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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, 1997
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 8-12.
PART I
This form 10-K 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.
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, 1997, there were no personnel directly employed by
the Partnership.
-4-
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, 1997 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, to its Partners during
the two years ended December 31, 1997 and 1996:
1997 1996
Amount Per Unit Amount Per Unit
Distributions:
Limited Partners $16,414,173 $1.12 $16,414,171 $1.12
General Partners 436,626 432,214
$16,850,799 $16,846,385
Special Distributions:
Limited Partners 24,767,815 $1.69 $ - -
Total Distributions $41,618,614 $16,846,385
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.
-5-
1997 1996 1995 1994 1993
Total revenues $ 16,672,558 $ 15,855,280 $ 16,366,468 $ 18,874,538 $ 19,209,240
Net income 12,972,600 12,331,212 12,656,200 14,147,772 14,525,508
Net income allocated to:
Limited Partners 12,583,422 11,961,276 12,276,514 13,723,339 14,089,743
Average per Unit .86 .82 .84 .94 .96
General Partners 389,178 369,936 379,686 424,433 435,765
Total assets at
December 31 180,126,977 207,552,419 212,789,466 215,697,082 241,054,891
Distributions to:
Limited Partners 16,414,173 16,414,171 16,414,173 21,738,336 23,432,667
Average per Unit 1.12 1.12 1.12 1.48 1.60
Special 24,767,815 - - 17,293,504 2,637,993
Average per Unit 1.69 - - 1.18 .18
General Partners 436,626 432,214 430,359 476,952 472,189
ITEM 7. 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 $4.1
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, causing the
capital resources of the Partnership to continually decrease. As a result
of this decrease, the total cash inflows to the Partnership will also
decrease, which will result in periodic downward adjustments to the
distributions paid to investors.
The General Partners periodically review the distribution rate to
determine whether an adjustment to the distribution rate is necessary based
on projected future cash flows. In general, the General Partners try to
set a distribution rate that provides for level quarterly distributions of
cash available for distribution. To the extent quarterly distributions
differ from the cash available for distribution, the General Partners may
adjust the distribution rate or distribute funds through a special
distribution.
The General Partners believe the Partnership can maintain the current
distribution rate for the near future. However, in the event of PIM
prepayments, the Partnership would be required to distribute any proceeds
from the prepayments as a special distribution, which may cause an
adjustment to the distribution rate to reflect the anticipated future cash
inflows from the remaining mortgage investments.
During 1997, the Partnership received six prepayments; three multi-family
MBS in the amounts of $2,318,901, $2,425,094 and $2,824,583 and three PIMs
in the amounts of $9,935,167, $2,520,805 and $4,161,080 from Lakeside
Apartments, Colonial Apartments and Pine Ridge Apartments PIMs,
respectively. In addition, the Partnership also collected either Shared
Appreciation Interest or prepayment penalty and Shared Interest Income
related to the PIM prepayments totaling $602,856 and $450,216,
respectively.
In June 1997, 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 from property operations $471,000 and a $99,000
prepayment penalty. In June 1997, the Partnership made a special
distribution of $.71 per Limited Partner interest resulting from the
repayment of the Lakeside Apartments PIM.
In October 1997, the Colonial Park 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 a
prepayment penalty $25,000 and $14,000 of Shared Income Interest. During
November 1997, the Partnership combined two of the three MBS prepayments
and the Colonial Park prepayment and made a special distribution of $.50 to
the Limited Partners.
In November 1997, the Pine Ridge Apartments PIM was repaid by the
borrower. In addition to the outstanding balance due on the first
mortgage, the Partnership received approximately $243,000 of Shared
Appreciation Interest and $284,000 of Shared Income Interest. During
December 1997, the Partnership combined the remaining MBS prepayment with
the Pine Ridge PIM prepayment and made a special distribution of $.48 to
the Limited Partners.
During 1997, the owner of Lily Flagg began positioning the property
for a 1998 sale or refinancing, and for marketing purposes asked the
General Partner to permit a prepayment of the PIM participation feature.
The General Partner agreed to accept $437,963 for payment of all
participation interest earned through the third quarter 1997 and converted
the Partnership's investment into a multi-family insured mortgage. The
General Partner expects this loan as well as a number of other PIMs will be
prepaid in 1998 as owner sell or refinance their properties.
-7-
During the first quarter of 1998, the Partnership received the
principal repayments of the Fallwood, Greenbriar and Westbrook PIMs
totaling $13,543,399 when the owner of all three properties refinanced his
properties' debt. The Partnership received all unpaid Minimum Additional
Interest and Shared Income Interest owed on all three deals totaling
$619,893 as well as Shared Appreciation Interest totaling $281,376. The
Partnership will distribute the capital proceeds from these three
transactions to investors through a special distribution in March of 1998.
The General Partners are closely monitoring the bankruptcy proceedings
of the borrower of the Greenhouse Apartments PIM. Upon resolution of the
bankruptcy, the Partnership will receive the outstanding principal of the
Greenhouse Apartments PIM either as a prepayment or an insurance claim and
then distribute these proceeds to investors as a special distribution. The
General Partners do not anticipate receiving any participation interest
income from this PIM.
For the first five years of the PIMs the borrowers are prohibited from
prepaying. For the second five years, the borrowers can prepay the loans
and pay the greater of a prepayment penalty or all participation interest
that would be due as of the date of prepayment. The participation features
of the PIMs are neither insured nor guaranteed and if prepayment of a PIM
results from an insurance claim the Partnership would not receive any
prepayment penalty nor any participation interest. The Partnership has the
option to call certain PIMs by accelerating their maturity if the loans are
not prepaid by the tenth year after permanent funding. The Partnership
will determine the merits of exercising the call option for each PIM as
economic conditions warrant. Factors such as the condition of the asset,
local market conditions, interest rates and available financing will have
an impact on this decision.
-8-
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 years ended December 31, 1997, 1996 and 1995.
(Amounts in thousands)
1997 1996 1995
Interest income on PIMs:
Base interest $11,090 $12,070 $12,198
Participation interest income 1,816 32 250
Interest income on MBS
and insured mortgages 3,099 3,366 3,573
Other interest income 668 387 346
Partnership expenses (1,793) (1,778) (1,964)
Amortization of prepaid fees and
expenses (1,907) (1,746) (1,747)
Net Income $12,973 $12,331 $12,656
Net income increased during 1997 as compared to 1996 by approximately
$642,000. This increase was primarily due to higher participation income,
offset partially by lower base interest and higher amortization expense
directly related to the prepayments of the Lakeside, Colonial and Pine
Ridge Apartment PIMs. Base interest income on PIMs decreased by
approximately $980,000 in 1997 as compared to 1996 as a result of
prepayments on three PIMs and a general reduction in the invested assets in
the Partnership attributed to the receipt of principal payments.
Subsequently, special distributions were made from the Partnership using
the prepayment proceeds. An increase in participation interest income of
$1,784,000 was primarily a result of receiving Shared Appreciation Interest
and prepayment penalities totaling $603,000 and Shared Income Interest of
$507,000 from the prepayments of the Lakeside, Colonial Park and Pine Ridge
Apartments PIMs and Shared Income Interest of $706,000 from seven of the
Partnership s PIMs. Interest income on MBS and insured mortgages declined
approximately $267,000 due to principal collections and prepayments
reducing the outstanding MBS portfolio. Interest income on MBS and base
interest income on PIMs will continue to decline as principal collections
reduce the outstanding balance of these investments. As the Partnership
distributes principal collections on MBS and PIMs through quarterly or
special distributions, the invested assets of the Partnership will decline
which should result in a continuing decline in interest income.
Net income decreased slightly in 1996 as compared to 1995 due primarily
to lower PIM base interest and MBS interest income offset by lower
Partnership expenses. The Partnership funds a portion of distributions
with MBS and PIM principal collections which reduces the invested assets
generating interest income for the Partnership. As invested assets decline
so will interest income on MBS and base interest income on PIMs.
Partnership expenses declined due to lower general and administrative
expenses and a reduction in reimbursements paid to affiliates in connection
with maintaining the books and records of the Partnership as well as the
preparation and mailing of investor communications.
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 (51) President, Co-Chairman of the Board and
Director
George Krupp (53) Co-Chairman of the Board and Director
Peter F. Donovan (44) Senior Vice President
Robert A. Barrows (40) Vice President and Treasurer
Douglas Krupp and George Krupp are Co-Founders of The Berkshire Group.
Established in 1969 as the Krupp Companies and headquartered in Boston, the
Berkshire Group is a privately held real estate-based firm that has
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility management. The Berkshire Group s interests include
ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition, The
Berkshire Group has a majority ownership interest in Harborside Healthcare
(NYSE-HBR), a long-term and subacute care company and a significant
ownership interest in Berkshire Realty Company, Inc. (NYSE-BRI), a real
estate investment trust specializing in apartment investments.
Douglas 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. Douglas Krupp is Chairman of The Berkshire
Group, Chairman of the Board and a Director of both Berkshire Realty
Company, Inc. and Harborside Healthcare. Mr. Krupp also serves as Chairman
of the Board and Trustee of both Krupp Government Income Trust and Krupp
Government Income Trust II.
George Krupp received his undergraduate education from the University of
Pennsylvania and Harvard University Extension School and holds a Master s
Degree in History from Brown University.
Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage
Finance and oversees the strategic growth plans of this mortgage banking
firm which is the 12th largest in the United States based on servicing and
asset management of a $4.4 billion loan portfolio. Previously he served as
President of Berkshire Mortgage Finance and directed the production,
underwriting and servicing and asset management activities of the firm.
Prior to that, he was Senior Vice President of Berkshire Mortgage Finance
and was responsible for all participating 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. Mr. Barrows has held several positions
within The Berkshire Group since joining the company in 1983 and is
currently responsible for accounting, financial reporting, treasury,
management information systems and loan closing and servicing for Berkshire
Mortgage Finance. 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, 1997, 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
-11-
(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)].*
Westbrook Manor Apartments
(10.2) 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)].*
(10.3) 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)].*
Le Coeur du Monde Apartments
(10.4) 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)].*
(10.5) 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
(10.6) 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)].*
(10.7) 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
(10.8) 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)].*
(10.9) 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)].*
-13-
Greenbrier Apartments
(10.10) 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)].*
(10.11) 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
(10.12) 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)].*
(10.13) 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)].*
Denrich Apartments
(10.14) 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)].*
(10.15) 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)].*
(10.16) 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
(10.17) 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)].*
(10.18) 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
(10.19) 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)].*
(10.20) 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
(10.21) 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)].*
(10.22) 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)].*
(10.23) 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)]*
(10.24) 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)].*
-15-
Lily Flagg Station
(10.25) 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)].*
Richmond Park Apartments
(10.26) 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)].*
(10.27) 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)]*
(10.28) 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
(10.29) 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)].*
(10.30) 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)].*
(10.31) 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
(10.32) 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)].*
(10.33) 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
(10.34) 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)].*
(10.35) 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
(10.36) 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)].*
(10.37) 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
(10.40) 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)].*
(10.41) 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.
-17-
(c) Reports on Form 8-k
During the last quarter of the year ended December 31, 1997,
the Partnership did not file any reports on Form 8-K.
-18-
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 2nd day of February, 1998.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
By: Krupp Plus Corporation,
a General Partner
By: /s/ Douglas Krupp
Douglas Krupp, President, 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 2nd day of February,
1998.
Signatures Title(s)
/s/ Douglas Krupp President, Co-Chairman (Principal Executive
Douglas Krupp Officer) and Director of Krupp Plus Corporation, a
General Partner
/s/ George Krupp Co-Chairman (Principal Executive Officer)
George Krupp and Director of Krupp Plus Corporation, a General
Partner
/s/ Peter F. Donovan Senior Vice President of Krupp Plus
Peter F. Donovan Corporation, a General Partner
/s/ Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp
Robert A. Barrows Plus Corporation, a General Partner
-19-
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, 1997
F-1
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Income for the Years Ended December 31,
1997, 1996 and 1995 F-5
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 F-7
Notes to Financial Statements F-8 - F-15
Schedule IV - Mortgage Loans on Real Estate F-16 - F-19
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.
F-2
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, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997 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
February 2, 1998, except as to the
information presented in Note I, for
which the date is February 17, 1998
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
Participating Insured Mortgages ("PIMs") (Notes B, C, H and I) $122,048,053 $151,717,926
Mortgage-Backed Securities and multi-family insured
mortgages("MBS") (Notes B, D and H) 44,727,693 41,283,769
Total mortgage investments 166,775,746 193,001,695
Cash and cash equivalents (Notes B, H and I) 9,052,480 7,921,270
Interest receivable and other assets 1,180,660 1,604,301
Prepaid acquisition fees and expenses, net of
accumulated amortization of $8,293,080 and $8,279,914
respectively (Note B) 2,481,160 3,888,963
Prepaid participation servicing fees, net of
accumulated amortization of $2,707,314 and $2,629,406,
respectively (Note B) 636,931 1,136,190
Total assets $180,126,977 $207,552,419
LIABILITIES AND PARTNERS' EQUITY
Liabilities 25,588 $ 18,900
Partners' equity (deficit) (Notes A, E and I):
Limited Partners 178,597,484 207,196,050
(14,655,512 Units outstanding)
General Partners (265,315) (217,867)
Unrealized gain on MBS (Note B) 1,769,220 555,336
Total Partners' equity 180,101,389 207,533,519
Total liabilities and Partners' equity $180,126,977 $207,552,419
The accompanying notes are an integral
part of the financial statements.
F-5
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Interest income - PIMs:
Base interest $11,089,440 $12,070,443 $12,198,330
Participation interest 1,816,364 31,948 249,812
Interest income - MBS 3,098,699 3,366,026 3,572,641
Other interest income 668,055 386,863 345,685
Total revenues 16,672,558 15,855,280 16,366,468
Expenses:
Asset management fee to an affiliate
(Note F) 1,365,013 1,458,207 1,487,312
Expense reimbursement to affiliates
(Note F) 162,269 155,091 227,167
Amortization of prepaid expenses and
fees (Note B) 1,907,062 1,746,476 1,746,477
General and administrative 265,614 164,294 249,312
Total expenses 3,699,958 3,524,068 3,710,268
Net income (Note G) $12,972,600 $12,331,212 $12,656,200
Allocation of net income (Note E):
Limited Partners $12,583,422 $11,961,276 $12,276,514
Average net income per Limited Partner
interest $ .86 $ .82 $ .84
(14,655,512 Limited Partner
interests outstanding)
General Partners $ 389,178 $ 369,936 $ 379,686
F-6
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, 1997, 1996 and 1995
Total
Limited General Unrealized Partners'
Partners Partners Gains Equity
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
Net income 11,961,276 369,936 - 12,331,212
Distributions (16,414,171) (432,214) - (16,846,385)
Change in unrealized gain - - (726,014) (726,014)
Balance at December 31, 1996 207,196,050 (217,867) 555,336 207,533,519
Net income 12,583,422 389,178 - 12,972,600
Distributions (16,414,173) (436,626) - (16,850,799)
Special distributions (24,767,815) - - (24,767,815)
Change in unrealized gain - - 1,213,884 1,213,884
Balance at December 31, 1997 $ 178,597,484 $(265,315) $1,769,220 $ 180,101,389
F-8
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, 1997, 1996 and 1995
1997 1996 1995
Operating activities:
Net income $ 12,972,600 $ 12,331,212 $ 12,656,200
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums 231,706 - -
Amortization of short-term investment
discount - (13,630) (7,973)
Amortization of prepaid expenses and
fees 1,907,062 1,746,476 1,746,477
Shared Appreciation Income and prepayment
penalties (602,856) - -
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 423,641 425,062 154,566
Increase (decrease) in liabilities 6,688 4,140 (634)
Net cash provided by operating
activities 14,938,841 14,493,260 14,548,636
Investing activities:
Short-term investment - (488,210) (490,187)
Principal collections and prepayments on MBS
and insured mortgages 9,388,723 2,587,489 2,155,335
Principal collections and prepayments on
PIMs including Shared Appreciation Income
and prepayment penalties of $602,856
in 1997 18,422,260 1,211,435 1,113,310
Investment in MBS - - 27,909
Proceeds from sale of investment - 1,000,000 -
Net cash provided by investing
activities 27,810,983 4,310,714 2,806,367
Financing activities:
Distributions (16,850,799) (16,846,385) (16,844,532)
Special distributions (24,767,815) - -
Net cash used for financing
activities (41,618,614) (16,846,385) (16,844,532)
Net increase in cash and cash equivalents 1,131,210 1,957,589 510,471
Cash and cash equivalents, beginning of year 7,921,270 5,963,681 5,453,210
Cash and cash equivalents, end of year $ 9,052,480 $ 7,921,270 $ 5,963,681
Supplemental disclosure of non-cash investing
activities:
Reclassification of investment in a PIM to
a MBS $ 11,850,469 $ - $ -
The accompanying notes are an integral
part of the financial statements.
F-11
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).
MBS
The Partnership, in accordance with Financial Accounting
Standards Board s Special Report on Statement 115, "Accounting
for Certain Investments in Debt and Equity Securities" ( FAS
115 ), classifies its MBS portfolio as available-for-sale. As
such the Partnership carries its MBS at fair market value and
reflects any unrealized gains (losses) as a separate component
of Partners' Equity. The Partnership amortizes purchase
premiums or discounts over the life of the underlying mortgages
using the effective interest method.
PIMs
The Partnership accounts for the MBS portion of its PIM in
accordance with FAS 115 under the classification of held to
maturity. The Partnership carries the Government National
Mortgage Association ( GNMA ) or Federal National Mortgage
Association ( FNMA ) MBS at amortized cost.
The Federal Housing Administration PIM is carried at amortized
cost unless the General Partner of the Partnership believes
there is an impairment in value, in which case a valuation
allowance would be established in accordance with Financial
Accounting Standards No. 114, Accounting by Creditors for
impairment of a Loan, and Financial Accounting Standard No.
118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures.
F-12
Basic interest on PIMs is recognized based on the stated rate of
the Federal Housing Administration ("FHA") mortgage loan (less
the servicer's fee) or the stated coupon rate of the GNMA or
FNMA MBS. Participation interest is recognized as earned and
when deemed collectible by the Partnership.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Cash and Cash Equivalents
The Partnership includes all short-term 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 commercial paper and money market funds with a commercial bank and has.
not experienced any loss to date on its invested cash.
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 payoff of the underlying mortgage.
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 or GNMA 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, contingent assets and liabilities and
revenues and expenses during the period. Actual results could
differ from those estimates.
C. PIMs
The Partnership has investments in sixteen PIMs. Of the sixteen
PIMs, five 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.
Continued
C. PIMs, Continued
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" 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.
During the third quarter of 1997, the Partnership received a $437,963
payment for all additional interest earned on the Lily Flagg
Apartments PIM through the date of release of participation rights.
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 Shared Income Interest
of $335,000. On June 27, 1997, the Partnership made a special
distribution of $.71 per Unit to the
Limited Partners with the proceeds from the outstanding principal
proceeds, the prepayment penalty and the Shared Appreciation Interest.
During the fourth quarter of 1996, the borrower of the Colonial Park
Apartments PIM sold the property to a buyer that assumed the first
mortgage loan and future obligations arising from the participation
features. The Partnership received $35,000 as a discounted payoff of
the accumulated participation interest then due from the original
borrower. On October 15, 1997, the Partnership received a prepayment
of The Colonial Park Apartments PIM. The Partnership received the
outstanding first mortgage principal balance of $2,520,805 plus
outstanding interest. The Partnership collected a prepayment penalty
of approximately $25,000 and Shared Income Interest of $14,000 during
the fourth quarter of 1997. On November 21, 1997, the Partnership
made a special distribution of $.17 per unit to the Limited Partners
with the proceeds from the outstanding principal proceeds and the
prepayment penalty.
In November 1997, the Pine Ridge Apartments PIM was repaid by the
borrower. In addition to the outstanding balance due on the first
mortgage of $4,161,080, the Partnership received approximately
$243,000 of Shared Appreciation Interest and $284,000 of Shared
Income Interest. On December 19, 1997, the Partnership made a
special distribution of $.30 per Unit to the Limited Partners with
proceeds from the outstanding principal proceeds and the Share
Appreciation Interest.
At December 31, 1997 and 1996 there were no loans within the
Partnership s portfolio that were delinquent as to principal or
interest.
Listed in the chart is a summary of the Partnership's PIM
investments. The Partnership's PIMs consisted of the following at
December 31, 1997 and 1996:
Aggregate Number Permanent
Original of PIMs Interest Maturity Investment Basis
Issuer Principal at 12/31/97 Rate Range Date Range at December 31,
1997 1996
GNMA $ 91,074,860 11 (a) 6.25%-8.5% 4/23 - 4/31 $86,756,622 $116,109,644
(b)(c)(d)
FNMA 30,015,000 4 7.25%-7.75% 10/99 28,271,601 28,552,155
FHA 7,220,800 1 8.55% 11/30 7,019,830 7,056,127
$128,310,660 16 $122,048,053 $151,717,926
(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. Since then the
rate has been 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.
Continued
C. PIMs, Continued
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 will
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 10 states. The
apartment complexes range in size from 80 to 736 units.
D. MBS
During the third and fourth quarter of 1997, the Partnership received
prepayments on three multi-family MBS in the amounts of $2,318,901,
$2,425,094 and $2,824,583. The Partnership made two special
distributions of $.33 per unit per Limited Partner for the first two MBS
prepayments and $.19 per unit per Limited Partner interest for the third
MBS prepayment with the proceeds from these prepayments.
F-18
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
At December 31, 1997, the Partnership's MBS portfolio had an amortized
cost of $42,958,473 and unrealized gains of approximately $1,769,220.
At December 31, 1996, the Partnership's MBS portfolio has an amortized
cost of $40,728,433 and unrealized gains and losses of approximately
$830,450 and $275,114, 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
underall 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 1997, 1996 and 1995, the Partnership made quarterly distributions
totaling $1.12 per unit. During 1997, the Partnership made special
distributions totaling $1.69 per Unit.
As of December 31, 1997, the following cumulative partner contributions
and
allocations have been made since the inception of the Partnership:
Corporate
Limited General Unrealized
Unitholders Partner Partners Gain Total
Capital $292,176,381 $ 2,000 $ 3,000 $ - $292,181,381
contributions
Syndication
costs (15,580,734) - - - (15,580,734)
Quarterly (210,474,037) (1,472) (5,129,386) - (215,604,895)
distributions
Special (44,699,007) (305) - - (44,699,312)
distributions
Net income 157,173,558 1,100 4,861,071 - 162,035,729
Unrealized
gain on MBS - - - 1,769,220 1,769,220
Total at
December 31
1997 $178,596,161 $ 1,323 $ (265,315) $1,769,220 $180,101,389
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
F-20
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
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 1997 federal
income tax return is as follows:
Net income per statement of income $12,972,600
Add: Book to tax difference for participation
Income 183,826
Book to tax difference for amortization of
prepaid expenses and fees (115,328)
Net income for federal income tax purposes $13,041,098
The allocation of the 1997 net income for federal income tax purposes
is as follows:
Portfolio
Income
Unitholders $12,667,865
Corporate Limited Partner 86
General Partners 373,147
$13,041,098
For the years ended December 31, 1997, 1996 and 1995 the
average per unit income to the Unitholders for federal income
tax purposes was $.86, $.95 and $.84 respectively.
The basis of the Partnership s assets for financial reporting
purposes is less than its tax basis by approximately
$2,892,000 and $4,038,000 at December 31, 1997 and 1996,
respectively. The basis of the Partnership s liabilities for
financial reporting purposes are the same for its tax basis at
December 31, 1997 and 1996, respectively.
F-22
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
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:
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
H.Fair Value Disclosures of Financial Instruments, continued
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 of MBS based on
quoted market prices.
PIMs
There is no active 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.
Management does not include any participation income in the
Partnership s estimated fair value arising from the
properties, because Management does not believe it can predict
the time of realization of the 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 approximately $822,000 at December
31, 1997 and gross unrealized gains and losses of
approximately $3,282,000 and $343,000 respectively, at
December 31, 1996.
At December 31, 1997 and 1996, the estimated fair values of
the Partnership's financial instruments are as follows:
1997 1996
Cash and cash equivalents and
short-term investment $ 9,052 $ 7,921
MBS 44,728 41,284
PIMs 122,870 154,657
$176,650 $203,862
I. Subsequent Events
On February 17, 1998, the Partnership received repayments of the
Fallwood Apartments, Westbrook Manor Apartments and Greenbriar
Apartments PIMs, respectively. The Partnership received the
outstanding principal balances of $6,505,922, 4,841,446 and
$2,196,031 on the Fourth Ward Square and Meredith Square Apartment
PIMs, respectively. The Partnership received all unpaid Additional
Interest owed on all three deals totaling $619,893 as well as Shared
Appreciation Interest totaling $281,376. The Partnership will
distribute the capital proceeds from these three transactions to
investors through a special distribution in March of 1998.
F-24
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1997
Normal
Monthly Carrying
Interest Maturity Payment Original Current Amount at
PIMs (a) Rate (b) Date (k) (1) Face Amount Face Amount 12/31/97(r) GNMA
Country Meadows 8.25% 10/15/30 89,100 $12,475,000 $12,110,893 $12,110,893
Apts (c)(e)(h)
Savage, MD
Denrich
Apartments 6.25% 12/15/23 24,900 3,500,000 3,271,315 3,271,315
Philadelphia, PA (c)(e)
(h)(q)
Fallwood Apts 8.00% 7/15/23 49,700 7,000,000 6,515,712 6,515,712
Indianapolis, IN (c)(e)(h)
Greenbrier Apts 8.25% 9/15/23 17,100 2,350,000 2,197,833 2,197,833
Overland Park, KS (c)(e)(h)
Harbor House Apts 8.25% 4/12/31 89,200 12,484,304 12,168,416 12,168,416
Madison, WI (g)(h)(m)
Le Coeur du Monde 8.25% 10/15/30 70,100 9,814,200 9,523,294 9,523,294
Apts (c)(f)
St. Louis, MO (n)
Longwood Villas 8.00% 4/15/24 47,500 6,690,456 6,278,487 6,278,487
Apts (p)
Orlando, FL
Richmond Park 7.50% 8/15/24 107,900 16,000,000 14,962,634 14,962,634
Richmond Heights, (c)(e)(h)
OH
Saratoga Apts. 7.875% 8/15/24 47,300 6,750,000 6,343,907 6,343,907
Rolling Meadows, (c)(e)(h)
IL
The Greehouse 8.50% 2/15/30 64,600 8,810,900 8,538,584 8,538,584
Omaha, NE (d)(e)(h)
Westbrook Manor 8.25% 5/15/23 37,900 5,200,000 4,845,547 4,845,547
Apts. (c)(e)(h)
Omaha, NE
91,074,860 86,756,622 86,756,622
FNMA
Carlyle Court 7.25% 10/1/99 54,600 8,280,000 7,783,081 7,783,081
Indianapolis, IN (c)(e)(h) (o)
Hillside Court 7.25% 10/1/99 30,000 4,590,000 4,314,534 4,314,534
Centerville, OH (c)(e)(h) (o)
Stanford Court 7.25% 10/1/99 46,700 7,110,000 6,683,247 6,683,247
Speedway, IN (c)(e)(h) (o)
Normal
Monthly Carrying
Interest Maturity Payment Original Current Amount at
PIMs (a) Rate (b) Date (k) (1) Face Amount Face Amount 12/31/97(r)
Waterford Court 7.75% 10/1/99 69,500 10,035,000 9,490,739 9,490,739
Lafayette, IN (c)(g)(j) (o)
30,015,000 28,271,601 28,271,601
HUD
Walden Village 8.55% 11/1/30 53,200 7,220,800 7,019,830 7,019,830
Apts. (c)(f)(I)
Dayton, OH
$128,310,660 $122,048,053 $122,048,053
(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 less the servicing fee. 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 was 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 the
buyer assumed the first mortgage loan and any future obligations
arising under the participation features. The Partnership received
$35,000 as a discounted payoff of the accumulated participation
interest through the sale date.
F-31
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE, Continued
(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
$122,048,053.
A reconciliation of the carrying value of PIMs for each of the three
years in the period ended December 31, 1997 is as follows:
1997 1996 1995
Balance at beginning of period $151,717,926 $152,929,361 $154,042,671
Deductions during period:
Reclassification (11,850,469) - -
Prepayments and
principal collections (17,819,404) (1,211,435) (1,113,310)
Balance at end of period $122,048,053 $151,717,926 $152,929,361
F-32