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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 June 30, 2003
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
(Exact name of registrant as specified in its charter)
Massachusetts 04-2955007
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |_| No |X|
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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. When used in this Form 10-Q, the words "believes," "anticipates,"
"expects," "plans," "intends," "estimates," "continue," "may" or "will" (or the
negative of such words) and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties, including but not limited to the following: federal, state or
local regulations; adverse changes in general economic or local conditions;
prepayments of mortgages; failure of borrowers to pay participation interests
due to poor operating results of properties underlying the mortgages; uninsured
losses and potential conflicts of interest between the Partnership and its
Affiliates, including the General Partners. The Company's filings with the
Securities and Exchange Commission, including its Annual Report on Form 10-K for
the year ended December 31, 2002, contain additional information concerning such
risk factors. Actual results in the future could differ materially from those
described in any forward-looking statements as a result of the risk factors set
forth above, and the risk factors described in the Annual Report.
-2-
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
ASSETS
June 30, December 31,
2003 2002
------------ ------------
Mortgage-Backed Securities and insured
mortgage ("MBS") (Note 2) $ -- $ 13,681,978
Cash and cash equivalents (Note 4) 2,891,096 1,339,659
Interest receivable and other assets 3,796 95,673
------------ ------------
Total assets $ 2,894,892 $ 15,117,310
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 73,386 $ 44,509
------------ ------------
Partners' equity (deficit) (Note 3):
Limited Partners
(14,655,512 Limited Partner interests outstanding) 3,170,304 15,236,577
General Partners (348,798) (346,173)
Accumulated comprehensive income -- 182,397
------------ ------------
Total Partners' equity 2,821,506 15,072,801
------------ ------------
Total net assets in liquidation $ 2,894,892 $ 15,117,310
============ ============
The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Liquidation as of December 31, 2002)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues:
Interest income - PIMs:
Basic interest $ -- $ 121,186 $ -- $ 183,038
Interest income - MBS 6,205 454,391 305,406 1,037,960
Gain on sale of MBS 160,340 -- 160,340 --
Other interest income 25,500 23,925 54,155 29,600
----------- ----------- ----------- -----------
Total revenues 192,045 599,502 519,901 1,250,598
----------- ----------- ----------- -----------
Expenses:
Asset management fee to an affiliate -- 46,328 17,411 105,917
Expense reimbursements to affiliates 36,687 33,918 110,672 58,395
General and administrative 78,871 73,783 140,516 96,262
----------- ----------- ----------- -----------
Total expenses 115,558 154,029 268,599 260,574
----------- ----------- ----------- -----------
Net income 76,487 445,473 251,302 990,024
Other comprehensive income (loss):
Net change in unrealized gain on MBS (161,198) (497,260) (182,397) (518,400)
----------- ----------- ----------- -----------
Total comprehensive income (loss) $ (84,711) $ (51,787) $ 68,905 $ 471,624
=========== =========== =========== ===========
Allocation of net income (Note 3):
Limited Partners $ 74,192 $ 432,109 $ 243,763 $ 960,323
=========== =========== =========== ===========
Average net income per Limited Partner
interest (14,655,512 Limited Partner
interests outstanding) $ .01 $ .03 $ .02 $ .07
=========== =========== =========== ===========
General Partners $ 2,295 $ 13,364 $ 7,539 $ 29,701
=========== =========== =========== ===========
The accompanying notes are an integral
part of the financial statements.
-4-
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(In Liquidation as of December 31, 2002)
For the Six Months
Ended June 30,
-----------------------------
2003 2002
------------ ------------
Operating activities:
Net income $ 251,302 $ 990,024
Adjustments to reconcile net income to net
cash provided by operating activities:
Prepayment premium (113,638) --
Gain on sale of MBS (160,340) --
Changes in assets and liabilities:
Decrease in interest receivable and other assets 91,877 108,612
Increase in liabilities 28,877 66,980
------------ ------------
Net cash provided by operating activities 98,078 1,165,616
------------ ------------
Investing activities:
Principal collections on PIMs -- 3,101,005
Principal collections on MBS including a prepayment
premium of $113,638 in 2003 11,922,771 15,379,247
Proceeds from sale of MBS 1,850,788 --
------------ ------------
Net cash provided by investing activities 13,773,559 18,480,252
------------ ------------
Financing activities:
Quarterly distributions (742,940) (1,497,239)
Special distributions (11,577,260) (3,224,212)
------------ ------------
Net cash used for financing activities (12,320,200) (4,721,451)
------------ ------------
Net increase in cash and cash equivalents 1,551,437 14,924,417
Cash and cash equivalents, beginning of period 1,339,659 933,678
------------ ------------
Cash and cash equivalents, end of period $ 2,891,096 $ 15,858,095
============ ============
Non cash activities:
Decrease in unrealized gain on MBS $ (182,397) $ (518,400)
============ ============
The accompanying notes are an integral
part of the financial statements.
-5-
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(In Liquidation as of December 31, 2002)
1. Accounting Policies
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America 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, 2002 for
additional information relevant to significant accounting policies
followed by the Partnership.
In the opinion of the General Partners of the Partnership, 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 June 30, 2003, its results of
operations for the three and six months ended June 30, 2003 and 2002 and
its cash flows for the six months ended June 30, 2003 and 2002.
The results of operations for the three and six months ended June 30, 2003
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. MBS
On March 5, 2003, the Partnership received a payoff of the Hampton Place
insured mortgage for $11,363,788. The Partnership also received a
prepayment premium of $113,638 from this payoff. On May 5, 2003, the
Partnership paid a special distribution of $0.79 per Limited Partner
interest from the proceeds received.
On April 16, 2003, the Partnership sold its remaining MBS portfolio for
$1,856,266, including accrued interest of $5,478. The gain realized from
the sale was $160,340.
3. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June 30,
2003 is as follows:
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
------------ ------------ ------------ ------------
Balance at December 31, 2002 $ 15,236,577 $ (346,173) $ 182,397 $ 15,072,801
Net income 243,763 7,539 -- 251,302
Quarterly distribution (732,776) (10,164) -- (742,940)
Special distribution (11,577,260) -- -- (11,577,260)
Change in unrealized gain on MBS -- -- (182,397) (182,397)
------------ ------------ ------------ ------------
Balance at June 30, 2003 $ 3,170,304 $ (348,798) $ -- $ 2,821,506
============ ============ ============ ============
Continued
-6-
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
(In Liquidation as of December 31, 2002)
4. Subsequent Event
The Partnership completed the process of winding up its business during
the third quarter of 2003. Upon the occurrence of a Terminating Capital
Transaction, as defined in the Partnership Agreement, the Partnership
Agreement provides that profits, which were approximately $251,000, shall
be allocated first to the Limited Partners and General Partners to the
extent of any then existing negative account balances (or if the amounts
would be insufficient to reduce those negative capital account balances to
zero, then in proportion to any negative account balances). As of December
31, 2002, the General Partners had deficit account balances of
approximately $490,000 and the Limited Partners had positive account
balances of approximately $15,380,000. Therefore, all profits from the
Terminating Capital Transaction were allocated, for tax purposes, to the
General Partners to reduce their negative capital accounts. Subsequent to
this allocation, the General Partners had a remaining deficit balance in
their capital accounts of $248,513. This amount was contributed to the
Partnership by the General Partners on July 21, 2003, and was included
with other amounts available for distribution from the Terminating Capital
Transaction and was distributed to the Limited Partners on July 29, 2003
in a final liquidating distribution of approximately $0.21 per Limited
Partner interest.
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes contained in the Partnership's 2002
Annual Report on Form 10-K and in this Form 10-Q.
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this quarterly report on
Form 10-Q constitute "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the Partnership's actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include,
among other things, federal, state or local regulations; adverse changes in
general economic or local conditions; pre-payments of mortgages; failure of
borrowers to pay participation interests due to poor operating results at
properties underlying the mortgages; uninsured losses and potential conflicts of
interest between the Partnership and its Affiliates, including the General
Partners.
Liquidity and Capital Resources
On March 5, 2003, the Partnership received a payoff of the Hampton Place insured
mortgage for $11,363,788. The Partnership also received a prepayment premium of
$113,638 from this payoff. On May 5, 2003, the Partnership paid a special
distribution of $0.79 per Limited Partner interest from the proceeds received.
On April 16, 2003, the Partnership sold its remaining MBS portfolio for
$1,856,266, including accrued interest of $5,478. The realized gain from the
sale was $160,340.
At June 30, 2003, the Partnership had liquidity consisting of cash and cash
equivalents of approximately $2.9 million as well as interest earned on the
Partnership's cash and cash equivalents. The Partnership anticipates that these
sources will be adequate to provide the Partnership with sufficient liquidity to
meet its obligations during its liquidation.
The Partnership completed the process of winding up its business during the
third quarter of 2003. Upon the occurrence of a Terminating Capital Transaction,
as defined in the Partnership Agreement, the Partnership Agreement provides that
profits, which were approximately $251,000, shall be allocated first to the
Limited Partners and General Partners to the extent of any then existing
negative account balances (or if the amounts would be insufficient to reduce
those negative capital account balances to zero, then in proportion to any
negative account balances). As of December 31, 2002, the General Partners had
deficit account balances of approximately $490,000 and the Limited Partners had
positive account balances of approximately $15,380,000. Therefore, all profits
from the Terminating Capital Transaction were allocated, for tax purposes, to
the General Partners to reduce their negative capital accounts. Subsequent to
this allocation, the General Partners had a remaining deficit balance in their
capital accounts of $248,513. This amount was contributed to the Partnership by
the General Partners on July 21, 2003, and was included with other amounts
available for distribution from the Terminating Capital Transaction and was
distributed to the Limited Partners on July 29, 2003 in a final liquidating
distribution of approximately $0.21 per Limited Partner interest.
Critical Accounting Policy
The Partnership's critical accounting policy relates to the Partnership's
estimates included in its liquidation basis accounting statements. The
Partnership's policy is as follows:
The Partnership is in the process of winding up its business, which will be
completed in the third quarter of 2003. In connection therewith, the Partnership
has changed its basis of accounting as of December 31, 2002 from the
going-concern basis to the liquidation basis of accounting. The liquidation
basis of accounting requires that assets and liabilities be stated at their
estimated net realizable value and that estimated costs of liquidating the
Partnership be provided to the extent that they are reasonably determinable. The
Partnership estimates that the costs to liquidate will be approximately $2,500,
which primarily relates to final tax preparation work including the issuance of
final schedule K-1 statements to the partners. This amount has been included in
the Partnership's liabilities at June 30, 2003.
-8-
Results of Operations
Net income decreased in the three months ended June 30, 2003 as compared to June
30, 2002 primarily due to decreases in MBS interest income and basic interest on
PIMs. This decrease was partially offset by a decrease in asset management fees.
MBS interest decreased primarily due to the payoffs of the Richmond Park
Apartments MBS in June 2002 and the Hampton Place MBS in March 2003. MBS
interest income also decreased due to the sale of the remaining MBS portfolio in
April 2003. Basic interest on PIMs decreased due to the payoff of the Denrich
Apartments PIM in May 2002. Asset management fees decreased due to the decrease
in the Partnership's investments as a result of principal collections and
payoffs and the sale of the remaining MBS portfolio.
Net income decreased in the six months ended June 30, 2003 as compared to June
30, 2002 primarily due to decreases in MBS interest income and basic interest on
PIMs. This decrease was also due to an increase in expense reimbursements to
affiliates and was partially offset by a decrease in asset management fees. MBS
interest income decreased primarily due to the payoffs of the Richmond Park
Apartments MBS in June 2002 and the Hampton Place MBS in March 2003. MBS
interest income also decreased due to the sale of the remaining MBS portfolio in
April 2003. Basic interest on PIMs decreased due to the payoff of the Denrich
Apartments PIM in May 2002. Expense reimbursements to affiliates increased
primarily due to a change in the estimated cost of services provided to the
Partnership in 2002. Asset management fees decreased due to the decrease in the
Partnership's investments as a result of principal collections and payoffs and
the sale of the remaining MBS portfolio.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Assessment of Credit Risk
At June 30, 2003 the Partnership includes in cash and cash equivalents
approximately $2.9 million of commercial paper, which is issued by entities with
a credit rating equal to one of the top two rating categories of a nationally
recognized statistical rating organization.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the date of this Quarterly Report on Form 10-Q, the
Senior Vice President and Chief Accounting Officer of Krupp Plus Corporation, a
general partner of the Partnership, carried out an evaluation of the
effectiveness of the design and operation of the Partnership's disclosure
controls and procedures. Based upon that evaluation, the Senior Vice President
and the Chief Accounting Officer concluded that the Partnership's disclosure
controls and procedures were effective as of the date of their evaluation in
timely alerting them to material information relating to the Partnership
required to be included in this Quarterly Report on Form 10-Q.
(b) Changes in Internal Controls
There were no significant changes in the Partnership's internal controls or in
other factors that could significantly affect such internal controls subsequent
to the date of the evaluation described in paragraph (a) above.
-9-
KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(31.1) Senior Vice President Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
(31.2) Chief Accounting Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
(32.1) Senior Vice President Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(32.2) Chief Accounting Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
-10-
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/ Alan Reese
------------------
Alan Reese
Treasurer and Chief Accounting Officer of Krupp
Plus Corporation, a General Partner.
Date: August 6, 2003
-11-