<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to _______ .
Commission File Number: 0-18076
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3038480
-------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
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 |_|.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
BALANCE SHEETS
January 31, 2000 and July 31, 1999 (Unaudited)
(In thousands)
ASSETS
January 31 July 31
---------- -------
Investments in Debt Securities:
Mortgage-Backed Securities available
for sale $ 2,340 $ 2,715
Participating Insured Mortgage Loans
available for sale 10,717 17,930
-------- --------
13,057 20,645
Cash and cash equivalents 9,270 1,420
Interest and other receivables 93 145
Deferred expenses, net 70 177
-------- --------
$ 22,490 $ 22,387
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 25 $ 25
Accounts payable and accrued expenses 55 39
Partners' capital 22,410 22,323
-------- --------
$ 22,490 $ 22,387
======== ========
See accompanying notes.
<PAGE>
<TABLE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three and six months ended January 31, 2000 and 1999 (Unaudited)
(In thousands, except per Unit data)
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Interest income - Debt Securities $ 405 $ 438 $ 823 $ 885
Interest income - Money Market 29 27 49 53
------- ------- ------- ------
434 465 872 938
Expenses:
Management fees 45 47 90 96
General and administrative 64 48 102 92
Amortization expense 44 44 88 88
------ ------- ------- ------
153 139 280 276
------- ------- ------- ------
Operating income 281 326 592 662
Gain on sale of Participating
Insured Mortgage Loan 519 - 519 -
------- ------- ------- ------
Net income 800 326 1,111 662
Other comprehensive income (loss):
Unrealized holding gains (losses)
on debt securities 328 129 392 (120)
Reclassification adjustment for
gain on sale of debt security
included in net income (519) - (519) -
------- ------- ------- ------
(191) 129 (127) (120)
------- ------- ------- ------
Comprehensive income $ 609 $ 455 $ 984 $ 542
======= ======= ======= ======
Net income per Unit of Depositary
Receipt $ 1.43 $ 0.58 $ 1.99 $ 1.19
======= ======= ======= ======
Cash distributions per Unit of
Depositary Receipt $ 0.80 $ 0.86 $ 1.61 $ 1.72
======= ======= ======= ======
</TABLE>
The above net income and cash distributions per Unit of Depositary Receipt
are based upon the 551,604 Units outstanding for each period.
See accompanying notes.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended January 31, 2000 and 1999 (Unaudited)
(In thousands)
Corporate Limited
General Partner and
Partner Unitholders
------- -----------
Balance at July 31, 1998 $ (4) $ 24,764
Comprehensive income:
Net income 7 655
Net unrealized holding loss on debt
securities - (120)
------- --------
7 535
Cash distributions (8) (946)
------- --------
Balance at January 31, 1999 $ (5) $ 24,353
======= ========
Balance at July 31, 1999 $ (6) $ 22,329
Comprehensive income:
Net income 11 1,100
Net unrealized holding gain on debt
securities - 392
Reclassification adjustment for
gain on sale of debt security
included in net income - (519)
------- --------
11 973
Cash distributions (7) (890)
------- --------
Balance at January 31, 2000 $ (2) $ 22,412
======= ========
See accompanying notes.
<PAGE>
<TABLE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
STATEMENTS OF CASH FLOWS
For the six months ended January 31, 2000 and 1999
Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
(In thousands)
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,111 $ 662
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of Participating Insured Mortgage Loan (519) -
Amortization expense 88 88
Amortization of discount/premium on debt securities 30 29
Changes in assets and liabilities:
Interest and other receivables 52 6
Accounts payable - affiliates - (1)
Accounts payable and accrued expenses 16 (3)
------- -------
Total adjustments (333) 119
------- -------
Net cash provided by operating activities 778 781
------- -------
Cash flows from investing activities:
Principal collections on Mortgage-Backed Securities 307 781
Principal collections on Participating Insured
Mortgage Loans 50 46
Net proceeds from sale of Participating Insured Mortgage Loan 7,612 -
------- -------
Net cash provided by investing activities 7,969 827
------- -------
Cash flows from financing activities:
Distributions to Unitholders and partners (897) (954)
------- -------
Net increase in cash and cash equivalents 7,850 654
Cash and cash equivalents, beginning of period 1,420 1,702
------- -------
Cash and cash equivalents, end of period $ 9,270 $ 2,356
======= =======
</TABLE>
See accompanying notes.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
Notes to Financial Statements
(Unaudited)
1. General
-------
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in the
Partnership's Annual Report for the year ended July 31, 1999. In the opinion of
management, the accompanying financial statements, which have not been audited,
reflect all adjustments necessary to present fairly the results for the interim
period. All of the accounting adjustments reflected in the accompanying interim
financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of January 31, 2000 and July 31, 1999 and revenues and
expenses for each of the three- and six-month periods ended January 31, 2000 and
1999. Actual results could differ from the estimates and assumptions used.
As previously reported, the Partnership has been analyzing potential
disposition strategies for its remaining investments. As discussed further in
Note 3, on January 26, 2000 the Partnership received total consideration of
approximately $7,747,000 for the sale of its Participating Insured Mortgage Loan
secured by the Quarter Mill Apartments, a 266-unit facility located in Richmond,
Virginia. Subsequent to the disposition of the Partnership's Quarter Mill
investment, management began the process of liquidating the Partnership's
portfolio of non-participating mortgage-backed securities through secondary
market sale transactions. As discussed further in Note 2, such sales were
completed in late February 2000, with the Partnership receiving total proceeds
of $2,318,000. In addition, the Partnership continues to evaluate the current
economic benefits it would receive if the owner of the Emerald Cove Apartments
was to prepay its Participating Loan in the near term. If a near term prepayment
of the Emerald Cove investment is not completed, in all likelihood, the
Partnership will conduct a secondary market sale process similar to the one
completed for Quarter Mill. Under either scenario, management expects to be able
to complete a liquidation of the Partnership by early in the second quarter of
calendar year 2000. There are no assurances, however, that the disposition of
the remaining asset and a liquidation of the Partnership will be completed
within this time frame.
2. Mortgage-Backed Securities
-------------------------
At January 31, 2000 and July 31, 1999, the Partnership held
non-participating mortgage-backed securities ("MBS") backed by single-family or
multi-family mortgage loans issued or originated in connection with the housing
programs of the Government National Mortgage Association ("GNMA"), and
guaranteed by GNMA, as follows (in thousands):
<TABLE>
<CAPTION>
January 31, 2000 July 31, 1999
--------------------------------- -----------------------------------
Estimated Estimated
Market Face Amortized Market Face Amortized
Description Value Value Cost Value Value Cost
------------ ------ ----- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
9.5% GNMA Pool $ 893 $ 856 $ 854 $ 1,056 $ 986 $ 982
9.0% GNMA Pool 57 57 59 78 76 79
8.0% GNMA Pool 1,287 1,285 1,307 1,469 1,437 1,480
7.5% GNMA Pool 103 106 105 112 112 111
------- ------- ------- ------- ------- -------
$ 2,340 $ 2,304 $ 2,325 $ 2,715 $ 2,611 $ 2,652
======= ======= ======= ======= ======= =======
</TABLE>
The Partnership's investments in MBS are carried at fair value as of
January 31, 2000 and July 31, 1999. Investments in MBS are valued based on
quoted market prices. The amortized cost of the MBS represents the face value of
the securities net of unamortized premium or discount. Beginning in fiscal 1998,
the premiums and discounts are being amortized on a straight-line basis over the
expected remaining holding periods of the investments of three years. Prior to
fiscal 1998, the premium and discounts were being amortized over an original
estimated holding period of fifteen years. Investments in non-participating MBS
were limited to no more than 30% of the original net offering proceeds per the
terms of the Partnership's offering prospectus. The loans included in these GNMA
pool programs may be prepaid, without penalty, at any time.
As discussed in Note 1, subsequent to the sale of the Quarter Mill
Participating Insured Mortgage Loan, on January 26, 2000 (see Note 3), the
Partnership began the process of liquidating its portfolio of non-participating
mortgage-backed securities through secondary market sale transactions.
Subsequent to the current quarter-end, the Partnership received total proceeds
of $2,318,000 in connection with these sale transactions, which included accrued
interest of $11,000. All of the sale transactions closed in February 2000. The
9.5% MBS, which were purchased at a discount on December 14, 1988, carried a
coupon interest rate of 9.5% per annum and included loans with scheduled
maturities between June 2009 and December 2009. The 9.5% MBS were sold at a
premium with a settlement date of February 22, 2000. The 9.0% MBS, which were
purchased at a premium on November 16, 1989, carried a coupon interest rate of
9.0% per annum and included loans with scheduled maturities between June 2001
and September 2002. The 9.0% MBS were sold at par with a settlement date of
February 17, 2000. The 8.0% MBS, which were purchased at a premium on July 30,
1992, carried a coupon interest rate of 8.0% per annum and included loans with
scheduled maturities in June 2022. The 8.0% MBS were sold at a slight premium
with a settlement date of February 22, 2000. The 7.5% MBS, which were purchased
at a discount on October 30, 1992, carried a coupon interest rate of 7.50% per
annum and included loans with scheduled maturities in March 2022. The 7.5% MBS
were sold at a discount with a settlement date of February 22, 2000. The net
proceeds of the MBS sale transactions are expected to be included in a Special
Distribution to the Unitholders to be paid on or before March 15, 2000. The
Partnership will recognize a small net gain on these MBS sale transactions in
the third quarter of fiscal 2000.
3. Investments in Participating Insured Mortgage Loans
---------------------------------------------------
Participating Insured Mortgage Loans secured by GNMA securities
outstanding at January 31, 2000 and July 31, 1999 are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
January 31, 2000 July 31, 1999
---------------------- ----------------------
GNMA Estimated Estimated
Certificate Interest Market Amortized Market Amortized
Number Property Rate Value Cost Value Cost
------ -------- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
279985 Quarter Mill 8.50% $ - $ - $ 7,236 $ 7,094
279119 Emerald Cove 8.75% 10,717 10,466 10,694 10,504
------- ------- ------- -------
$10,717 $10,466 $17,930 $17,598
======= ======= ======= =======
</TABLE>
The Partnership's investments in Participating Insured Mortgage Loans are
carried at fair value as of January 31, 2000 and July 31, 1999. Investments in
Participating Insured Mortgage Loans, for which quoted market prices are not
available, are valued by a pricing service which determines the valuations based
on a comparison of recent market trades of securities with similar
characteristics. Because of the inherent uncertainty of valuations, estimated
values, as reflected herein, may differ from the values that would have been
used had a ready market for the securities existed. Descriptions of the
properties financed by the Partnership's loans and the loan agreements
themselves are summarized below:
Quarter Mill Apartments
-----------------------
The Partnership acquired a Participating Insured Mortgage Loan with
respect to a 266-unit apartment complex known as Quarter Mill Apartments located
in Richmond, Virginia (the "Virginia Project"). Construction of the Virginia
Project was completed in November of 1990. Initial closing of this Participating
Insured Mortgage loan took place on August 2, 1989. The project owner is Amurcon
Corporation. The Base Component of this Participating Insured Mortgage Loan is
coinsured by FHA and represented by GNMA Securities with an initial face value
of $7,316,600, which GNMA Securities bore interest at the rate of 10.25% during
construction of the Virginia Project and 8.50% thereafter. Effective May 1,
1991, the construction loan was converted to a permanent loan with a principal
balance of $6,525,000. On June 21, 1991 an additional $791,600 was funded,
completing the Partnership's investment of $7,316,600. Monthly payments of
principal and interest totalling approximately $53,553 were due through
maturity, on October 15, 2031.
As discussed in Note 1, on January 26, 2000, the Partnership received
total consideration of approximately $7,747,000 for the sale of its
Participating Insured Mortgage Loan secured by the Quarter Mill Apartments. The
Quarter Mill Participating Insured Mortgage Loan consists of a GNMA Certificate
with an 8.5% coupon interest rate and a subordinated note securing the
Contingent Component of the Partnership's interest in the Quarter Mill property.
The Contingent Component of the Participating Insured Mortgage Loan provides for
the payment of Contingent Interest equal to 30% of the Net Project Cash Flow, if
any, and 25% of the Net Project Residuals, if any, derived from the applicable
Project. The face value of the GNMA Certificate as of the date of the sale was
approximately $7,074,000. The excess of the total proceeds over the face amount
of the GNMA Certificate reflects a premium of $108,000 on the GNMA Certificate
itself, accrued interest of $40,000 through the date of the sale and a value of
$525,000 attributed to the Contingent Component. As previously reported, the
Partnership had engaged the services of a nationally recognized mortgage
brokerage firm to market the Quarter Mill Participating Loan for sale. Initial
marketing materials were distributed to over 100 buyers of these types of
investments in the secondary market. All offers were due by January 19, 2000 and
a sale was expected to close shortly thereafter if the offers equaled or
exceeded a specified minimum price. As a result of these marketing efforts,
several offers were received and the minimum sale price was exceeded. The
winning bidder funded a non-refundable deposit of $105,000 on January 20, and
the remainder of the proceeds were received on January 26. The Partnership paid
a commission of $95,000 to the mortgage broker in connection with this sale
transaction. As a result of this transaction, the Partnership no longer has any
interest in the Quarter Mill property. As a result of the disposition on January
26, 2000 of the Partnership's investments secured by the Quarter Mill
Apartments, the Partnership expects to make a Special Distribution of the net
proceeds of this transaction to the Unitholders on or before March 15, 2000. The
Partnership recognized a gain of $519,000 on the sale of the Quarter Mill
Participating Insured Mortgage Loan.
Emerald Cove Apartments
-----------------------
The Partnership acquired a Participating Insured Mortgage Loan with
respect to a 276-unit apartment complex known as Emerald Cove Apartments in
Charlotte, North Carolina (the "North Carolina Project"). Initial closing of
this Participating Insured Mortgage Loan took place on October 16, 1989. The
project owners are Ronald Curry and Ralph Abercia. The Base Component of this
Participating Insured Mortgage Loan is coinsured by FHA and represented by GNMA
Securities with an initial face value of $10,783,900 at closing, which GNMA
Securities bore interest at the rate of 10.25% during construction of the North
Carolina Project and 8.75% thereafter. During fiscal 1992, the Partnership
funded its remaining commitment on the investment of approximately $1,184,000
and, effective May 1, 1992, the investment was converted to a permanent loan
with a principal balance of $10,776,500. The Partnership paid a premium of
$107,840 to the GNMA issuer to obtain the original loan commitment due to the
fact that the permanent loan interest rate was higher than comparable market
rates at the time of the initial closing. Prior to fiscal 1998, the premium had
been amortized on the straight-line method over a 15-year amortization period.
Beginning in fiscal 1998, the amortization rate has been increased to reflect a
reduction in the expected remaining holding period of the investment. Monthly
payments of principal and interest totalling approximately $81,141 are due
through maturity, on August 15, 2031. Scheduled principal repayments of $327,784
have been received through January 31, 2000.
4. Related Party Transactions
--------------------------
Management fees earned by the General Partner and its affiliates for
services rendered in managing the business of the Partnership aggregated $90,000
and $96,000 for the six months ended January 31, 2000 and 1999, respectively.
Included in these two amounts is $15,000 and $17,000, respectively, representing
additional asset management fees paid to PWPI which are based on the
Partnership's cash distributions of operating income, as discussed further in
the Partnership's Annual Report. Accounts payable - affiliates at both January
31, 2000 and July 31, 1999 consist of management fees payable to the General
Partner and its affiliates.
Included in general and administrative expenses for the six months ended
January 31, 2000 and 1999 is $42,000 and $48,000, respectively, representing
reimbursements to an affiliate of the General Partner for providing certain
financial, accounting and investor communication services to the Partnership.
Also included in general and administrative expenses for the six-month
period ended January 31, 2000 and 1999 is $1,000 and $2,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended July 31, 1999 under the heading "Certain Factors Affecting Future
Operating Results," which could cause actual results to differ materially from
historical results or those anticipated. The words "believe," "expect,"
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
As previously reported, the Partnership has been analyzing potential
disposition strategies for its remaining investments. As part of these efforts,
on January 26, 2000 the Partnership received total consideration of
approximately $7,747,000 for the sale of its Participating Insured Mortgage Loan
secured by the Quarter Mill Apartments, a 266-unit facility located in Richmond,
Virginia. The Quarter Mill Participating Insured Mortgage Loan consists of a
GNMA Certificate with an 8.5% coupon interest rate and a subordinated note
securing the Contingent Component of the Partnership's interest in the Quarter
Mill property. The Contingent Component of the Participating Insured Mortgage
Loan provides for the payment of Contingent Interest equal to 30% of the Net
Project Cash Flow, if any, and 25% of the Net Project Residuals, if any, derived
from the applicable Project. The face value of the GNMA Certificate as of the
date of the sale was approximately $7,074,000. The excess of the total proceeds
over the face amount of the GNMA Certificate reflects a premium of $108,000 on
the GNMA Certificate itself, accrued interest of $40,000 through the date of the
sale and a value of $525,000 attributed to the Contingent Component. As
previously reported, the Partnership had engaged the services of a nationally
recognized mortgage brokerage firm to market the Quarter Mill Participating Loan
for sale. Initial marketing materials were distributed to over 100 buyers of
these types of investments in the secondary market. All offers were due by
January 19, 2000 and a sale was expected to close shortly thereafter if the
offers equaled or exceeded a specified minimum price. As a result of these
marketing efforts, several offers were received and the minimum sale price was
exceeded. The winning bidder funded a non-refundable deposit of $105,000 on
January 20, and the remainder of the proceeds were received on January 26. The
Partnership paid a commission of $95,000 to the mortgage broker in connection
with this sale transaction. As a result of this transaction, the Partnership no
longer has any interest in the Quarter Mill property. As a result of the
disposition on January 26, 2000 of the Partnership's investments secured by the
Quarter Mill Apartments, the Partnership expects to make a Special Distribution
of the net proceeds of this transaction to the Unitholders on or before March
15, 2000.
Subsequent to the sale of the Quarter Mill Participating Insured Mortgage
Loan, the Partnership began the process of liquidating its portfolio of
non-participating mortgage-backed securities, which carried coupon interest
rates ranging from 7.5% to 9.5%. The portfolio of MBS was sold at a net premium
subsequent to the quarter end, in February 2000. The Partnership received total
proceeds of $2,318,000 in connection with these sale transactions, which
included accrued interest of $11,000. The net proceeds of the MBS sale
transactions are expected to be included in a Special Distribution to the
Unitholders to be paid on or before March 15, 2000. The Partnership will
recognize a small net gain on these MBS sale transactions in the third quarter
of fiscal 2000.
In addition to the transactions described above, the Partnership continues
to evaluate the current economic benefits it would receive if the owner of the
Emerald Cove Apartments were to prepay their participating loan in the near
term. The current strength of the national real estate market and the favorable
interest rate environment for the sale or refinancing of multi-family apartment
properties make the prospect of a prepayment transaction a potentially
attractive option for the property owner. During fiscal year 1999, the
Partnership continued to have discussions with the owner of the Emerald Cove
Apartments about the possibility of a prepayment of its loan before the end of
calendar year 1999 or in early calendar year 2000. While, to date, the
discussions with the owner have not led to an agreement for the prepayment of
the participating loan, the Partnership continues to have discussions with the
owner of Emerald Cove. If a near term prepayment of the Emerald Cove investment
is not completed, in all likelihood, the Partnership will conduct a secondary
market sale process similar to the one completed for Quarter Mill. Under either
scenario, management expects to be able to complete a liquidation of the
Partnership by early in the second quarter of calendar year 2000. There are no
assurances, however, that the disposition of the remaining asset and a
liquidation of the Partnership will be completed within this time frame.
As previously reported, generally low market interest rates have prompted
a high level of refinancing activity over the past several years, resulting in
significant prepayments on the Partnership's non-participating mortgage-backed
securities. Such prepayments had the effect of reducing the Partnership's
investment income and cash flows from operating activities and increasing the
outstanding balance of the Partnership's cash reserves. Regular quarterly
distributions are comprised of investment income and return of capital which
results from the scheduled amortization of mortgage principal on all of the debt
securities as well as principal prepayments from the non-participating GNMA
mortgage-backed securities. Such principal prepayments are unpredictable and, as
noted above, had been high during recent years but declined during fiscal 1997,
resulting in a reduction in cash flows from investing activities. Based on this
decline in the rate of principal prepayments and the expectation that this
decline would continue in the future, the Partnership had reduced the regular
quarterly distribution rate effective for the payment made on June 13, 1997 for
the third quarter of fiscal 1997. The distribution rate declined from 8.25% per
annum to 6.5%. During fiscal 1998 and fiscal 1999, however, actual principal
prepayment levels were higher than projected resulting in an increase in cash
flows from investing activities. As a result, the Partnership made a special
capital distribution of excess cash totalling approximately $552,000, or $10.00
per original $1,000 investment, to the Unitholders on March 13, 1998 concurrent
with the regular quarterly distribution for the period ended January 31, 1998.
During fiscal 1999 a special distribution of $25.00 per original $1,000
investment was paid to Unitholders of record as of January 31, 1999. This
special capital distribution, which was made on March 15, 1999 and totalled
approximately $1,379,000, represented Partnership reserves that exceeded
expected future requirements. Distributions will continue to be made at a rate
of 6.5% per annum on remaining invested capital through the payment to be made
on or before March 15, 2000 for the quarter ended January 31, 2000. However,
since the Partnership expects to be liquidated within the next three months, no
future regular quarterly distributions are planned. The Partnership's final
distribution would include the net proceeds from the disposition of the Emerald
Cove Participating Insured Mortgage Loan along with the Partnership's remaining
cash reserves after the payment of all liquidation-related expenses. Management
is currently reassessing its cash reserve requirements in light of the Quarter
Mill and non-participating MBS sale transactions and may include a capital
distribution of excess cash reserves as part of the Special Distribution to be
paid to the Unitholders on or before March 15, 2000 from the proceeds of the
aforementioned sale transactions.
The Partnership's remaining Participating Insured Mortgage Loan is secured
by the Emerald Cove apartment complex. The occupancy level at Emerald Cove
averaged 89% for the quarter ended January 31, 2000, down from 90% for the
quarter ended October 31, 1999. This average occupancy level still compares
favorably to the average for the properties which compete with Emerald Cove in
the local market. When necessary, the property's leasing team is matching the
rental concessions offered by competing apartment communities. These rental
concessions range from $500 to $900, depending on the apartment unit type, for
those tenants signing a one year lease. As previously reported, there are four
new apartment communities with a total of 1,246 units under construction in
Emerald Cove's overall market. While these properties are not expected to
compete directly, the property's leasing team continues to monitor their leasing
progress. Prepayment of the Partnership's Emerald Cove Participating Insured
Mortgage Loan was restricted through March 1998 and then requires a prepayment
penalty which declines ratably, from 5% to 2%, from April 1998 through April
2002. During the quarter ended April 30, 1998, the Emerald Cove owner informed
the Partnership that the property was being actively marketed for sale and asked
that the Partnership specify the terms upon which it would accept prepayment of
the participating loan. During the quarter ended July 31, 1998, the owner of the
Emerald Cove Apartments approached the Partnership regarding a prepayment of the
participating mortgage loan as part of a potential sale of the Emerald Cove
property. However, during the first quarter of fiscal 1999, the Partnership was
informed that the potential buyer and the owner were not able to agree on final
terms and that a sale would not occur. As previously reported, the owner of the
Emerald Cove Apartments has initiated discussions of prepayment on several
occasions over the past five years, but none of those discussions have resulted
in a prepayment transaction. As a result, as noted above, the Partnership is
presently reviewing other potential disposition options for its remaining
Participating Insured Mortgage Loan investment.
At January 31, 2000, the Partnership had cash and cash equivalents of
approximately $9,270,000. This amount includes the net proceeds from the sale of
the Quarter Mill Participating Insured Mortgage Loan of $7,612,000 which will be
distributed to the Unitholders on or before March 15, 2000. Such amounts
remaining after the distribution of these sale proceeds will be utilized for
distributions to the Unitholders and for the working capital requirements of the
Partnership. The source of future liquidity and distributions to the Unitholders
is expected to be primarily through interest income and principal repayments
from the Partnership's mortgage securities, money-market interest income from
invested cash reserves, and to a lesser extent from Contingent Interest from the
remaining Participating Insured Mortgage Loan and Net Project Residuals from the
sale or refinancing of the property securing the remaining participating
mortgage loan investment.
Results of Operations
Three Months Ended January 31, 2000
- -----------------------------------
The Partnership reported net income of $800,000 for the three months ended
January 31, 2000, as compared to net income of $326,000 for the same period in
the prior year. This increase in net income is a result of the $519,000 gain
realized in the current period on the sale of the Participating Insured Mortgage
Loan secured by the Quarter Mill Apartments. The gain realized on the Quarter
Mill sale was partially offset by a $45,000 decrease in operating income. This
decrease in operating income for the second quarter of fiscal 2000 resulted from
a decrease in total revenues of $31,000 and an increase in total expenses of
$14,000. The decrease in revenues was the result of a decline in interest income
from debt securities. The decrease in interest income from debt securities
resulted from a reduction in the average outstanding principal balances of
Participating Insured Mortgage Loans and non-participating MBS due to scheduled
principal amortization on all of the debt securities, prepayments on the MBS and
the sale of the Quarter Mill loan on January 26, 2000. The increase in total
expenses was the result of a $16,000 increase in general and administrative
expenses. General and administrative expenses increased primarily due to an
increase in certain required professional fees incurred in connection with the
potential liquidation of the Partnership. The decrease in interest income from
debt securities and the increase in general and administrative expenses were
partially offset by a decrease in management fee expense and an increase in
money market interest income. Management fee expense declined by $2,000 due to a
decrease in the outstanding balances of the debt securities upon which such fees
are based. Money market interest income increased by $2,000 due to the receipt
and temporary investment of the proceeds received from the sale of the Quarter
Mill loan.
Six Months Ended January 31, 2000
- ---------------------------------
The Partnership reported net income of $1,111,000 for the six months ended
January 31, 2000, as compared to net income of $662,000 for the same period in
the prior year. This increase in net income is a result of the $519,000 gain
realized in the current period on the sale of the Participating Insured Mortgage
Loan secured by the Quarter Mill Apartments. The gain realized on the Quarter
Mill sale was partially offset by a $70,000 decrease in operating income. This
decrease in operating income resulted from a decrease in total revenues of
$66,000 and an increase in total expenses of $4,000. The decrease in revenues
was the result of a $62,000 decline in interest income from debt securities and
a $4,000 decrease in money market interest income. The decrease in interest
income from debt securities resulted from a reduction in the average outstanding
principal balances of Participating Insured Mortgage Loans and non-participating
MBS due to scheduled principal amortization on all of the debt securities,
prepayments on the MBS and the sale of the Quarter Mill loan on January 26,
2000. The decrease in money market interest income resulted from a decrease in
the average outstanding balance of the Partnership's invested cash reserves
compared to the same period in the prior year as a result of the special
distribution of excess reserves which was made in March 1999, as discussed
further above. The increase in total expenses was the result of a $10,000
increase in general and administrative expenses. General and administrative
expenses increased primarily due to an increase in certain required professional
fees incurred in connection with the potential liquidation of the Partnership.
The increase in general and administrative expenses was partially offset by a
decrease in management fee expense of $6,000. Management fee expense declined
due to a decrease in the outstanding balances of the debt securities upon which
such fees are based.
<PAGE>
PART II
Other Information
Item 1. through 5. NONE
- ------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated January 26, 2000 was filed by the
registrant subsequent to the current quarter end to report the sale of the
Participating Insured Mortgage Loan secured by the Quarter Mill Apartments and
is hereby incorporated herein by reference.
<PAGE>
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
By: FIRST INSURED MORTGAGE PARTNERS, INC.
-------------------------------------
Managing General Partner
Date: February 29, 2000 By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended January 31,
2000 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jul-31-2000
<PERIOD-END> Jan-31-2000
<CASH> 9,270
<SECURITIES> 2,340
<RECEIVABLES> 10,810
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,363
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,490
<CURRENT-LIABILITIES> 80
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,410
<TOTAL-LIABILITY-AND-EQUITY> 22,490
<SALES> 0
<TOTAL-REVENUES> 1,391
<CGS> 0
<TOTAL-COSTS> 280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,111
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,111
<EPS-BASIC> 1.99
<EPS-DILUTED> 1.99
</TABLE>
