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