 (a) Limited Partners Average per Unit $ .28 (a) $ 14.04 (a)(b) General Partners $ 106 (a) $ 4,472 (a) Total Distributions $ 4,210 $210,258
(a) Includes an estimate of the May 1996 distribution. (b) Limited Partners average per Unit return of capital as of May 1996 is $4.18 [$14.04 - $9.86]. 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, 1996 and 1995.
(Amounts in thousands) 1996 1995 Interest income - PIMs: Base interest $3,028 $3,062 Participation interest 16 16 Interest income on MBS 866 904 Other interest income 89 82 Partnership expenses (477) (468) Distributable Cash Flow 3,522 3,596 Amortization of prepaid fees and expenses (437) (437) Net income $3,085 $3,159
Net income decreased slightly during the three months ended March 31, 1996 as compared to the three months ended March 31, 1995. 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. 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: April 23, 1996 EX-27 2
5 The schedule contains summary financial information extracted from the balance sheet and statement of income and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1996 MAR-31-1996 6,717,390 195,780,623 2,001,364 0 0 6,335,010 0 0 210,834,387 5,361 0 0 0 210,368,807 460,219 210,834,387 0 3,998,769 0 0 913,853 0 0 3,084,916 0 3,084,916 0 0 0 3,084,916 0 0 Includes Participating Insured Mortgages ("PIMs") of $152,636,458 and mortgage-backed securities ("MBS") of $43,144,165. Includes prepaid acquisition fees and expenses of $12,168,877 net of accumulated amortization of $6,954,567 and prepaid participation servicing fees of $3,765,596 net of accumulated amortization of $2,313,558. Represents total equity of General and Limited Partners. General Partners'deficit of ($168,964) and Limited Partners' equity of $210,537,771. Unrealized gain on MBS. Includes $436,619 of amortization related to prepaid fees and expenses. Represents interest income on investments in mortgages and cash. Net income allocated $92,547 to General Partners and $2,992,369 to Limited Partners. Average net income per Limited Partner interest is $.20 on 14,655,512 Limited Partner interests outstanding.
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