-----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, Scmfg3R7VC8IwDLEH1T9P+CmxJYos7Z+yl3zKN4XeunG1w1fAX+UIjkDyPHQfiCW Uj6HTXWAHKBXJEraquRHtw== 0000805297-96-000008.txt : 19960813 0000805297-96-000008.hdr.sgml : 19960813 ACCESSION NUMBER: 0000805297-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 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: 96608601 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 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 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 0000805297 KRUPP INSURED PLUS II LTD PARTNERSHIP 6-MOS DEC-31-1996 JUN-30-1996 7,437,677 194,199,325 1,711,233 0 0 5,898,390 0 0 209,246,625 8,024 0 0 0 209,293,064 (54,463) 209,246,625 0 8,012,092 0 0 1,793,730 0 0 6,218,362 0 6,218,362 0 0 0 6,218,362 0 0 Includes the following investments: Participating Insured Mortgages ("PIMs") $152,334,800 & Mortgage-Backed Securities ("MBS") $41,864,525 Includes the following prepaid acquisition fees & expenses of $4,551,635 net of accumulated amortization of $7,617,242 and prepaid participating servicing of $1,346,755 net of accumulated amortization of $2,418,841 Represents total equity of General Partners & Limited Partners of $(180,606) and $209,473,670 Represents interest income on investments in mortgages & cash Includes $873,239 of amortization related to prepaid fees & expenses Net income allocated $186,551 to the General Partners & $6,031,811 to the Limited Partners. Average net income per unit of Limited Partners interest is $.41 on 14,655,512 units outstanding.
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