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, 1996, there were no personnel directly employed by the Partnership.
ITEM 2.

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

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, 1996 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, to its Partners during the two years ended December 31, 1996 and 1995:
ITEM 6.

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

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 the first quarter of 1996, the borrower of the Lily Flagg Apartments PIM approached the Partnership about a potential sale of the property and the prepayment of the PIM. Since then, the borrower has informed the General Partners that a sale most likely will not occur until 1998 but requested a discharge of the loan s participation feature to improve the marketability of the property. The General Partners have agreed in principal to the borrower s request in exchange for a full payment of all additional interest earned through the date of the discharge, which is expected to occur during the second quarter of 1997.
The borrower of the Colonial Park Apartments PIM sold the property during 1996 to a buyer who assumed the first mortgage loan and future obligations arising from the participation features. In addition, the Partnership received $35,000 of participation interest from the borrower accumulated through the date of sale. This assumption will preserve a favorable coupon interest rate for the Partnership and provide an opportunity to receive additional participation interest from the future operations and sale or refinancing of the property. The buyer intends to make capital improvements at the property that should enhance its operations and value, and could ultimately increase the participation interest the Partnership receives from this investment.
Many of the other properties in the portfolio had solid performances during 1996. Average occupancy at most of the properties exceeded 90%, and moderate increases in market rental rates were achieved at many of the properties. Seven properties generated sufficient operating cash flow to reach the threshold for payment of participation interest to the Partnership during 1996.
The Harbor House Apartments PIM has experienced operating deficits, however, property operations improved this year as a result of a new management team that is controlling operating expenses. The General Partners will continue to monitor this situation. In the event the improved property operations do not continue, the borrower may not be able to meet debt service payments. Should the borrower default, the insured mortgage would be repaid through an insurance claim. While the Partnership would receive principal and basic interest on the insured mortgage, it would not receive any participation interest income.
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.
Two other properties experienced operating difficulties over the past year, primarily due to soft markets. Country Meadows physical occupancy fell to the mid-80% range during 1996. Rental rates at the property compete unfavorably with the cost of home ownership in blue-collar Laurel, Maryland. Consequently, deep rental concessions are offered to encourage prospective residents, but with little success. Denrich Apartments average occupancy also was in the mid-80% range during 1996. The Philadelphia neighborhood where the property is located has many other apartment communities that are offering rental rate concessions. The property is in need of significant repairs which the borrower is unable to address due to limited operating cash flow. The property currently is operating under a workout plan which expires in December 1997; however, it is unlikely that operations will improve enough to support the contracted debt service. The General Partners are monitoring both of these properties closely.
For the first five years of the PIMs the borrowers are prohibited from prepaying. For the second five years, the borrowers can prepay the loans and pay the greater of a prepayment penalty or all participation interest 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.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by the Government National Mortgage Association ( GNMA ), the Federal National Mortgage Association ( FNMA ), the Federal Home Loan Mortgage Corporation ( FHLMC ) or the United States Department of Housing and Urban Development ( HUD ) and therefore the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities.
FNMA is a federally chartered private corporation that guarantees obligations originated under its programs. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs and is wholly-owned by the twelve Federal Home Loan Banks. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA guarantees the timely payment of principal and basic interest on the securities it issues, which represents interest in pooled mortgages insured by HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by the full faith and credit of the U.S. Government.
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions, as defined by Section 17 of the Partnership Agreement, and the source of cash distributions for the year ended December 31, 1996 and the period from inception through December 31, 1996. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity.
(a) Represents all distributions paid in 1996 except the February 1996 distribution and includes an estimate of the distribution to be paid in February 1997. (b) Includes an estimate of the distribution to be paid in February 1997. (c) Limited Partners average per Unit return of capital as of February 1997 is $4.29 [$14.88 - $10.59] 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, 1996, 1995 and 1994.
Net income decreased slightly in 1996 as compared to 1995 due primarily to lower PIM base interest and MBS interest income and 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, base interest income on PIMs and other interest income 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.
Net income decreased approximately $1,492,000 during 1995 as compared to 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 totaled 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 a reduced asset base when compared to 1994.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. PART III
ITEM 10.

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 (50) Co-Chairman of the Board George Krupp (52) Co-Chairman of the Board Laurence Gerber (40) President Peter F. Donovan (43) Senior Vice President Robert A. Barrows (39) 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). Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and Krupp Government Income Trust II.
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.
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 $3.9 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 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.

ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, 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.

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.

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 to this report.
2. Financial Statement Schedule - see Index to Financial Statements and Schedule included under Item 8, Appendix A, page 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, 1996, 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 5th day of February, 1997.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
By: Krupp Plus Corporation, a General Partner
By: /s/ Douglas Krupp Douglas 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 5th day of February, 1997.
Signatures Title(s)
/s/ Douglas Krupp Co-Chairman (Principal Executive Officer) Douglas Krupp 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/ Laurence Gerber President of Krupp Plus Corporation, a Laurence Gerber 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 Robert A. Barrows Krupp Plus Corporation, a General 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, 1996
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants
Balance Sheets at December 31, 1996 and 1995
Statements of Income for the Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
Notes to Financial Statements -
Schedule IV - Mortgage Loans on Real Estate -
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 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, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 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 30, 1997
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
The accompanying notes are an integral part of the financial statements.
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
The accompanying notes are an integral part of the financial statments
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
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.
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, 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 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" 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 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. By permitting the sale, the Partnership will retain a favorable coupon rate and the potential to realize future participation income.
On September 30, 1994, the Partnership received a prepayment 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 under the Shared Appreciation calculation. 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.
Listed in the chart is a summary of the Partnership's PIM investments. The Partnership's PIMs consisted of the following at December 31, 1996 and 1995:
(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. 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 12 states. The apartment complexes range in size from 80 to 736 units.
D. MBS
At December 31, 1996, the Partnership's MBS portfolio has an amortized cost of $40,728,433 and unrealized gains and losses of approximately $830,000 and $275,000, respectively. At December 31, 1995, the Partnership's MBS portfolio had an unamortized cost of $43,315,922 and unrealized gains and losses of approximately $1,285,000 and $4,000, 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 1996 and 1995, the Partnership made quarterly distributions totaling $1.12 per unit. During 1994, the Partnership made quarterly distributions totaling $1.48 and special distributions of $1.18 per Unit.
As of December 31, 1996, the following cumulative partner contributions and allocations have been made since the inception of the Partnership:
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 1996 federal income tax return is as follows:
The allocation of the 1996 net income for federal income tax purposes is as follows:
For the years ended December 31, 1996, 1995 and 1994 the average per unit income to the Unitholders for federal income tax purposes was $.95, $.84 and $1.05, 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 of 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. Management does not include any participation income in the Partnership s estimated fair value arising from appreciation of 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 and losses of approximately $3,282,000 and $343,000 respectively, at December 31, 1996 and gross unrealized gains of approximately $5,606,000 at December 31, 1995.
At December 31, 1996 and 1995, the estimated fair values of the Partnership's financial instruments are as follows:
1996 1995 Cash and cash equivalents and short-term investment $ 7,921 $ 6,454 MBS 41,284 44,597 PIMs 154,657 158,535
$203,862 $209,586
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
(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. The Partnership received from the borrower $35,000 of participation interest accumulated through the date of sale. 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) 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.
(r) 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.
(s) The aggregate cost of PIMs for federal income tax purposes is $151,717,926.
A reconciliation of the carrying value of PIMs for each of the three years in the period ended December 31, 1996 is as follows: