UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 0-17691
Krupp Insured Plus-III Limited Partnership
Massachusetts 04-3007489
(State or other jurisdiction of (IRS employer
incorporation or organization)
identification no.)
470 Atlantic Avenue, Boston, Massachusetts
02210
(Address of principal executive offices) (Zip
Code)
(617) 423-2233
(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-III LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
Participating Insured Mortgages ("PIMs")(Note 2)$138,995,348 $139,380,751
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 32,227,221 32,914,934
Total mortgage investments 171,222,569 172,295,685
Cash and cash equivalents 5,581,840 4,666,597
Interest receivable and other assets 1,167,541 1,233,967
Prepaid acquisition expenses and fees, net of
accumulated amortization of $6,991,247 and
$6,717,429, respectively 4,485,011 4,758,829
Prepaid participation servicing fees, net of
accumulated amortization of $2,359,035 and
$2,272,992, respectively 1,444,213 1,530,256
Total assets $183,901,174 $184,485,334
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 3,493 $ 18,716
Partners' equity (deficit) (Note 4):
Limited Partners 184,175,245 184,524,613
(12,770,261 Limited Partner interests
outstanding)
General Partners (138,936) (152,612)
Unrealized gain (loss)on MBS (138,628) 94,617
Total Partners' equity 183,897,681 184,466,618
Total liabilities and Partners' equity $183,901,174 $184,485,334
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months
Ended March 31,
1997 1996
Revenue:
Interest income - PIMs:
Base interest $2,662,964 $2,921,074
Participation income 989,506 -
Interest income - MBS 647,518 698,402
Other interest income 59,965 47,170
Total revenues 4,359,953 3,666,646
Expense:
Asset management fee to an affiliate 317,500 347,502
Expense reimbursements to affiliates 27,533 46,985
Amortization of prepaid expenses and fees 359,861 388,409
General and administrative 65,697 38,132
Total expenses 770,591 821,028
Net income $3,589,362 $2,845,618
Allocation of net income (Note 4):
Limited Partners $3,481,681 $2,760,249
Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ .27 $ .22
General Partners $ 107,681 $ 85,369
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
1997 1996
Operating activities:
Net income $3,589,362 $ 2,845,618
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 359,861 388,409
Shared appreciation income (679,193) -
Changes in assets and liabilities:
Decrease in interest receivable and other assets 66,426 209,739
Decrease in liabilities (15,223) (9,370)
Net cash provided by operating activities 3,321,233 3,434,396
Investing activities:
Principal collections on PIMs including Shared
appreciation 1,064,596 208,904
Principal collections on MBS 454,468 861,260
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Net cash provided by investing activities 1,519,064 1,070,164
Financing activity:
Distributions (3,925,054) (3,929,506)
Net increase in cash and cash equivalents 915,243 575,054
Cash and cash equivalents, beginning of period 4,666,597 3,433,885
Cash and cash equivalents, end of period $5,581,840 $ 4,008,939
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III 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-III 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, 1996 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, 1997 and its results of operations
and cash flows for the three months ended March 31, 1997 and
1996.
The results of operations for the three months ended March
31, 1997 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
At March 31, 1997, the Partnership s PIM portfolio has a fair
value of $139,612,314 and gross unrealized gains and losses
of approximately $1,567,124 and $950,158 respectively. The
PIM portfolio has maturities ranging from 1999 to 2032.
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3. MBS
At March 31, 1997, the Partnership's MBS portfolio has an
amortized cost of $32,365,849 and gross unrealized gains and
losses of $421,179 and $559,807, respectively. The
Partnership's MBS have maturities ranging from 2010 to 2035.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the three months
ended March 31, 1997 is as follows:
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at December 31,
1996 $184,524,613 $(152,612) $ 94,617 $184,466,618
Net income 3,481,681 107,681 - 3,589,362
Distributions (3,831,049) (94,005) - (3,925,054)
Decrease in unrealized
gain on MBS - - (233,245) (233,245)
Balance at March 31, 1997 $184,175,245 $(138,936) $ (138,628) $183,897,681
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
5.Subsequent Event
Paces Arbor and Paces Forest Apartments
On April 25, 1997, the Partnership received prepayments of the Paces
Arbor and Paces Forest Apartment PIMs. The Partnership received the
outstanding first mortgage principal balances of $3,390,705 and
$4,155,884, respectively, plus outstanding interest. In addition, the
Partnership received $305,163 and $374,030 representing the prepayment
penalties associated with the payoff.
In May 1997, the Partnership will make a special distribution of $.65 per
unit
per Limited Partner interest with the proceeds from this prepayment.
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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.
Liquidity and Capital Resources
The most significant demand on the Partnership's liquidity are quarterly
distributions paid to investors of approximately $3.9 million. Funds
used for investor distributions come from interest received on the PIMs,
MBS, cash and cash equivalents net of operating expenses, and certain
principal collections received on the PIMs and MBS. The Partnership funds
a portion of the distributions from principal collections causing the
capital resources of the Partnership to continually decrease. As the
capital resources decrease, the total cash inflows to the Partnership
will also decrease which will result in periodic adjustments to the
quarterly distributions paid to investors.
The General Partners periodically review the distribution rate to
determine whether an adjustment to the distribution rate is necessary
based on projected future cash flows. In general, the General Partners
try to set a distribution rate that provides for level quarterly
distributions of cash available for distribution. To the extent
quarterly distributions differ from the cash available for distribution
the General Partners may adjust the distribution rate or distribute funds
through a special distribution.
During April, the Partnership will receive proceeds from the repayment of
the Paces Arbor and Paces Forest Apartment PIMs. During May, the
Partnership will make a special distribution to the investors of $.65 per
limited partner interest. The General Partners estimate that the
Partnership can maintain the current quarterly distribution rate of $.30
per limited partner interest through 1997. However, in the event of
further 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.
For the first five years of the PIMs the borrowers are prohibited from
prepaying. For the second five years, the borrower can prepay the loan
incurring a prepayment penalty. 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 Federal National Mortgage Association ( FNMA ), the Federal Home Loan
Mortgage Corporation ( FHLMC ), the Government National Mortgage
Association ( GNMA ) and the Department of Housing and Urban Development
( HUD ) and therefore the certainty of their cash flows and the risk of
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material loss of the amounts invested depends on the creditworthiness of
these entities.
FNMA 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 full and timely
payment of principal and basic interest on the securities it issues,
which represent interests 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.
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
Shown below is the calculation of Distributable Cash Flow and Net Cash
Proceeds from Capital Transactions as defined in Section 17 of the
Partnership Agreement and the source of cash distributions for the three
months ended March 31, 1997 and the period from inception through March
31, 1997. The General Partners provide certain of the information below
to meet requirements of the Partnership Agreement and because they
believe that it is an appropriate supplemental measure of operating
performance. However, Distributable Cash Flow and Net Cash Proceeds from
Capital Transactions should not be considered by the reader as a
substitute to net income as an indicator of the Partnership's operating
performance or to cash flows as a measure of liquidity.
(Amounts in thousands
except per Unit
amounts)
Three Months Ended Inception to
March 31, 1997 March 31, 1997
Distributable Cash Flow:
Income for tax purposes $ 3,624 $ 113,458
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 325 8,209
Acquisition expenses paid from offering
proceeds charged to operations - 184
Shared appreciation income/prepayment
penalties (679) (2,492)
Gain on sale of MBS - (253)
Total Distributable Cash Flow ("DCF") $ 3,270 $ 119,106
Limited Partners Share of DCF $ 3,172 $ 115,533
Limited Partners Share of DCF per Limited
Partner interests ( Unit ) $ .25 9.05(b)
General Partners Share of DCF $ 98 $ 3,573
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Net Proceeds from Capital Transactions:
Principal collections and prepayments
(including Shared Appreciation Income)
on PIMs $ 1,065 $ 32,001
Principal collections and sales proceeds
on MBS (including gain on sale) 454 63,599
Reinvestment of MBS and PIM principal
collections - (41,960)
Total Net Proceeds from Capital
Transactions $ 1,519 $ 53,640
Cash available for distribution
(DCF plus proceeds from Capital
transactions) $ 4,789 $172,746
Distributions:
Limited Partners $ 3,831 (a) $166,303
Limited Partners Average per Unit $ .30 (a) $ 13.02
General Partners $ 98 (a) $ 3,573(a)
Total Distributions $ 3,929 $169,876
(a) Includes an estimate of the distribution to be paid in May 1997.
(b) Limited Partners average per Unit return of capital as of May 1997 is
$3.97 [$13.02 - $9.05]. Return of capital represents that portion of
distributions which is not funded from DCF such as proceeds from the sale
of assets and substantially all of the principal collections received
from MBS and PIMs.
Operations
The following discussion relates to the operations of the Partnership during the
three months ended March 31, 1997 and 1996:
(Amounts in thousands)
1997 1996
Interest income - PIMs:
Base interest $2,663 $2,921
Shared income and minimum
additional interest 310 159
Interest income on MBS 648 698
Other interest income 60 47
Partnership expenses (411) (432)
Distributable Cash Flow 3,270 3,393
Shared appreciation income 679 -
Decrease in accrued participation
income - (159)
Amortization of prepaid fees
and expenses (360) (388)
Net income $3,589 $2,846
Net income increased by approximately $743,000 for the three months ended March
31, 1997 as compared to the same period in 1996. The increase is
primarily attributed to participation interest associated with the Paces Forest
and Paces Arbor PIMs totaling approximately $877,000. In addition, the
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Partnership received participation interest relating to the Mill Ponds and
Rosewood PIMs in the amount of $62,000 and $51,000, respectively. These
increases were somewhat offset by a reduction in base interest income on PIMs of
approximately $258,000 due to the prepayment of the Friendly Hills PIM in August
1996.
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KRUPP INSURED PLUS-III 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
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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-III Limited Partnership
(Registrant)
BY: /s/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer of Krupp
Plus Corporation, a General Partner.
DATE: April 23, 1997
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