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 March 31, 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
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.
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KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
ASSETS
March 31, December 31,
2003 2002
------------ ------------
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes 2 and 4) $ 1,971,998 $ 13,681,978
Cash and cash equivalents 12,534,727 1,339,659
Interest receivable and other assets 23,240 95,673
------------ ------------
Total assets $ 14,529,965 $ 15,117,310
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 47,169 $ 44,509
------------ ------------
Partners' equity (deficit) (Note 3):
Limited Partners
(14,655,512 Limited Partner interests outstanding) 14,673,372 15,236,577
General Partners (351,774) (346,173)
Accumulated comprehensive income 161,198 182,397
------------ ------------
Total Partners' equity 14,482,796 15,072,801
------------ ------------
Total net assets in liquidation $ 14,529,965 $ 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
Ended March 31,
-------------------------
2003 2002
--------- ---------
Revenues:
Interest income - PIMs:
Basic interest $ -- $ 61,852
Interest income - MBS 299,201 583,569
Other interest income 28,655 5,675
--------- ---------
Total revenues 327,856 651,096
--------- ---------
Expenses:
Asset management fee to an affiliate 17,411 59,589
Expense reimbursements to affiliates 73,985 24,477
General and administrative 61,645 22,479
--------- ---------
Total expenses 153,041 106,545
--------- ---------
Net income 174,815 544,551
Other comprehensive income:
Net change in unrealized gain on MBS (21,199) (21,140)
--------- ---------
Total comprehensive income $ 153,616 $ 523,411
========= =========
Allocation of net income (Note 3):
Limited Partners $ 169,571 $ 528,214
========= =========
Average net income per Limited Partner
interest (14,655,512 Limited Partner
interests outstanding) $ .01 $ .04
========= =========
General Partners $ 5,244 $ 16,337
========= =========
The accompanying notes are an integral
part of the financial statements.
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KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(In Liquidation as of December 31, 2002)
For the Three Months
Ended March 31,
-------------------------------
2003 2002
------------ ------------
Operating activities:
Net income $ 174,815 $ 544,551
Prepayment premium (113,638) --
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in assets and liabilities:
Decrease in interest receivable and other assets 72,433 6,810
Increase in liabilities 2,660 8,712
------------ ------------
Net cash provided by operating activities 136,270 560,073
------------ ------------
Investing activities:
Principal collections on PIMs -- 12,619
Principal collections on MBS including a prepayment
premium of $113,638 in 2003 11,802,419 932,576
------------ ------------
Net cash provided by investing activities 11,802,419 945,195
------------ ------------
Financing activity:
Quarterly distributions (743,621) (748,127)
------------ ------------
Net increase in cash and cash equivalents 11,195,068 757,141
Cash and cash equivalents, beginning of period 1,339,659 933,678
------------ ------------
Cash and cash equivalents, end of period $ 12,534,727 $ 1,690,819
============ ============
Non cash activities:
Decrease in unrealized gain on MBS $ (21,199) $ (21,140)
============ ============
The accompanying notes are an integral
part of the financial statements.
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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 March 31, 2003 and the results
of operations and cash flows for the three months ended March 31, 2003 and
2002.
The results of operations for the three months ended March 31, 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.
At March 31, 2003, the Partnership's MBS portfolio had an amortized cost
of approximately $1,810,800 and unrealized gains of approximately
$161,000. The portfolio has maturities ranging from 2008 to 2023.
3. Changes in Partners' Equity
A summary of changes in Partners' Equity for the three months ended March
31, 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 169,571 5,244 -- 174,815
Quarterly distributions (732,776) (10,845) -- (743,621)
Change in unrealized gain on MBS -- -- (21,199) (21,199)
------------ ------------ ------------ ------------
Balance at March 31, 2003 $ 14,673,372 $ (351,774) $ 161,198 $ 14,482,796
============ ============ ============ ============
4. Subsequent Event
On April 16, 2003, the Partnership sold $1,689,593 its remaining MBS
portfolio for $1,850,788. The gain from the sale was approximately
$161,000.
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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 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; 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.
At March 31, 2003, the Partnership had liquidity consisting of cash and cash
equivalents of approximately $12.5 million as well as the cash flow provided by
its investments in MBS and 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.
On April 16, 2003, the Partnership sold its remaining MBS portfolio for
$1,856,266. The gain from the sale was approximately $161,000.
The Partnership is in the process of winding up its business and expects to make
a Terminating Capital Transaction distribution, as defined in the Partnership
Agreement, to the partners in the second quarter of 2003. Upon the occurrence of
a Terminating Capital Transaction, the Partnership Agreement provides that
profits from the Terminating Capital Transaction shall be allocated first to the
Limited Partners and General Partners to the extent of any then existing
negative account balances (or if the amount would be insufficient to reduce
those negative capital account balances to zero, then in proportion to any
negative account balances). The Advisor has estimated that the profits from the
Terminating Capital Transaction will be approximately $200,000. 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 estimated profits from the Terminating Capital
Transaction will be allocated, for tax purposes, to the General Partners to
reduce their negative capital accounts. Amounts available for distribution from
the Terminating Capital Transaction, however, will be distributed to the Limited
Partners. Upon the dissolution and termination of the Partnership, the General
Partners will contribute to the Partnership an amount equal to the remaining
deficit balance in their capital accounts. The General Partners have estimated
that the deficit balance will be approximately $290,000, which, after
satisfaction of any other obligations of the Partnership, will also be
distributed to the Limited Partners.
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 it expects
to complete in the second 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 March 31, 2003.
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Results of Operations
Net income decreased in the first quarter of 2003 as compared to the first
quarter of 2002 primarily due to decreases in MBS interest income and basic
interest on PIMs. This decrease was also due to increases in expense
reimbursements to affiliates and general and administrative expenses. MBS
interest decreased primarily due to the payoff of the Richmond Park Apartments
MBS in June 2002 and single-family MBS principal collections. Basic interest on
PIMs decreased due to the payoff of the Denrich Apartments PIM in May 2002.
Expense reimbursements to affiliates and general and administrative expenses
increased for the period ended March 31, 2003 primarily due to a change in the
estimated cost of services provided to the Partnership in 2002.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Assessment of Credit Risk
The Partnership's investments in MBS are guaranteed and/or insured by Fannie Mae
or the Federal Home Loan Mortgage Corporation ("FHLMC") 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. These
obligations are not guaranteed by the U.S. Government or the Federal Home Loan
Bank Board. However, Fannie Mae and FHLMC are two of the largest corporations in
the United States with significant experience in mortgage securitizations. In
addition, their MBS instruments carry the highest credit rating given to
financial instruments.
At March 31, 2003 the Partnership includes in cash and cash equivalents
approximately $12.3 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
Principal Executive Officer 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 Principal Executive
Officer 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.
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KRUPP INSURED PLUS-II LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
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
(99.1) Principal Executive Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(99.2) 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
-9-
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: April 28, 2003
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Certifications
I, Douglas Krupp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Krupp Insured
Plus - II Limited Partnership;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 28, 2003
/s/ Douglas Krupp
----------------------------
Douglas Krupp
Principal Executive Officer
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Certifications
I, Alan Reese, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Krupp Insured
Plus - II Limited Partnership;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 28, 2003
/s/ Alan Reese
---------------------------------
Alan Reese
Chief Accounting Officer
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