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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESx
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-16817
Krupp Insured Plus-II Limited Partnership
(Exact name of registrant as specified in its charter)
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)
(Registrant's telephone number, including area code) (617) 423-2233
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Depositary Receipts representing
Units of Limited Partner Interests
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable, as securities are non-voting.
Documents incorporated by reference: See Part IV, Item 14
The exhibit index is located on pages 9-14.
PART I
ITEM 1. BUSINESS
Krupp Insured Plus-II Limited Partnership (the "Partnership") is a
Massachusetts limited partnership which was formed on October 29, 1986.
The Partnership raised approximately $292 million through a public offering
of limited partner interests evidenced by units of depositary receipts
("Units") and used the investable proceeds primarily to acquire
participating insured mortgages ("PIMs") and mortgage-backed securities
("MBS"). The Partnership considers itself to be engaged only in the
industry segment of investment in mortgages.
The Partnership's investments in PIMs on multi-family residential
properties consist of a MBS or an insured mortgage loan (collectively, the
"insured mortgage") guaranteed or insured as to principal and basic
interest. These insured mortgages were issued or originated under or in
connection with the housing programs of the Federal National Mortgage
Association ("FNMA"), the Government National Mortgage Association ("GNMA")
or the Department of Housing and Urban Development ("HUD"). PIMs provide
the Partnership with monthly payments of principal and interest and also
provide for Partnership participation in the current revenue stream and in
residual value, if any, from a sale or other realization of the underlying
property. The borrower conveys these rights to the Partnership through a
subordinated promissory note and mortgage. The participation features are
neither insured nor guaranteed.
The Partnership also acquired MBS and insured mortgages collateralized
by single-family or multi-family mortgage loans issued or originated by
GNMA, FNMA, HUD or the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA and FHLMC guarantee the principal and basic interest of the FNMA and
FHLMC MBS, respectively. GNMA guarantees the timely payment of principal
and interest on its MBS, and HUD insures the pooled mortgage loans
underlying the GNMA MBS and its own direct mortgage loans.
Although the Partnership will terminate no later than December 31, 2026
it is expected that the value of the PIMs generally will be realized by the
Partnership through repayment or sale as early as ten years from the dates
of the closings of the permanent loans and that the Partnership will
realize the value of all of its other investments within that time frame
thereby resulting in a dissolution of the Partnership significantly prior
to December 31, 2026.
The Partnership's investments are not expected to be subject to seasonal
fluctuations. Any ultimate realization of the participation features of
the PIMs are subject to similar risks associated with equity real estate
investments, including: reliance on the owner's operating skills, ability
to maintain occupancy levels, control operating expenses, maintain the
properties and provide adequate insurance coverage; adverse changes in
general economic conditions, adverse local conditions, and changes in
governmental regulations, real estate zoning laws, or tax laws; and other
circumstances over which the Partnership may have little or no control.
The requirements for compliance with federal, state and local
regulations to date have not had an adverse effect on the Partnership's
operations, and no adverse effect is anticipated in the future.
As of December 31, 1995, there were no personnel directly employed by
the Partnership.
ITEM 2. PROPERTIES
None
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership
is a party or to which any of its investments is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1995 was
approximately 15,000. One of the objectives of the Partnership is to
provide quarterly distributions of cash flows generated by its investments
in mortgages. The Partnership anticipates that future operations will
continue to generate cash available for distribution. Adjustments may be
made to the distribution rate in the future due to realization and payout
of the existing mortgages.
The Partnership made the following distributions, in quarterly
installments, and special distributions, to its Partners during the two
years ended December 31, 1995 and 1994:
1995 1994
Amount Per Unit Amount Per Unit
Quarterly Distributions:
Limited Partners $16,414,173 $1.12 $21,738,336 $1.48
General Partners 430,359 476,952
16,844,532 22,215,288
Special Distributions:
Limited Partners - 17,293,504 $1.18
Total Distributions $16,844,532 $39,508,792
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Partnership's financial position and operating results. This
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements and Supplementary Data, which are included in Item 7 and Item 8,
(Appendix A) of this report, respectively.
1995 1994 1993 1992 1991
Total revenues $ 16,366,468 $ 18,874,358 $ 19,209,240 $ 20,151,063 $20,530,707
Net income 12,656,200 14,147,772 14,525,508 15,501,205 15,993,961
Net income allocated to:
Limited Partners 12,276,514 13,723,339 14,089,743 15,036,169 15,514,142
Average per Unit .84 .94 .96 1.03 1.06
General Partners 379,686 424,433 435,765 465,036 479,819
Total assets at
December 31 212,789,466 215,697,082 241,054,891 253,077,218 261,583,204
Distributions to:
Limited Partners
Quarterly 16,414,173 21,738,336 23,432,667 23,464,971 23,448,804
Average per Unit 1.12 1.48 1.60 1.60 1.60
Special - 17,293,504 2,637,993 - -
Average per Unit 1.18 .18 - -
General Partners 430,359 476,952 472,189 542,367 526,020
ITEM 7. 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 $4.1 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, as a result the
capital resources of the Partnership will 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 do
not fully utilize the cash available for distribution and cash balances
increase, the General Partners may adjust the distribution rate or
distribute such 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.
For the first five years of the PIMs the borrowers are prohibited from
repaying. For the second five years, the borrower can repay the loans
incurring a prepayment penalty. 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
GNMA, FNMA, FHLMC and 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 year
ended December 31, 1995 and the period from inception to December 31, 1995.
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)
Inception
Year Ended Through
12/31/95 12/31/95
Distributable Cash Flow:
Income for tax purposes $12,732 $139,771
Items not requiring (not providing) the use of
operating funds:
Amortization of prepaid expenses, fees and
organization costs 1,671 7,442
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") $14,403 $145,525
Limited Partners Share of DCF $13,971 $141,159
Limited Partners Share of DCF per Unit $ .95 $ 9.63
General Partners Share of DCF $ 432 $ 4,366
Net Proceeds from Capital Transactions:
Principal collections on PIMs and PIM sale proceeds
including Shared Appreciation Income/Prepayment
Penalties $ 1,113 $ 46,702
Principal collections on MBS and MBS sale proceeds 2,155 59,281
Reinvestment of MBS and PIM principal collections
and sale proceeds 28 (41,966)
Gain on sale of MBS - 377
Total Net Proceeds from Capital Transactions $ 3,296 $ 64,394
Cash available for distribution
(DCF plus proceeds from Capital Transactions) $17,699 $209,919
Distributions:
Limited Partners $16,414(a) $201,682(b)
Limited Partners Average per Unit $ 1.12(a) $ 13.76(b)(c)
General Partners $ 432(a) $ 4,366(b)
Total Distributions $16,846 $206,048
(a) Represents all distributions paid in 1995 except the February 1995
distribution and includes an estimate of the distribution to be paid
in February 1996.
(b) Includes an estimate of the distribution to be paid in February 1996.
(c) Limited Partners average per Unit return of capital as of February
1996 is $4.13 [$13.76 - $9.63] 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 years ended December 31, 1995, 1994 and 1993.
(Amounts in thousands)
1995 1994 1993
Interest income on PIMs:
Base interest $12,198 $13,109 $13,774
Participation interest received 250 271 67
Interest income on MBS
and insured mortgages 3,573 4,031 3,908
Other interest income 346 374 377
Partnership expenses (1,964) (2,335) (2,446)
Distributable Cash Flow 14,403 15,450 15,680
Gain on sale of MBS - - 377
Shared Appreciation Income/
Prepayment Penalties - 988 238
Accrued Participation interest
income - 102 469
Amortization of prepaid fees,
expenses and organization costs (1,747) (2,392) (2,238)
Net Income $12,656 $14,148 $14,526
Net income decreased approximately $1,492,000 during 1995 as compared
to 1994 due primarily to lower interest income that resulted from a
reduction in the invested assets in the Partnership. The reduction in
assets was a result of a payoff of the Mediterranean Village PIM during
September 1994. Subsequently, a special distribution was made from the
Partnership using the payoff proceeds and a portion of the available cash.
The decline in net income from 1994 to 1995 is also related to
participation income recognized in 1994 from the payoff of the
Mediterranean Village PIM and the payment of participation income related
to the Longwood Villas PIM which together totalled approximately $1.1
million. Interest income on MBS decreased in 1995 versus 1994 and will
continue to decline as principal collections decrease the Partnership's MBS
portfolio. The Partnership will continue to see a decline in base interest
income on its PIMs based on the amortization of the underlying mortgages.
Expenses decreased approximately $1,017,000 in 1995 versus 1994 primarily
resulting from reduced amortization expense. As a result of the repayment
of the Mediterranean Village PIM, the Partnership fully amortized its
associated prepaid fees and expenses which increased amortization expense
in 1994 as compared to 1995. During 1995, the Partnership experienced a
decrease in expense reimbursements to affiliates and a decrease in the
asset management fee due to declining asset base as compared to 1994.
The Partnership's net income for 1994 declined as compared to 1993,
primarily because net income in 1993 included a $377,000 gain on the sale
of
MBS. Overall, total interest income did not change significantly from 1993
to 1994. However, payoffs of the Fox Valley and Pinecrest PIMs in 1993 and
the Mediterranean Village PIM in 1994 resulted in lower interest income on
PIMs in 1994 as compared to 1993. Participation income increased
significantly in 1994 as compared to 1993 due primarily to the
participation income provided from the Mediterranean Village PIM payoff and
the payment of participation income from the Longwood Villas PIM. The
Partnership saw an increase in interest income on MBS in 1994 versus 1993
due primarily to the reinvestment of the proceeds from the payoff of the
Fox Valley PIM in MBS. The Partnership's expenses did not change
significantly from 1993 to 1994, because the Partnership fully amortized
certain prepaid fees and expenses associated with the PIMs that paid off
during each of these years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as
to the directors and executive officers of Krupp Plus Corporation which is
a General Partner of the Partnership and is the general partner of Mortgage
Services Partners Limited Partnership, which is the other General Partner
of the Partnership, is as follows:
Position with
Name and Age Krupp Plus Corporation
Douglas Krupp (49) Co-Chairman of the Board
George Krupp (51) Co-Chairman of the Board
Laurence Gerber (39) President
Peter F. Donovan (42) Senior Vice President
Robert A. Barrows (38) Vice President and Treasurer
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate, mortgage and healthcare company which is headquartered in
Boston with regional offices throughout the country. A staff of 3,400 are
responsible for the more than $3 billion under management for institutional
and individual clients. Mr. Krupp is a graduate of Bryant College. In
1989 he received an honorary Doctor of Science in Business Administration
from this institution and was elected trustee in 1990. Mr. Krupp serves as
Chairman of the Board and Director of Berkshire Realty Company, Inc. (NYSE-
BRI).
George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate, mortgage and healthcare company which is headquartered in
Boston with regional offices throughout the country. A staff of 3,400 are
responsible for more than $3 billion under management for institutional and
individual clients. Mr. Krupp attended the University of Pennsylvania and
Harvard University. Mr. Krupp also serves as Chairman of the Board and
Trustee of Krupp Government Income Trust and Krupp Government Income Trust
II.
Laurence Gerber is the President and Chief Executive Officer of The
Berkshire Group. Prior to becoming President and Chief Executive Officer
in 1991, Mr. Gerber held various positions with The Berkshire Group which
included overall responsibility at various times for: strategic planning
and product development, real estate acquisitions, corporate finance,
mortgage banking, syndication and marketing. Before joining The Berkshire
Group in 1984, he was a management consultant with Bain & Company, a
national consulting firm headquartered in Boston. Prior to that, he was a
senior tax accountant with Arthur Andersen & Co., an international
accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics
from the University of Pennsylvania, Wharton School and an M.B.A. degree
with high distinction from Harvard Business School. He is a Certified
Public Accountant. Mr. Gerber also serves as President and a Director of
Berkshire Realty Company, Inc. (NYSE-BRI) and President and Trustee of
Krupp Government Income Trust and Krupp Government Income Trust II.
Peter F. Donovan is President of Berkshire Mortgage Finance and directs
the underwriting, servicing and asset management of a $2.5 billion multi-
family loan portfolio. Previously, he was Senior Vice President of
Berkshire Mortgage Finance and was responsible for all mortgage
originations. Before joining the firm in 1984, he was Second Vice
President, Real Estate Finance for Continental Illinois National Bank &
Trust, where he managed a $300 million construction loan portfolio of
commercial properties. Mr. Donovan received a B.A. from Trinity College
and an M.B.A. degree from Northwestern University.
Robert A. Barrows is Senior Vice President and Chief Financial Officer
of Berkshire Mortgage Finance and Corporate Controller of The Berkshire
Group. Mr. Barrows has held several positions within The Berkshire Group
since joining the company in 1983 and is currently responsible for
accounting and financial reporting, treasury, tax, payroll and office
administrative activities. Prior to joining The Berkshire Group, he was an
audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a
B.S. degree from Boston College and is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1995, no person owned of record or was known by the
General Partners to own beneficially more than 5% of the Partnership's
14,655,412 outstanding Units. The only interests held by management or its
affiliates consist of its General Partner and Corporate Limited Partner
Interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in Note F to the
Partnership's Notes To Financial Statements presented in Appendix A to this
report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements - see Index to Financial Statements and
Schedule included under Item 8, Appendix A, page F-2 to this report.
2. Financial Statement Schedule - see Index to Financial
Statements and Schedule included under Item 8, Appendix A, page
F-2 to this report. All other schedules are omitted as they
are not applicable, not required or the information is provided
in the Financial Statements or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item
601 of Regulation S-K:
(4) Instruments defining the rights of security holders including
indentures:
(4.1) Amended and Restated Agreement of Limited
Partnership dated as of May 29, 1987 [Exhibit A to
Prospectus included in Post Effective Amendment
No. 1 of Registrant's Registration Statement on
Form S-11 dated June 18, 1987 (File No. 33-
9889)].*
(4.2) Second Amendment to Agreement of Limited
Partnership dated as of June 17, 1987 [Exhibit 4.6
in Post Effective Amendment No. l of Registrant's
Registration Statement on Form S-11 dated June 18,
1987 (File No. 33-9889)].*
(4.3) Subscription Agreement whereby a subscriber agrees
to purchase Units and adopts the provisions of the
Amended and Restated Agreement of Limited
Partnership [Exhibit D to Prospectus included in
Post Effective Amendment No. 1 of Registrant's
Registration Statement on Form S-11 dated June 18,
1987 (File No. 33-9889)].*
(4.4) Copy of Amended Certificate of Limited Partnership
filed with the Massachusetts Secretary of State on
April 28, 1987. [Exhibit 4.4 in Amendment No. 1
of Registrant's Registration Statement on Form S-
11 dated May 14, 1987 (File No. 33-9889)].*
(10) Material Contracts:
(10.1) Form of agreement between the Partnership and
Krupp Mortgage Corporation. [Exhibit 10.3 in
Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated May 14, 1987 (File
No. 33-9889)].*
Colonial Park Apartments
(10.2) Prospectus for GNMA Pool No. 248521 (PL).
[Exhibit 19.1 to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1988 (File No. 0-
16817)].*
(10.3) Subordinated Open-End Multi-Family Mortgage
(including Subordinated Promissory Note) dated
March 30, 1988 between Euclid Creek Company, and
York Associates, Inc. [Exhibit 19.2 to
Registrant's Report on Form 10-Q for the quarter
ended June 30, 1988 (File No. 0-16817)].*
(10.4) Assignment of Subordinated Mortgage dated March
30, 1988 between York Associates, Inc. and Krupp
Insured Plus-II Limited Partnership. [Exhibit 19.3
to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1988 (File No. 0-16817)].*
Westbrook Manor Apartments
(10.5) Prospectus for GNMA Pool No. 256059 (PL).
[Exhibit 19.6 to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1988 (File No. 0-
16817)].*
(10.6) Subordinated Multi-Family Deed of Trust (including
Subordinated Promissory Note) dated April 19, 1988
between Wiston XXIII Limited Partnership and Krupp
Insured Plus-II Limited Partnership. [Exhibit 19.7
to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1988 (File No. 0-16817)].*
Lakeside Apartments
(10.7) Prospectus for GNMA Pool No. 255955. [Exhibit 19.8
to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1988 (File No. 0-16817)].*
(10.8) Subordinated Multi-Family Deed of Trust (including
Subordinated Promissory Note) dated May 5, 1988
between Lakeside Apartments Partnership and Krupp
Insured Plus-II Limited Partnership. [Exhibit 19.9
to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1988 (File No. 0-16817)].*
Le Coeur du Monde Apartments
(10.9) Prospectus for GNMA Pools No. 257721 (CS) and
257722 (PN). [Exhibit 19.10 to Registrant's Report
on Form 10-Q for the quarter ended June 30, 1988
File No. 0-16817)].*
(10.10) Subordinated Multi-Family Open-End Deed of Trust
(including Subordinated Promissory Note) dated May
11, 1988 between Le Coeur du Monde Limited
Partnership and Krupp Insured Plus-II Limited
Partnership. [Exhibit 19.11 to Registrant's Report
on Form 10-Q for the quarter ended June 30, 1988
(File No. 0-16817)].*
Harbor House Apartments
(10.11) Prospectus for GNMA Pools No. 257723 (CS) and
257724 (PN). [Exhibit 19.12 to Registrant's Report
on Form 10-Q for the quarter ended June 30, 1988
(File No. 0-16817)].*
(10.12) Subordinated Multi-family Mortgage (including
Subordinated Promissory Note) dated May 11, 1988
between Harbor House Apartment Homes Limited
Partnership and Krupp Insured Plus-II Limited
Partnership. [Exhibit 19.13 to Registrant's Report
on Form 10-Q for the quarter ended June 30, 1988
(File No. 0-16817)].*
Fallwood Apartments
(10.13) Prospectus for GNMA Pool No. 260300 (PL).
[Exhibit 19.14 to Registrant's Report on Form 10-Q
for the quarter ended September 30, 1988 (File No.
0-16817)].*
(10.14) Multifamily Mortgage (including Subordinated
Promissory Note) dated June 23, 1988 between
Wiston XVIII Limited Partnership and Krupp Insured
Plus-II Limited Partnership. [Exhibit 19.15 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1988 (File No. 0-16817)].*
Greenbrier Apartments
(10.15) Prospectus for GNMA Pool No. 260301 (PL).
[Exhibit 19.16 to Registrant's Report on Form 10-Q
for the quarter ended September 30, 1988 (File No.
0-16817)].*
(10.16) Multifamily Mortgage (including Subordinated
Promissory Note) dated August 16, 1988 between
Wiston XVI Limited Partnership and Krupp Insured
Plus-II Limited Partnership. [Exhibit
19.17 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1988 (File No. 0-
16817)].*
Country Meadows Apartments
(10.17) Prospectus for GNMA Pools No. 260733 (CL) and
260734 (PN). [Exhibit 19.18 to Registrant's
Report on Form 10-Q for the quarter ended
September 30, 1988 (File No. 0-16817)].*
(10.18) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated June 15, 1988
between Country Meadows Limited Partnership and
Krupp Insured Plus-II Limited Partnership.
[Exhibit 19.19 to Registrant's Report on Form 10-Q
for the quarter ended September 30, 1988 (File No.
0-16817)].*
Pine Ridge Apartments
(10.19) Prospectus for GNMA Pool No. 259436(PL). [Exhibit
10.27 to Registrant's Report on Form 10-K for the
year ended December 31, 1988 (File No. 0-16817)]*
(10.20) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated October 18,
1988 between LaSalle National Bank and Krupp
Insured Plus-II Limited Partnership. [Exhibit
10.28 to Registrant's Report on Form 10-K for the
year ended December 31, 1988 (File No. 0-16817)]*
Denrich Apartments
(10.21) Prospectus for GNMA Pool No. 267075 (PL).
[Exhibit 10.29 to Registrant's Report on Form 10-K
for the year ended December 31, 1988 (File No. 0-
16817)].*
(10.22) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated November 3,
1988 between Arthur J. Stagnaro and Krupp Insured
Plus-II Limited Partnership. [Exhibit 10.30 to
Registrant's Report on Form 10-K for the year
ended December 31, 1988 (File No. 0-16817)].*
(10.23) Modification Agreement dated June 28, 1995 between
Arthur J. Stagnaro and Krupp Insured Plus-II
Limited Partnership [Exhibit 10.1 to Registrant's
Report on Form 10-Q for the quarter ended June 30,
1995 (File No. 0-16817)].*
The Greenhouse
(10.24) Prospectus for GNMA Pools No. 259233(CS) and
259234(PN) [Exhibit 19.1 to Registrant's Report on
Form 10-Q for the quarter ended March 31, 1989
(File No. 0-16817)].*
(10.25) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated January 5,
1989 between Farnam Associates Limited Partnership
and Krupp Insured Plus-II Limited Partnership.
[Exhibit 19.2 to Registrant's Report on Form 10-Q
for the quarter ended March 31, 1989 (File No. 0-
16817)].*
Walden Village Apartments
(10.26) Subordinated Multifamily Open-End Mortgage
(including Subordinated Promissory Note) dated
February 23, 1989 between The Walden Village
Limited Partnership and Krupp Insured Plus-II
Limited Partnership. [Exhibit 19.3 to
Registrant's Report on Form 10-Q for the quarter
ended March 31, 1989 (File No. 0-16817)].*
(10.27) Participation Agreement dated February 23, 1989
between The Centralbanc Mortgage Company and Krupp
Insured Plus-II Limited Partnership. [Exhibit
19.4 to Registrant's Report on Form 10-Q for the
quarter ended March 31, 1989 (File No. 0-16817)].*
Longwood Villas Apartments
(10.28) Prospectus for GNMA Pool No. 272539(PL). [Exhibit
19.7 to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1989 (File No. 0-16817)].*
(10.29) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated March 29, 1989
between Daniel Properties XI Limited Partnership
and Krupp Insured Plus-II Limited Partnership.
[Exhibit 19.8 to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1989 (File No. 0-
16817)].*
(10.30) Guaranty Agreement dated April 19, 1994 between
SCA-Florida Holdings (I) Incorporated and Krupp
Insured Plus-II Limited Partnership. [Exhibit
10.29 to Registrant's Report on Form 10-K for the
year ended December 31, 1994 (File No. 0-16317)]*
(10.31) Agreement of Release, Assumption and Modification
of Subordinated Promissory Note and Subordinated
Mortgage by and among Daniel Properties XI Limited
Partnership, SCA-Florida Holdings (I) Incorporated
and Krupp Insured Plus-II Limited Partnership.
[Exhibit 10.30 to Registrant's Report on Form 10-K
for the year ended December 31, 1994 (File No. 0-
16817)].*
Lily Flagg Station
(10.32) Prospectus for GNMA Pool No 272540(PL). [Exhibit
19.9 to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1989 (File No. 0-16817)].*
(10.33) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) date March 29, 1989
between Daniel Properties I Limited Partnership
and Krupp Insured Plus-II Limited Partnership.
[Exhibit 19.10 to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1989 (File No. 0-
16817)].*
Richmond Park Apartments
(10.34) Prospectus for GNMA Pool No. 260865 (PL) [Exhibit
1 to Registrant's Report on Form 8-K dated August
30, 1989 (File No. 0-16817)].*
(10.35) Subordinated Multifamily Open-Ended Mortgage
(including Subordinated Promissory Note) dated
July 14, 1989 between Carl Milstein, Trustee,
Irwin Obstgarten, Al Simon and Krupp Insured Plus-
II Limited Partnership. [Exhibit 2 to
Registrant's Report on Form 8-K dated August 30,
1989 (File No. 0-16817)]*
(10.36) Participation Agreement dated July 31, 1989
between Krupp Insured Mortgage Limited Partnership
and Krupp Insured Plus-II Limited Partnership.
[Exhibit 3 to Registrant's Report on Form 8-K
dated August 30, 1989 (File No. 0-16817)].*
Saratoga Apartments
(10.37) Prospectus for GNMA Pool No. 280643 (Pl) [Exhibit
4 to Registrant's Report on Form 8-K dated August
30, 1989 (File No. 0-16817)].*
(10.38) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated July 27, 1989
between American National Bank and Trust Company
of Chicago, as Trustee and Krupp Insured Mortgage
Limited Partnership. [Exhibit 5 to Registrant's
Report on Form 8-K dated August 30, 1989 (File No.
0-16817)].*
(10.39) Participation Agreement dated July 31, 1989
between Krupp Insured Plus-II Limited Partnership
and Krupp Insured Mortgage Limited Partnership.
[Exhibit 6 to Registrant's Report on Form 8-K
dated August 30, 1989 (File No. 0-16817)].*
Carlyle Court
(10.40) Prospectus for FNMA Pool No. MX-073004 [Exhibit
10.50 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (file
No. 0-16817)].*
(10.41) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 26,
1989 between Carlyle-XI, L.P. an Indiana limited
partnership and Krupp Insured Plus-II Limited
Partnership [Exhibit 10.51 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-16817)].*
Hillside Court
(10.42) Prospectus for FNMA Pool No. MX-073003 [Exhibit
10.52 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File
No. 0-16817)].*
(10.43) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 16,
1989 between Hillside Limited Partnership-IX, an
Indiana limited partnership and Krupp Insured
Plus-II Limited Partnership [Exhibit 10.53 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No. 0-
16817)].*
Stanford Court
(10.44) Prospectus for FNMA Pool No. MX-073002 [Exhibit
10.54 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File
No. 0-16817)].*
(10.45) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 26,
1989 between Hillside Limited Partnership-IX, an
Indiana limited partnership and Krupp Insured
Plus-II Limited Partnership [Exhibit 10.55 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No. 0-
16817)].*
Waterford Court
(10.46) Prospectus for FNMA Pool No. MX-073005 [Exhibit
10.56 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File
No. 0-16817)].*
(10.47) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 26,
1989 between Waterford-VIII, an Indiana limited
partnership and Krupp Insured Plus-II Limited
Partnership [Exhibit 10.57 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-16817)].*
* Incorporated by reference.
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1995,
the Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on the 26th
day of February, 1996.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
By: Krupp Plus Corporation,
a General Partner
By: /s/ George Krupp
George Krupp, Co-Chairman
(Principal Executive Officer) and
Director of Krupp Plus Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 26th day of February,
1996.
Signatures Title(s)
/s/ Douglas Krupp Co-Chairman (Principal Executive
Douglas Krupp Officer) and Director of Krupp
Plus Corporation, a General
Partner
/s/ George Krupp Co-Chairman (Principal Executive
George Krupp Officer) and Director of Krupp
Plus Corporation, a General
Partner
/s/ Laurence Gerber President of Krupp Plus
Laurence Gerber Corporation, a General Partner
/s/ Peter F. Donovan Senior Vice President of Krupp
Peter F. Donovan Plus Corporation, a General
Partner
/s/ Robert A. Barrows Treasurer and Chief Accounting
Robert A. Barrows Officer of Krupp Plus
Corporation, a G e n e r a l
Partner
APPENDIX A
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1995
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Balance Sheets at December 31, 1995 and 1994 F-4
Statements of Income for the Years Ended December 31,
1995, 1994 and 1993 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1995, 1994 and 1993 F-6
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 F-7
Notes to Financial Statements F-8 - F-14
Schedule IV - Mortgage Loans on Real Estate F-15 - F-18
All other schedules are omitted as they are not applicable or not required,
or the information is provided in the financial statements or the notes
thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Insured Plus-II Limited Partnership:
We have audited the financial statements and the financial statement
schedule of Krupp Insured Plus-II Limited Partnership (the "Partnership")
listed in the index on page F-2 of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
General Partners of the Partnership. Our responsibility is to express an
opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by the General Partners of the
Partnership, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Krupp Insured
Plus-II Limited Partnership as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 27, 1996
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
Participating Insured Mortgages ("PIMs") (Notes B, C and H) $152,929,361 $154,042,671
Mortgage-Backed Securities and multi-family insured
mortgages("MBS") (Notes B, D and H) 44,597,272 45,499,166
Total mortgage investments 197,526,633 199,541,837
Cash and cash equivalents (Notes B and H) 5,963,681 5,453,210
Short-term investment (Note B) 498,160 -
Interest receivable and other assets 2,029,363 2,183,929
Prepaid acquisition fees and expenses, net of
accumulated amortization of $6,954,567 and
$5,629,220, respectively (Note B) 5,214,310 6,539,657
Prepaid participation servicing fees, net of
accumulated amortization of $2,208,277 and
$1,787,147, respectively (Note B) 1,557,319 1,978,449
Total assets $212,789,466 $215,697,082
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,760 $ 15,394
Partners' equity (deficit) (Notes A, E and G):
Limited Partners 211,648,945 215,786,604
(14,655,512 Units outstanding)
General Partners (155,589) (104,916)
Unrealized gain on MBS (Note B) 1,281,350 -
Total Partners' equity 212,774,706 215,681,688
Total liabilities and Partners' equity $212,789,466 $215,697,082
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues:
Interest income - PIMs:
Base interest $12,198,330 $13,108,877 $13,773,715
Participation interest 249,812 1,360,047 774,033
Interest income - MBS 3,572,641 4,031,477 3,908,181
Other interest income 345,685 374,137 376,531
Gain on sale of MBS - - 376,780
Total revenues 16,366,468 18,874,538 19,209,240
Expenses:
Asset management fee to an affiliate
(Note F) 1,487,312 1,579,713 1,678,484
Expense reimbursement to affiliates
(Note F) 227,167 467,986 515,899
Amortization of prepaid expenses and
fees (Note B) 1,746,477 2,391,571 2,238,305
General and administrative 249,312 287,496 251,044
Total expenses 3,710,268 4,726,766 4,683,732
Net income (Note G) $12,656,200 $14,147,772 $14,525,508
Allocation of net income (Note E):
Limited Partners $12,276,514 $13,723,339 $14,089,743
Average net income per Limited Partner
interest $ .84 $ .94 $ .96
(14,655,512 Limited Partner
interests outstanding)
General Partners $ 379,686 $ 424,433 $ 435,765
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
Total
Limited General Unrealized Partners'
Partners Partners Gains Equity
Balance at December 31, 1992 $253,076,022 $ (15,973) $ - $253,060,049
Net income 14,089,743 435,765 - 14,525,508
Quarterly distributions (23,432,667) (472,189) - (23,904,856)
Special distributions (2,637,993) - - (2,637,993)
Balance at December 31, 1993 241,095,105 (52,397) - 241,042,708
Net income 13,723,339 424,433 - 14,147,772
Quarterly distributions (21,738,336) (476,952) - (22,215,288)
Special distributions (17,293,504) - - (17,293,504)
Balance at December 31, 1994 215,786,604 (104,916) - 215,681,688
Net income 12,276,514 379,686 - 12,656,200
Distributions (16,414,173) (430,359) - (16,844,532)
Unrealized gain on MBS - - 1,281,350 1,281,350
Balance at December 31, 1995 $211,648,945 $(155,589) $1,281,350 $212,774,706
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Operating activities:
Net income $ 12,656,200 $ 14,147,772 $ 14,525,508
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of short-term investment
discount (7,973) - -
Amortization of prepaid expenses and
fees 1,746,477 2,391,571 2,238,305
Shared appreciation income/prepayment
penalties - (987,550) (237,983)
Gain on sale of MBS - - (376,780)
Changes in assets and liabilities:
Decrease (increase) in interest receivable
and other assets 154,566 (3,939) (24,436)
Increase (decrease) in liabilities (634) 3,211 (4,986)
Net cash provided by operating
activities 14,548,636 15,551,065 16,119,628
Investing activities:
Short-term investment (490,187) - -
Principal collections on MBS 2,155,335 5,991,565 10,239,935
Principal collections on PIMs 1,113,310 1,057,016 1,018,623
Proceeds from sale of PIM and PIM
prepayment including shared
appreciation income of $987,550 and
$237,983 in 1994 and 1993, respectively - 12,113,315 14,439,133
Investment in MBS 27,909 (146,053) (23,383,097)
Proceeds from sale of MBS - - 7,562,820
Decrease in other investments - - 2,440,344
Net cash provided by investing
activities 2,806,367 19,015,843 12,317,758
Financing activities:
Quarterly distributions (16,844,532) (22,215,288) (23,904,856)
Special distributions - (17,293,504) (2,637,993)
Net cash used for financing
activities (16,844,532) (39,508,792) (26,542,849)
Net (decrease) increase in cash and
cash equivalents 510,471 (4,941,884) 1,894,537
Cash and cash equivalents, beginning of year 5,453,210 10,395,094 8,500,557
Cash and cash equivalents, end of year $ 5,963,681 $ 5,453,210 $ 10,395,094
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Insured Plus-II Limited Partnership (the "Partnership") was
formed on October 29, 1986 by filing a Certificate of Limited
Partnership in The Commonwealth of Massachusetts. The Partnership
issued all of the General Partner Interests to Krupp Plus Corporation
and Mortgage Services Partners Limited Partnership in exchange for
capital contributions aggregating $3,000. The Partnership terminates
on December 31, 2026, unless terminated earlier upon the occurrence of
certain events as set forth in the Partnership Agreement.
The Partnership commenced the public offering of Units on May 29, 1987
and completed its public offering having sold 14,655,412 Units for
$292,176,381 net of purchase volume discounts of $931,859 as of May 27,
1988.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those
used for federal income tax purposes (Note G).
PIMs
PIMs are carried at amortized cost as the Partnership has the
ability and intention to hold them. Basic interest is
recognized based on the stated rate of the Federal Housing
Administration ("FHA") first mortgage loan (less the servicer's
fee) or the stated coupon rate or reduced rate of the Government
National Mortgage Association ("GNMA") or Federal National
Mortgage Association ("FNMA") MBS. To the extent interest rate
reductions provide for payment of unpaid base interest from
surplus cash or the net proceeds from a sale or refinancing, the
Partnership will recognize such interest payments as income when
received. Participation interest is recognized as earned and
when deemed collectible by the Partnership.
MBS
At December 31, 1995, the Partnership in accordance with the
Financial Accounting Standards Board's Special Report on
Statement 115,"Accounting for Certain Investments in Debt and
Equity Securities", reclassified its MBS portfolio from held-to-
maturity to available-for-sale. The Partnership carries its MBS
at fair market value and reflects any unrealized gains (losses)
as a separate component of Partners' Equity. Prior to December
31, 1995, the Partnership carried its MBS portfolio at amortized
cost. The Partnership amortizes purchase premiums or discounts
over the life of the underlying mortgages using the effective
interest method.
Cash Equivalents
Short-term investments represent investments with maturities of
three months or less at the date of acquisition in cash and cash
equivalents. The Partnership invests its cash primarily in
deposits and money market funds with a commercial bank and has
not experienced any loss to date on its invested cash.
Short-term Investment
Short-term investment consists of a banker's acceptance with an
original maturity greater than three months. The Partnership
carries the short-term investment at amortized cost, which
approximates fair value, due to the short period of time to
maturity. The Partnership intends to hold its short-term
investment until maturity.
Prepaid Expenses and Fees
Prepaid expenses and fees consist of acquisition fees and
expenses and participation servicing fees paid for the
acquisition and servicing of PIMs. The Partnership amortizes
prepaid acquisition fees and expenses using a method that
approximates the effective interest method over a period of ten
to twelve years, which represents the actual maturity or
anticipated call date of the underlying mortgage. Acquisition
expenses incurred on potential acquisitions which were not
consummated were charged to operations.
The Partnership amortizes prepaid participation servicing fees
using a method that approximates the effective interest method
over a ten-year period beginning at final endorsement of the
loan if a Department of Housing and Urban Development ("HUD")
loan and at closing if a FNMA loan.
Income Taxes
The Partnership is not liable for federal or state income taxes
because Partnership income is allocated to the partners for
income tax purposes. If the Partnership's tax returns are
examined by the Internal Revenue Service or state taxing
authority and such an examination results in a change in
Partnership taxable income, such change will be reported to the
partners.
Estimates and Assumptions
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the period.
Actual results could differ from those estimates.
C. PIMs
The Partnership has investments in twenty PIMs. Of the twenty PIMs,
seven funded the construction of multi-family housing. The
Partnership's PIMs consist of a GNMA or FNMA MBS representing the
securitized first mortgage loan on the underlying property or a sole
participation interest in a first mortgage loan originated under the
FHA lending program on the underlying property (collectively the
"insured mortgages"), and participation interests in the revenue stream
and appreciation of the underlying property above specified base
levels. The borrower conveys these participation features to the
Partnership generally through a subordinated promissory note and
mortgage (the "Agreement"). The Partnership receives guaranteed monthly
payments of principal and interest on the GNMA and FNMA
MBS and HUD insures the first mortgage loan underlying the GNMA
MBS and the FHA first mortgage loan.
The borrower usually cannot prepay the first mortgage loan during the
first five years and usually may prepay the first mortgage loan
thereafter subject to a 9% prepayment penalty in years six through
nine, a 1% prepayment penalty in year ten and no prepayment penalty
thereafter. The Partnership may receive interest related to its
participation interests in the underlying property, however, these
amounts are neither insured nor guaranteed.
Generally, the participation features consist of the following: (i)
"Minimum Additional Interest" at the rates ranging from .5% to .75% per
annum calculated on the unpaid principal balance of the first mortgage
on the underlying property , (ii) "Shared Income Interest" ranging from
25% to 30% of the monthly gross rental income generated by the
underlying property in excess of a specified base, but only to the
extent that it exceeds the amount of Minimum Additional Interest
received during such month, (iii) "Shared Appreciation Interest"
ranging from 25% to 30% of any increase in the value of the underlying
property in excess of a specified base. Payment of Minimum Additional
Interest and Shared Income Interest will be from the operations of the
property and is limited to 50% of net revenue or surplus cash as
defined by FNMA or HUD, respectively.
The total amount of Minimum Additional Interest, Shared Income Interest
and Shared Appreciation interest payable by the underlying borrower
usually can not exceed 50% of any increase in Value of the property.
However, generally any net proceeds from a sale or refinancing will be
available to satisfy any accrued but unpaid Shared Income or Minimum
Additional Interest.
Shared Appreciation Interest is payable when one of the following
occurs: (1) the sale of the underlying property to an unrelated third
party on a date which is later than five years from the date of the
Agreement, (2) the maturity date or accelerated maturity date of the
Agreement, or (3) prepayment of amounts due under the Agreement and the
insured mortgage.
Under the Agreement, the Partnership, upon giving twelve months written
notice, can accelerate the maturity date of the Agreement and insured
mortgage to a date not earlier than ten years from the date of the
Agreement for (a) the payment of all participation interest due under
the Agreement as of the accelerated maturity date, or (b) the payment
of all participation interest due under the Agreement plus all amounts
due on the first mortgage note on the property.
On September 30, 1994, the Partnership received a repayment on the
Mediterranean Village PIM totaling $12,581,806. The repayment
consisted of outstanding principal of $11,125,765, a prepayment penalty
of $861,319 and accrued and delinquent base interest of $594,722. The
prepayment penalty received by the Partnership was in excess of what
the Partnership would have received if the Shared Appreciation
calculation had been performed. Under that calculation, the
Partnership would have received approximately $525,000 in Shared
Appreciation and $215,000 of accrued Shared Income or Minimum
Additional Interest.
In April 1994, the Partnership received $240,022 of participation
income on the Longwood Villas PIM resulting from the sale of the
property by the borrower. Of the total participation income received
$126,231 represented Shared Appreciation Income with the remaining
$113,791 representing Shared Interest Income and Minimum Additional
Interest. The buyer acquired the property by assuming the insured
mortgage from the borrower, so the Partnership will continue to receive
principal and interest payments on the insured mortgage. The buyer
also entered into an agreement with the Partnership modifying the
participation features.
Under the agreement with the buyer, the Partnership will be entitled to
additional interest calculated monthly and payable semiannually at the
rate of .5% per annum on the unpaid principal balance of the insured
mortgage. An affiliate of the buyer guarantees the semiannual payment
of additional interest. The Partnership will not receive either Shared
Appreciation or Shared Income or Minimum Additional interest from the
buyer in the future.
Listed in the chart is a summary of the Partnership's PIM investments.
The Partnership's PIMs consisted of the following at
December 31, 1995 and 1994:
Aggregate Number Permanent
Original of PIMs Interest Maturity Investment Basis
Issuer Principal at 12/31/95 Rate Range Date Range at December 31,
1995 1994
GNMA $121,422,795(a) 15 (a) 6.25%-8.5% 4/23 - 4/31 $117,026,510 $117,871,001
(b)(c)(d)
FNMA 30,015,000 4 7.25%-7.75% 10/99 28,810,803 29,049,256
FHA 7,220,800 1 8.55% 11/30 7,092,048 7,122,414
$158,658,595(a) 20(a) $152,929,361 $154,042,671
(a) Includes two PIMs - Richmond Park and Saratoga - in which
the Partnership holds a 62% and 50% interest,
respectively, and the remaining portion is held by an
affiliate of the Partnership.
(b) The Partnership agreed to temporarily reduce the interest
rate on the Harbor House PIM effective on March 1, 1992,
for a period of thirty months at rates ranging from 6.75%
to 7.75% per annum and thereafter is 8.25% per annum. As
consideration for this reduction, the Partnership
increased its Minimum Additional Interest from .5% to
.75% as well as reduced the Shared Appreciation Interest
Base to $13,000,000 from $13,750,000.
(c) In May 1993, the Partnership agreed to temporarily reduce
the interest rate of the Le Couer du Monde PIM,
retroactive to October 1, 1992. The reduction lasted for
thirty six months and ranged from 6.375% to 8.125% per
annum. The current interest rate is 8.25% per annum.
Any unpaid interest is payable from the net proceeds from
a sale or refinancing of the property. As consideration
for this reduction, the Partnership increased its Shared
Appreciation Interest rate from 30% to 35% and decreased
the base value used for this calculation from $10,795,260
to $9,814,200.
(d) On June 28, 1995, the Partnership entered into a
temporary interest rate reduction agreement on the
Denrich Apartments PIM. Beginning July 1, 1995, the
interest rate decreased from 8% per annum to 6.25% per
annum for thirty months, then increase to 6.75% per annum
for the following thirty-six month period and then
increase to the original interest rate of 8% per annum.
The difference between interest at the original interest
rate and the reduced interest rates will accumulate and
be payable from surplus cash or from the net proceeds of
a sale or refinancing. These accumulated amounts will be
due and payable prior to any distributions to the
borrower or payment of participation interest to the
Partnership. Also under the agreement, the base level
for calculating Shared Appreciation Interest decreased
from $4,025,000 to $3,500,000.
The underlying mortgages of the PIMs are collateralized by
multi-family apartment complexes located in 11 states. The
apartment complexes range in size from 80 to 736 units.
D. MBS
At December 31, 1995, the Partnership's MBS portfolio has an amortized
cost of approximately $43,316,000 and unrealized gains and losses of
approximately $1,285,000 and $4,000, respectively. At December 31, 1994,
the Partnership's MBS portfolio had a market value of approximately
$44,236,000 and unrealized gains and losses of approximately $475,000
and $1,738,000, respectively. The Partnership's MBS have maturities
ranging from 2007 to 2033.
E. Partners' Equity
Profits and losses from Partnership operations and Distributable Cash
Flow are allocated 97% to the Unitholders and Corporate Limited Partner
(the "Limited Partners") and 3% to the General Partners.
Upon the occurrence of a capital transaction, as defined in the
Partnership Agreement, net cash proceeds will be distributed first, to
the Limited Partners until they have received a return of their total
invested capital, second, to the General Partners until they have
received a return of their total invested capital, third, 99% to the
Limited Partners and 1% to the General Partners until the Limited
Partners receive an amount equal to any deficiency in the 11% cumulative
return on their invested capital that exists through fiscal years prior
to the date of the capital transaction, fourth, to the class of General
Partners until they have received an amount equal to 4% of all amounts
of cash distributed under all capital transactions and fifth, 96% to the
Limited Partners and 4% to the General Partners.
Profits arising from a capital transaction, will be allocated in the
same manner as related cash distributions. Losses from a capital
transaction will be allocated 97% to the Limited Partners and 3% to the
General Partners.
During 1995, the Partnership made quarterly distributions totaling $1.12
per unit. During 1994 and 1993 the Partnership made quarterly
distributions totaling $1.48 and $1.60 per Unit and special
distributions of $1.18 and $.18 per Unit, respectively.
As of December 31, 1995, the following cumulative partner contributions
and allocations have been made since the inception of the Partnership:
Corporate
Limited General
Unitholders Partner Partners Total
Capital contributions $292,176,381 $ 2,000 $ 3,000 $292,181,381
Syndication costs (15,580,734) - - (15,580,734)
Quarterly distributions (177,645,919) (1,246) (4,260,546) (181,907,711)
Special distributions (19,931,361) (136) - (19,931,497)
Net income 132,629,028 932 4,101,957 136,731,917
Unrealized gain on MBS - - - 1,281,350
Total at December 31, 1995 $211,647,395 $ 1,550 $ (155,589) $212,774,706
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General Partners or
their affiliates are entitled to an asset management fee for the
management of the Partnership's business, equal to .75% per annum of
the value of the Partnership's actual and committed mortgage assets,
payable quarterly. The General partners may also receive an incentive
management fee in an amount equal to .3% per annum on the Partnership's
total invested assets provided the Unitholders have received their
specified non-cumulative annual return on their Invested Capital.
Total fees payable to the General Partners for management services
shall not exceed 10% of cash available for distribution over the life
of the Partnership.
Additionally, the Partnership reimburses affiliates of the General
Partners for certain costs incurred in connection with maintaining the
books and records of the Partnership and the preparation and mailing of
financial reports, tax information and other communications to
investors.
G. Federal Income Taxes
The reconciliation of the income reported in the accompanying financial
statements with the income reported in the Partnership's 1995 federal
income tax return is as follows:
Net income per statement of income $12,656,200
Add: Book to tax difference for amortization of
prepaid expenses and fees 75,532
Net income for federal income tax purposes $12,731,732
The allocation of the 1995 net income for federal income tax purposes
is as follows:
Portfolio
Income
Unitholders $12,349,696
Corporate Limited Partner 84
General Partners 381,952
$12,731,732
For the years ended December 31, 1995, 1994 and 1993 the
average per unit income to the Unitholders for federal income
tax purposes was $.84, $1.05 and $.96, respectively.
H. Fair Value Disclosures of Financial Instruments
The Partnership uses the following methods and assumptions to estimate
the fair value of each class of financial instruments:
Cash and Cash Equivalents and Short-term Investment
The carrying amount approximates fair value because of the short
maturity of those instruments.
MBS
The Partnership estimates the fair value and MBS based on quoted
market prices.
PIMs
There is no established trading market for these investments.
Management estimates the fair value of the PIMs using quoted market
prices of MBS having the same stated coupon rate as the insured
mortgages and the estimated value of the participation features.
Management estimates the fair value of the participation features
using the estimated fair value of the underlying properties.
Management does not include in the estimated fair value of the
participation features any fair value estimate arising from
appreciation of the properties, because Management does not believe
it can predict the time of realization of the appreciation feature
with any certainty. Based on the estimated fair value determined
using these methods and assumptions, the Trust's investments in PIMs
had gross unrealized gains of $5,606,000 at December 31, 1995 and
gross unrealized losses of $9,073,000 at December 31, 1994.
At December 31, 1995 and 1994, the estimated fair values of the
Partnership's financial instruments are as follows:
1995 1994
Cash and cash equivalents and
short-term investment $ 6,454 $ 5,453
MBS 44,597 44,236
PIMs 158,535 144,970
$209,586 $194,659
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1995
PIMs (a) Interest Maturity Normal Original Current Carrying
Rate (b) Date(k) Monthly Face Amount Face Amount Amount at
Payment 12/31/95
(l)
GNMA
Colonial Park 8.25%
Apts (c)(e)(h) 4/15/23 $ 19,700 $ 2,700,000 $ 2,565,723 $ 2,565,723
Euclid, OH
Country Meadows
Apts
Savage, MD 8.25%
(c)(e)(h) 10/15/30 89,100 12,475,000 12,235,585 12,235,585
Denrich Apartments
Philadelphia, PA (c)(e)
(h)(q) 12/15/23 24,900 3,500,000 3,337,632 3,337,632
Fallwood Apts
Indianapolis, IN 8.00%
(c)(e)(h) 7/15/23 49,700 7,000,000 6,652,968 6,652,968
Greenbrier Apts
Overland Park, KS 8.25%
(c)(e)(h) 9/15/23 17,100 2,350,000 2,241,434 2,241,434
Harbor House Apts.
Madison, WI (g)(h)(m)
4/12/31 89,200 12,484,304 12,288,176 12,288,176
Lakeside Apts
Mountlake Terrace, 8.00%
(c)(e)(h) 6/15/23 75,400 10,620,000 10,080,082 10,080,082
Le Coeur du Monde
Apts
St. Louis, MO (c)(f)
(n) 10/15/30 70,100 9,814,200 9,622,086 9,622,086
Lily Flagg Station
Huntsville, AL 8.00%
(c)(e)(h) 4/15/24 89,500 12,594,835 12,051,588 12,051,588
Longwood Villas
Apts
Orlando, FL 8.00%
(p) 4/15/24 47,500 6,690,456 6,401,880 6,401,880
Pine Ridge Apts
Chicago, IL 8.25%
(c)(e)(h) 11/15/23 32,300 4,433,100 4,234,885 4,234,885
Richmond Park
Richmond Heights,
OH 7.50%
(c)(e)(h) 8/15/24 107,900 16,000,000 15,275,433 15,275,433
Saratoga Apts.
Rolling Meadows,
IL 7.875%
(c)(e)(h) 8/15/24 47,300
6,750,000 6,467,612 6,467,612
The Greenhouse
Omaha, NE 8.50%
(d)(e)(h) 2/15/30 64,600
8,810,900 8,626,635 8,626,635
Westbrook Manor
Apts
Omaha, NE 8.25%
(c)(e)(h) 5/15/23 37,900
5,200,000 4,944,791 4,944,791
121,422,795 117,026,510 117,026,510
FNMA
Carlyle Court 7.25% 10/1/99 54,400 8,280,000 7,936,138 7,936,138
Indianapolis, IN (c)(e)(h)
Hillside Court
Centerville, OH 7.25%
(c)(e)(h) 10/1/99 30,000
(o)
4,590,000 4,399,382 4,399,382
Stanford Court
Speedway, IN 7.25%
(c)(e)(h) 10/1/99 46,700
(o)
7,110,000 6,814,677 6,814,677
Waterford Court
Lafayette, IN 7.75%
(c)(g)(j) 10/1/99 69,500 10,035,000 9,660,606 9,660,606
(o)
30,015,000 28,810,803 28,810,803
HUD
Walden Village
Apts.
Dayton, OH 8.55% 11/1/30 53,200 7,220,880 7,092,048 7,092,048
$158,658,595 $152,929,361 $152,929,361
(r)
(a) The Participating Insured Mortgages ("PIMs") consist of either a
mortgage-backed security guaranteed by the Federal National Mortgage
Association ( FNMA ) or the Government National Mortgage Association
( GNMA ), or a direct mortgage insured by the United States
Department of Housing and Urban Development ("HUD") and a
subordinated promissory note and mortgage or shared income and
appreciation agreement with the underlying Borrower that conveys
participation interests in the revenue stream and appreciation of
the underlying property above certain specified base levels.
(b) Represents the permanent interest rate of the GNMA or FNMA MBS or
the HUD direct mortgage. In addition, the Partnership receives
additional interest consisting of (i) Minimum Additional Interest
based on a percentage of the unpaid principal balance of the first
mortgage on the property, (ii) Shared Income Interest based on a
percentage of monthly gross income generated by the underlying
property in excess of a specified base amount (but only to the
extent it exceeds the amount of Minimum Additional Interest received
during such month), (iii) Shared Appreciation Interest based on a
percentage of any increase in the value of the underlying property
in excess of a specified base value.
(c) Minimum additional interest is at a rate of .5% per annum calculated
on the unpaid principal balance of the first mortgage note.
(d) Minimum additional interest is at a rate of .75% per annum
calculated on the unpaid principal balance of the first mortgage
note.
(e) Shared income interest is based on 25% of monthly gross rental
income over a specified base amount.
(f) Shared income interest is based on 30% of monthly gross rental
income over a specified base amount.
(g) Shared income interest is based on 35% of monthly gross rental
income over a specified base amount.
(h) Shared appreciation interest is based on 25% of any increase in the
value of the project over the specified base value.
(i) Shared appreciation interest is based on 30% of any increase in the
value of the project over the specified base value.
(j) Shared appreciation interest is based on 35% of any increase in the
value of the project over the specified base value.
(k) The Partnership's GNMA MBS and HUD direct mortgages have call
provisions, which allow the Partnership to accelerate their
respective maturity date.
(l) The normal monthly payment consisting of principal and interest is
payable monthly at level amounts over the term of the GNMA MBS and
the HUD direct mortgages. The GNMA MBS, FNMA MBS and HUD-insured
first mortgage loan generally may not be prepaid during the first
five years and may be prepaid subject to a 9% prepayment penalty in
years six through nine, a 1% prepayment penalty in year ten and no
prepayment penalty after year ten. The normal monthly payment
consisting of principal and interest for FNMA MBS is payable at
level amounts based on a 35-year amortization. All unpaid principal
and accrued interest is due at the end of year ten.
(m) The Partnership agreed to temporarily reduce the interest rate on
the Harbor House PIM. The reduction, which was effective on March
1, 1992, lasted for a period of thirty months and ranged from 6.75%
to 7.75% per annum and thereafter is 8.25% per annum. As
consideration for this reduction, the Partnership increased its
Minimum Additional Interest from .5% to .75% as well as reduced the
Shared Appreciation Interest Base from $13,750,000 to $13,000,000.
(n) The Partnership agreed to temporarily reduce the interest rate on
the Le Couer du Monde PIM. The reduction is retroactive to October
1, 1992, and ranged from 6.375% to 8.125% per annum through October
1, 1995 and thereafter is at 8.25% per annum. As consideration for
this reduction, the Partnership increased its Shared Appreciation
Interest rate from 30% to 35% and decreased the base value used for
this calculation from $10,795,620 to $9,814,200.
(o) The approximate principal balance due at maturity for each PIM,
respectively, is as follows:
PIM Amount
Carlyle Court $7,620,000
Hillside Court $4,224,000
Stanford Court $6,543,000
Waterford Court $9,308,000
(p) The Partnership permitted the borrower to sell the property and
allowed the buyer to assume the first mortgage loan. In addition,
this buyer entered into an agreement with the Partnership to pay
additional interest calculated monthly and payable semiannually at
a rate of .5% per annum on the unpaid principal balance of the
insured mortgage loan.
(q) On June 28, 1995, the Partnership entered into a temporary interest
rate reduction agreement on the Denrich Apartments PIM. Beginning
July 1, 1995, the interest rate decreased from 8% per annum to 6.25%
per annum for thirty months, then increases to 6.75% per annum for
the following thirty-six month period and then increases to the
original interest rate of 8% per annum. The difference between
interest at the original interest rate and the reduced interest
rates will accumulate and be payable from surplus cash or from the
net proceeds of a sale or refinancing. These accumulated amounts
will be due and payable prior to any distributions to the borrower
or payment of participation interest to the Partnership. Also under
the agreement, the base level for calculating Shared Appreciation
Interest decreased from $4,025,000 to $3,500,000.
(r) The aggregate cost of PIMs for federal income tax purposes is
$152,929,361.
A reconciliation of the carrying value of PIMs for each of the three
years in the period ended December 31, 1995 is as follows:
1995 1994 1993
Balance at beginning of period $154,042,671 $166,225,452 $181,445,225
Deductions during period:
Sales proceeds and
principal prepayment - (11,125,765) (14,201,150)
Principal collections (1,113,310) (1,057,016) (1,018,623
Balance at end of period $152,929,361 $154,042,671 $166,225,452