-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QczRhy9TmYtVAzKZF+BBnfjPLmg6RtHZrgPs8dJTU2MExPpzibS7GpgWwVYgXBVQ vf1QcJq0Tjz9ktg1X8ZrGQ== 0000805297-99-000010.txt : 19991117 0000805297-99-000010.hdr.sgml : 19991117 ACCESSION NUMBER: 0000805297-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED PLUS II LTD PARTNERSHIP CENTRAL INDEX KEY: 0000805297 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 042955007 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16817 FILM NUMBER: 99755976 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 KRUPP INSURED PLUS-II LIMITED PARTNERSHIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-16817 Krupp Insured Plus-II Limited Partnership Massachusetts 04-2955007 (State or other jurisdiction (IRS employer identification no.) of incorporation or organization) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (617) 523-0066 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. KRUPP INSURED PLUS-II LIMITED PARTNERSHIP BALANCE SHEETS
ASSETS September 30, December 31, 1999 1998 Participating Insured Mortgages ("PIMs") $ 41,937,706 $ 82,258,207 (Note 2) Mortgage-Backed Securities and multi-family insured mortgages("MBS") (Note 3) 22,705,655 24,792,352 Total mortgage investments 64,643,361 107,050,559 Cash and cash equivalents 5,853,876 8,758,737 Interest receivable and other assets 446,954 730,829 Prepaid acquisition fees and expenses, net of accumulated amortization of $ 3,549,516 and $6,024,495, respectively 220,243 889,863 Prepaid participation servicing fees, net of accumulated amortization of $1,049,103 and $1,876,746, respectively 15,960 196,774 Total assets $ 71,180,394 $ 117,626,762 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 13,499 $ 252,769 Partners' equity (deficit) (Note 4): Limited Partners 71,291,958 117,123,621 (14,655,512 Limited Partner interests outstanding) General Partners (301,437) (290,140) Accumulated comprehensive income 176,374 540,512 Total Partners' equity 71,166,895 117,373,993 Total liabilities and partners' equity $ 71,180,394 $ 117,626,762
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-II LIMITED PARTNERSHIP STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Revenues: Interest income - PIMs: Basic interest $ 1,105,078 $ 1,702,648 $ 3,093,112 $ 5,817,579 Participation interest 1,575,288 252,416 1,635,364 2,400,673 Interest income - MBS 448,390 723,304 1,387,520 2,594,608 Other interest income 51,951 202,494 374,417 778,994 Total revenues 3,180,707 2,880,862 6,490,413 11,591,854 Expenses: Asset management fee to an affiliate 122,529 239,030 396,729 779,026 Expense reimbursements to affiliates 29,264 24,426 64,894 33,022 Amortization of prepaid fees and expenses 123,689 286,770 850,434 1,575,446 General and administrative 75,179 54,586 151,131 189,767 Total expenses 350,661 604,812 1,463,188 2,577,261 Net income 2,830,046 2,276,050 5,027,225 9,014,593 Other comprehensive income: Net change in unrealized gain on MBS (207,350) 338,022 (364,138) (54,345) Total comprehensive income $ 2,622,696 $ 2,614,072 $ 4,663,087 $ 8,960,248 Allocation of net income (Note 4): Limited Partners $ 2,745,144 $ 2,207,768 $ 4,876,408 $ 8,744,155 Average net income per Limited Partner interest (14,655,512 Limited Partner interests outstanding) $ .18 $ .15 $ .33 $ .60 General Partners $ 84,902 $ 68,282 $ 150,817 $ 270,438
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 1998 Operating activities: Net income $ 5,027,225 $ 9,014,593 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 850,434 1,575,446 Shared Appreciation income and prepayment premiums (1,162,777) (1,471,582) Changes in assets and liabilities: Decrease in interest receivable and other assets 283,875 320,335 (Decrease) / increase in liabilities (239,270) 776 Net cash provided by operating activities 4,759,487 9,439,568 Investing activities: Principal collections on PIMs including shared appreciation income and prepayment premiums of 1,162,777 in 1999 and $1,335,952 in 1998 41,483,278 33,938,442 Principal collections on MBS including a prepayment premium of $135,630 in 1998 1,722,559 6,552,104 Net cash provided by investing activities 43,205,837 40,490,546 Financing activities: Special distributions (41,035,433) (37,664,665) Quarterly distributions (9,834,752) (12,625,815) Net cash used for financing activities (50,870,185) (50,290,480) Net decrease in cash and cash equivalents (2,904,861) (360,366) Cash and cash equivalents, beginning of period 8,758,737 9,052,480 Cash and cash equivalents, end of period $ 5,853,876 $ 8,692,114
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 1. Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this report on Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of the general partners, Krupp Plus Corporation and Mortgage Services Partners Limited Partnership, (collectively the "General Partners") of Krupp Insured Plus-II Limited Partnership (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Financial Statements included in the Partnership's Form 10-K for the year ended December 31, 1998 for additional information relevant to significant accounting policies followed by the Partnership. In the opinion of the General Partners, the accompanying unaudited financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's financial position as of September 30, 1999, its results of operations for the three and nine months ended September 30, 1999 and 1998 and its cash flows for the nine months ended September 30, 1999 and 1998. The results of operations for the three and nine months ended September 30, 1999 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. 2. PIMs In January 1999, the Partnership received prepayments of the Stanford Court, Hillside Court, Carlyle Court and Waterford Court Apartment PIMs in the amounts of $6,609,242, $4,266,759, $7,696,897 and $9,394,386, respectively. In addition to the prepayments, the Partnership received $860,052 of Shared Appreciation Interest and prepayment premiums and $432,877 of Minimum Additional Interest and Shared Income Interest during December 1998. On February 26, 1999, the Partnership made a special distribution of the capital transaction proceeds to the Limited Partners of $1.97 per Limited Partner interest. In May 1999, the Partnership received a prepayment of the Country Meadows PIM in the amount of $12,015,224 plus a $60,076 prepayment premium. On June 18, 1999, the Partnership made a special distribution of $.83 per Limited Partner interest with the capital transaction proceeds. In September, the Partnership received a prepayment penalty and Minimum Additional and Shared Income interest of $1,102,701, $472,587, respectively in connection with the repayment of the Le Coeur du Monde PIM. The Partnership also received $279,447 relating to repayment of interest rate rebates. The Partnership received the principal proceeds of $9,422,001 in October. The principal proceeds and Shared Appreciation Income will be distributed to the Limited Partners through a special distribution. During the third quarter the Partnership was informed of the potential for a payoff on the Saratoga PIM during the fourth quarter of 1999. The Partnership does not expect to receive any prepayment penalties or additional interest. The principal proceeds will be distributed to the Limited Partners through a special distribution when the payoff occurs. 3. MBS At September 30, 1999, the Partnership's MBS portfolio had an amortized cost of $22,529,281 and gross unrealized gains and losses of $ 219,340, and $42,966, respectively. The Partnership's MBS have maturities ranging from 2007 to 2030. At September 30, 1999, the Partnership's insured mortgage loan was not delinquent with respect to principal or interest payments. At September 30, 1999, the Partnership's PIM portfolio had a fair value of $42,500,533 and gross unrealized gains of $562,827. The Partnership's PIMs have maturities ranging from 2023 to 2030. Continued KRUPP INSURED PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS _________ 4. Changes in Partners' Equity A summary of changes in Partners' Equity for the nine months ended September 30, 1999 is as follows:
Accumulated Total Limited General Comprehensive Partner's Partners Partners Income Equity Balance at December 31, 1998 $ 117,123,621 $ (290,140) $ 540,512 $ 117,373,993 Net income 4,876,408 150,817 - 5,027,225 Quarterly distributions (9,672,638) (162,114) - (9,834,752) Special distributions (41,035,433) - - (41,035,433) Change in unrealized gain on MBS - - (364,138) (364,138) Balance at September 30, 1999 $ 71,291,958 $ (301,437) $ 176,374 $ 71,166,895
5. Subsequent Event Special Distribution During November, 1999 the Partnership will pay a special distribution of $.72 per Limited Partner interest. The special distribution consists of the principal proceeds and Shared Appreciation Income and received on the Le Coeur du Monde payoff. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. Impact of the Year 2000 Issue The General Partners of the Partnership have conducted an assessment of the Partnership's core internal and external computer information systems and have taken the necessary steps to further understand the nature and extent of the work required to make its systems Year 2000 ready in those situations in which it is required to do so. The Year 2000 readiness issue concerns the inability of computerized information systems to accurately calculate, store or use a date after 1999. This could result in a system failure or miscalculations causing disruptions of operations. The Year 2000 issue affects virtually all companies and all organizations. In this regard, the General Partners, along with certain affiliates, began a computer systems project in 1997 to significantly upgrade its existing hardware and software. The General Partners completed the testing and conversion of the financial accounting operating systems in February 1998. As a result, the General Partners have generated operating efficiencies and believe their financial accounting operating systems are Year 2000 ready. The General Partners incurred hardware costs as well as consulting and other expenses related to the infrastructure and facilities enhancements necessary to complete the upgrade and prepare for the Year 2000. There are no other significant internal systems or software that the Partnership is using at the present time. The General Partners surveyed the Partnership's material third-party service providers (including but not limited to its banks and telecommunications providers) and significant vendors and received assurances that such service providers and vendors are Year 2000 ready. The Partnership does not anticipate any problems with such providers or vendors that would materially impact its results of operations, liquidity or capital resources. Nevertheless the General Partners are developing contingency plans for all of their "mission-critical functions" to insure business continuity. The Partnership is also subject to external forces that might generally affect industry and commerce, such as utility and transportation company Year 2000 readiness failures and related service interruptions. However, the General Partners do not anticipate any material impact to the Partnership's results of operations, liquidity and capital resources. To date, the Partnership has incurred $13,899 of costs associated with being Year 2000 ready. The Partnership does not expect to incur any additional Year 2000 readiness costs. Liquidity and Capital Resources The most significant demands on the Partnership's liquidity are regular quarterly distributions paid to investors of approximately $1.5 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. On February 26, 1999 the Partnership made a special distribution to the Limited Partners of $1.97 per Limited Partner Interest. This special distribution was the result of the prepayment of the Stanford Court, Hillside Court, Carlyle Court and Waterford Court Apartment PIMs. The Partnership received principal of $27,967,284, Shared Appreciation Income and prepayment premiums of $860,052, and Minimum Additional and Shared Income Interest of $432,877 from these prepayments. On June 18, 1999, the Partnership made a special distribution of $.83 per Limited Partner interest with the proceeds of the Country Meadows PIM. The Partnership received principal of $12,015,224 and a prepayment premium of $60,076 from this prepayment. On September 29, 1999, the Partnership received Shared Appreciation Income and Minimum Additional and Shared Income interest of $1,102,701 and $472,587, respectively in connection with the Le Coeur du Monde PIM. The Partnership also received $279,447 relating to repayment of interest rate rebates. The Partnership received the principal proceeds of $9,422,001 in October. The principal proceeds and Shared Appreciation Income will be distributed to the Limited Partners through a special distribution. The General Partners believe the Partnership can maintain the quarterly distribution rate of $.10 per Limited Partner Interest for the near future. However, in the event of additional 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. The Partnership has the option to call certain PIMs by accelerating their maturity if the loans are not prepaid by the tenth year after permanent funding. The Partnership will determine the merits of exercising the call option for each PIM as economic conditions warrant. Such factors as the condition of the asset, local market conditions, interest rates and available financing will have an impact on this decision. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by the Government National Mortgage Association (GNMA), Fannie Mae, 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. Fannie Mae 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. Results of Operations The following discussion relates to the operation of the Partnership during the three and nine months ended September 30, 1999 and 1998. Net income increased for the three months ended September 30, 1999 as compared to the corresponding period in 1998 by approximately $554,000 due primarily to higher participation interest and lower asset management fees and amortization expense, net of decreases in interest income on PIMs and MBS. The increase in participation interest is due to receiving significant participation interest during the third quarter of 1999 from the Le Coeur Du Monde PIM. The reduction in basic interest on PIMs is due to the payoff of Carlyle Court, Hillside Court, Stanford Court and Waterford Court in January 1999, Country Meadows in May 1999, and Walden Village during 1998. The reduction in interest income on MBS is due primarily to the payoff of the Lily Flagg multi-family MBS during 1998 along with continuing prepayments on the Partnership's single-family MBS. Net income decreased during the nine months ended September 30, 1999 when compared to the corresponding period in 1998 by approximately $3,987,000 due primarily to lower interest income on PIMs and MBS, net of decreases in asset management fees and amortization expense resulting from prepayments. The reduction in basic interest on PIMs is due to the payoff of Carlyle Court, Hillside Court, Stanford Court and Waterford Court in January 1999, Country Meadows in May 1999, and Westbrook Manor, Fallwood, Greenbrier, Harbor House, Walden Village and Longwood Villas during 1998. The reduction in participation interest on PIMs is due to receiving significant participation interest during the nine months of 1998 from the payoffs of the Westbrook Manor, Fallwood, Greenbrier, Harbor House and Longwood Villas PIMs and the Brookside and Lily Flagg insured mortgages. The reduction in interest income on MBS is due primarily to the payoff of the Lily Flagg and Brookside multi-family MBS during 1998 along with continuing prepayments on the Partnership's single-family MBS. Interest income on PIMs and MBS will continue to decline as principal collections reduce the outstanding balance of the portfolios. The Partnership funds a portion of distributions with MBS and PIM principal collections, which reduces the invested assets generating income for the Partnership. As the invested assets decline, interest income to the Partnership will decline. KRUPP INSURED PLUS-II LIMITED PARTNERSHIP PART II - OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote Security Holders Response: None Item 5. Other information Response: None Item 6. Exhibits and Reports on Form 8-K Response: None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Krupp Insured Plus-II Limited Partnership (Registrant) BY: / s / Robert A. Barrows Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Plus Corporation, a General Partner. Date: October 29, 1999 EX-27 2 FDS --
5 The schedule contains summary financial information extracted from the balance sheet and statement of income and is qualified in its entirety by reference to such financial statements. 0000805297 KRUPP INSURED PLUS-II LIMITED PARTNERSHIP 9-MOS Dec-31-1999 Sep-30-1999 5,853,876 64,643,361 446,954 0 0 236,203 0 0 71,180,394 13,499 0 0 0 70,990,521 176,374 71,180,394 0 6,490,413 0 0 1,463,188 0 0 5,027,225 0 5,027,225 0 0 0 5,027,225 0 0 Includes Participating Insured Mortgages ("PIMs") of $41,937,706 and Mortgage-Backed Securities ("MBS") of $22,705,655. Includes prepaid acquisition fees and expenses of $3,769,759 net of accumulated amortization of $3,549,516 and prepaid participation servicing fees of $1,065,063 net of accumulated amortization of $1,049,103. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($301,437) and Limited Partners equity of $71,291,958. Unrealized gains on MBS. Represents interest income on investments in mortgages and cash. Includes $850,434 of amortization of prepaid fees and expenses. Net income allocated $150,817 to the General Partners and $4,876,408 to the Limited Partners. Average net income per Limited Partner interest is $.33 on 14,655,512 Limited Partner interests outstanding.
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