-----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, IQEaUE7/sScYEYJwepUAwoZXqiecmIa7RrOjF4UFIFLbqXtMUKxGgt1d1CHJORV0 iFo3p48w+iyweAymUE5mmQ== 0000805297-97-000021.txt : 19971114 0000805297-97-000021.hdr.sgml : 19971114 ACCESSION NUMBER: 0000805297-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 000-16817 FILM NUMBER: 97713702 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 September 30, 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 ( I R S employer incorporation or organization) identification no.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (ZipCode) (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 September 30, December 31, 1997 1996 Participating Insured Mortgages ("PIMs") $128,994,690 $151,717,926 (Notes 2 and 5) Mortgage-Backed Securities and multi-family insured mortgages("MBS") (Notes 3 and 5) 50,143,225 41,283,769 Total mortgage investments 179,137,915 193,001,695 Cash and cash equivalents 11,079,485 7,921,270 Interest receivable and other assets 1,269,854 1,604,301 Prepaid acquisition fees and expenses, net of accumulated amortization of $8,416,332 and $8,279,914, respectively 2,830,048 3,888,963 Prepaid participation servicing fees, net of accumulated amortization of $2,773,571 and $2,629,406, respectively 739,971 1,136,190 Total assets $195,057,273 $207,552,419 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 18,123 $ 18,900 Partners' equity (deficit) (Note 4): Limited Partners 194,029,401 207,196,050 (14,655,512 Limited Partner interests outstanding) General Partners (253,838) (217,867) Unrealized gain (loss) on MBS 1,263,587 555,336 Total Partners' equity 195,039,150 207,533,519 Total liabilities and partners' equity $195,057,273 $207,552,419
-2- 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 Nine Months Ended September 30, Ended September 30, 1997 1996 1997 1996 Revenues: Interest income - PIMs: Base interest $2,792,679 $2,960,655 $8,727,433 $9,060,611 Participation interest 465,023 15,938 1,248,218 31,948 Interest income - MBS 743,120 830,751 2,342,258 2,546,874 Other interest income 106,415 102,177 335,207 282,180 Total revenues 4,107,237 3,909,521 12,653,116 11,921,613 Expenses: Asset management fee to an affiliate 340,155 365,514 1,047,368 1,094,422 Expense reimbursements to affiliates 42,576 58,836 119,693 166,400 Amortization of prepaid expenses and fees 464,218 436,619 1,455,134 1,309,858 General and administrative 30,278 40,090 186,184 124,109 Total expenses 877,227 901,059 2,808,379 2,694,789 Net income $3,230,010 $3,008,462 $9,844,737 $9,226,824 Allocation of net income (Note 4): Limited Partners $3,133,109 $2,918,208 $9,549,394 $8,950,019 Average net income per Limited Partner interest (14,655,512 Limited Partner interests outstanding) $ .21 $ .20 $ .65 $ .61 General Partners $ 96,901 $ 90,254 $ 295,343 $ 276,805
-4- KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1997 1996 Operating activities: Net income $ 9,844,737 $ 9,226,824 Adjustments to reconcile net income to net cash provided by operating activities: Shared appreciation interest and prepayment penalty (334,250) - Amortization of discounts on short-term Investments - (13,630) Amortization of prepaid expenses and fees 1,455,134 1,309,858 Changes in assets and liabilities: Decrease in interest receivable and other assets 334,447 445,643 Decrease in liabilities (777) (1,501) Net cash provided by operating activities 11,299,291 10,967,194 Investing activities: Principal collections on PIMs including shared appreciation income of $334,250 in 1997 11,207,017 899,820 Principal collections on MBS 3,699,264 2,021,735 Maturity of short-term investments - 1,000,000 Short-term investment - (488,210) Net cash provided by investing activities 14,906,281 3,433,345 Financing activity Special distributions (10,405,413) - Quarterly distributions (12,641,944) (12,637,662) Net cash used for financing activities (23,047,357) (12,637,662) Net increase in cash and cash equivalents 3,158,215 1,762,877 Cash and cash equivalents, beginning of period 7,921,270 5,963,681 Cash and cash equivalents, end of period $11,079,485 $ 7,726,558 Supplemental disclosure of non-cash investing activities: Reclassification of investment in PIM to an MBS $11,850,469 $ -
-6- 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 September 30, 1997, its results of operations for the three and nine months ended September 30, 1997 and 1996 and its cash flows for the nine months ended September 30, 1997 and 1996. The results of operations for the three and nine months ended September 30, 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 During the third quarter of 1997, the Partnership received a $437,963 payment for all additional interest earned on the Lily Flagg Apartments PIM though the date of discharge. The Partnership then converted the investment in the PIM to an multi-family insured mortgage. On June 17, 1997, the Partnership received a prepayment of the Lakeside Apartments PIM. The Partnership received the outstanding principal balance of $9,935,167, a prepayment penalty of $99,000, shared appreciation interest of $235,000 and prior shared interest income of $335,000. As a result of the prepayment, the Partnership has fully amortized the remaining prepaid fees and expenses associated with this PIM and retired them. On June 27, 1997, the Partnership made a special distribution of $.71 per Limited Partner Interest with the proceeds from the outstanding principal proceeds, the prepayment penalty and the shared appreciation. 3. MBS The Partnership received a prepayment on a multi-family MBS in the amount of $2,318,901 and will make a special distribution during November 1997 to the Limited Partners of record on October 15, 1997 for $.17 per unit per Limited Partner interest with the proceeds from this prepayment. At September 30, 1997, the Partnership's MBS portfolio has an amortized cost of $48,879,638 and gross unrealized gains and losses of $1,288,731 and $25,144, respectively. 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 nine months ended September 30, 1997 is as follows: Total
Limited General Unrealized Partners Partners Partners Gain (Loss) Equity Balance at December 31, 1996 $207,196,050 $(217,867) $ 555,336 $207,533,519 Net income 9,549,394 295,343 - 9,844,737 Quarterly distributions (12,310,630) (331,314) - (12,641,944) Special distributions (10,405,413) - - (10,405,413) Change in unrealized gain on MBS - - 708,251 708,251 Balance at September 30,1997 $194,029,401 $(253,838) $1,263,587 $195,039,150
5. Subsequent Events Colonial Apartments On October 15, 1997, the Partnership received prepayment of The Colonial Apartment PIM. The Partnership received the outstanding first mortgage principal balance of $2,520,805 plus outstanding interest. The Partnership expects to collect a prepayment penalty of approximately $25,000 during the fourth quarter of 1997. In November 1997, the Partnership will make a special distribution of $.17 per unit per Limited Partner interest with the proceeds from this prepayment. MBS On October 15, 1997, the Partnership received prepayment on multi- family MBS in the amount of $2,425,094 and in November 1997, the Partnership will make a special distribution of $.17 per unit per Limited Partner interest with the proceeds from this prepayment. -10- 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 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. The Partnership received three prepayments from two multi-family MBS in the amounts of $2,318,901 and $2,425,094 and the Colonial Apartment PIM first mortgage principal balance of $2,520,805. During November 1997, the Partnership will combine these three prepayments and make a special distribution to the Limited Partners of record on October 15, 1997. In June, the Lakeside Apartments PIM was repaid when the borrower refinanced the property. In addition to the outstanding balance due on the first mortgage, the Partnership received approximately $570,000 of additional interest earned both on property operations and as a result of an increase in appreciation and a $99,000 prepayment penalty. In June, the Partnership made a special distribution of $.71 per Limited Partner interest resulting from the repayment of the Lakeside Apartments PIM. Based on current projections, the General Partners believe the Partnership can maintain the current quarterly distribution rate for the foreseeable future. However, in the event of future 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. The borrowers request for discharge of the loan s participation feature to improve the marketability of the property has been granted by the General Partners in exchange for a $437,963 payment for of all additional interest earned through the date of the discharge which occurred during the third quarter of 1997. The Partnership then converted the Lily Flagg Apartments PIM to a multi-family insured mortgage. The borrower on the Pine Ridge PIM informed the General Partners of his intention to refinance the property and prepay the first mortgage loan during the fourth quarter of 1997. An appraisal of the property will determine how much additional interest will be payable to the Partnership as a result of the loan prepayment. For the first five years of the PIMs the borrowers were 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. Operations The following discussion relates to the operation of the Partnership during the three and nine months ended September 30, 1997 and 1996 (Amounts in thousands). Net income increased for the three months ended September 30, 1997, as compared to same period in 1996 by $221,548. This resulted primarily from an increase in participation interest of $449,085 net of decreases in base interest on PIMs of $167,976 and interest income on MBS of $87,631. The Partnership received $437,963 in Shared Income Interest from the discharging of the participation features on the Lily Flagg Apartments PIM. Net income increased for the nine months ended September 30, 1997, as compared to same period in 1996 by $617,913. During the second quarter of 1997, the Partnership received from the repayment of the Lakeside Apartments PIM $234,989 in Shared Appreciation Interest, $334,914 for prior years Shared Income Interest and a $99,261 prepayment penalty. During the third quarter of 1997, the Partnership received from Lily Flagg Apartments PIM $437,963 in Shared Income Interest for the discharge of the participation features. During the first nine months of 1997, the Partnership received additional participation income from nine properties totaling $324,919. This was offset by decreases in base interest of $333,178 and interest income on MBS of $204,616 and increases in amortization expense and general and administrative expense of $145,276 and $62,075. The decreases in base interest and asset management fees are due to the prepayments of the Lakeside Apartments PIM. The Partnership funds a portion of distributions with MBS and PIM principal collections which reduces the invested assets generating interest income for the Partnership. -13- 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 -14- 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. Barrrows Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Plus Corporation, a General Partner. Date: October 28, 1997 -15- 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 9-MOS DEC-31-1997 SEP-30-1997 11,079,485 179,137,915 1,269,854 0 0 3,570,019 0 0 195,057,273 18,123 0 0 0 193,775,563 1,263,587 195,057,273 0 12,653,116 0 0 2,808,379 0 0 9,844,737 0 9,844,737 0 0 0 9,844,737 0 0 Includes Participating Insured Mortgages("PIMs") of $128,994,690 and Mortgage-Backed Securities ("MBS") of $50,143,225. Includes prepaid acquisition fees and expenses of $11,246,380 net of accumulated amortization of $8,416,332 and prepaid participation servicing fees of $3,513,542 net of accumulated amortization of $2,773,571. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($253,838) and Limited Partners equity of $194,029,401. Unrealized gain on MBS. Represents interest income on investments in mortgages and cash. Includes $1,455,134 of amortization of prepaid fees and expenses. Net income allocated $295,343 to the General Partners and $9,549,394 to the Limited Partners. Average net income per Limited Partner interest is $.65 on 14,655,512 Limited Partner interests outstanding.
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