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 THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
Participating Insured Mortgages ("PIMs")(Note 2) $151,256,748 $151,465,652
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 34,748,350 36,693,963
Total mortgage investments 186,005,098 188,159,615
Cash and cash equivalents 4,008,939 3,433,885
Interest receivable and other assets 1,714,663 1,924,402
Prepaid acquisition expenses and fees, net of
accumulated amortization of $6,386,272 and
$6,091,012, respectively 5,944,791 6,240,051
Prepaid participation servicing fees, net of
accumulated amortization of $2,177,349 and
$2,084,200, respectively 1,909,183 2,002,332
Total assets $199,582,674 $201,760,285
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 5,386 $ 14,756
Partners' equity (deficit) (Note 4):
Limited Partners 199,504,660 200,575,459
(12,770,261 Limited Partner interests
outstanding)
General Partners (115,645) (102,556)
Unrealized gain on MBS 188,273 1,272,626
Total Partners' equity 199,577,288 201,745,529
Total liabilities and Partners' equity $199,582,674 $201,760,285
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,
1996 1995
Revenue:
Interest income - PIMs $2,921,074 $3,043,949
Interest income - MBS 698,402 717,024
Other interest income 47,170 47,004
Total revenues 3,666,646 3,807,977
Expense:
Asset management fee to an affiliate 347,502 350,238
Expense reimbursements to affiliates 46,985 50,774
Amortization of prepaid expenses and fees 388,409 405,610
General and administrative 38,132 30,235
Total expenses 821,028 836,857
Net income $2,845,618 $2,971,120
Allocation of net income (Note 4):
Limited Partners $2,760,249 $2,881,986
Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ .22 $ .23
General Partners $ 85,369 $ 89,134
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,
1996 1995
Operating activities:
Net income $ 2,845,618 $ 2,971,120
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 388,409 405,610
Changes in assets and liabilities:
Decrease in interest receivable and other assets 209,739 151,945
Decrease in liabilities (9,370) (5,595)
Net cash provided by operating activities 3,434,396 3,523,080
Investing activities:
Principal collections on PIMs 208,904 225,524
Principal collections on MBS 861,260 534,972
Net cash provided by investing activities 1,070,164 760,496
Financing activity:
Distributions (3,929,506) (3,931,831)
Net increase in cash and cash equivalents 575,054 351,745
Cash and cash equivalents, beginning of period 3,433,885 3,257,180
Cash and cash equivalents, end of period $ 4,008,939 $ 3,608,925
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, 1995 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, 1996 and
its results of operations and cash flows for the three months ended
March 31, 1996 and 1995.
The results of operations for the three months ended March 31, 1996 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, 1996, the Partnership's PIM portfolio has a fair value of
approximately $152,541,000 and gross unrealized gains and losses of
approximately $2,516,000 and $1,232,000, respectively. The PIM
portfolio has maturities ranging from 1999 to 2032.
3. MBS
At March 31, 1996, the Partnership's MBS portfolio has an amortized
cost of approximately $34,560,000 and gross unrealized gains and losses
of approximately $638,000 and $450,000, 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, 1996 is as follows:
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at
December 31, 1995 $200,575,459 $(102,556) $1,272,626 $201,745,529
Net income 2,760,249 85,369 - 2,845,618
Distributions (3,831,048) (98,458) - (3,929,506)
Decrease in unrealized
gain on MBS - - (1,084,353) (1,084,353)
Balance at
March 31, 1996 $199,504,660 $(115,645) $ 188,273 $199,577,288
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
Based on current projections, the General Partners believe the
Partnership can maintain the current distribution rate for the foreseeable
future. However, in the event of PIM prepayments the Partnership would be
required to distribute any proceeds from the prepayments as a special
distribution which may cause an adjustment to the distribution rate to reflect
the anticipated future cash inflows from the remaining mortgage investments.
The Partnership is in the process of negotiating a workout
arrangement with the borrower of the Sundance Apartments PIM and anticipates
completing these negotiations during the second quarter of 1996. The workout
will most likely provide for some current interest payment relief in exchange
for enhanced participation interests. The workout would reduce the cash flow
of the Partnership in the near term, but not significantly.
The borrower of the Friendly Hills Apartments PIM has expressed an
interest to repay the PIM in the next six months. In the event the borrower
repays the Friendly Hills PIM or any other PIM is repaid, the Partnership
would distribute the proceeds to investors as a special distribution and
adjust the distribution rate as necessary to reflect the anticipated 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
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, 1996 and the period from inception through March 31,
1996. 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, 1996 March 31, 1996
Distributable Cash Flow:
Income for tax purposes $ 3,189 $100,284
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 204 6,273
Acquisition expenses paid from offering
proceeds charged to operations - 184
Shared appreciation income - (800)
Gain on sale of MBS - (253)
Total Distributable Cash Flow ("DCF") $ 3,393 $105,688
Limited Partners Share of DCF $ 3,291 $102,517
Limited Partners Share of DCF per Limited
Partner interests ("Unit") $ .26 8.03 (b)
General Partners Share of DCF $ 102 $ 3,171
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions (continued)
Three Months Ended Inception to
March 31, 1996 March 31, 1996
Net Proceeds from Capital Transactions:
Principal collections and prepayments
(including Shared Appreciation Income)
on PIMs $ 209 $ 18,047
Principal collections and sales proceeds
on MBS (including gain on sale) 861 61,405
Reinvestment of MBS and PIM principal
collections - (41,960)
Total Net Proceeds from Capital
Transactions $ 1,070 $ 37,492
Cash available for distribution
(DCF plus proceeds from Capital
transactions) $ 4,463 $143,180
Distributions:
Limited Partners $ 3,831 (a) $138,591 (a)
Limited Partners Average per Unit $ .30 (a) $ 10.85 (a)(b)
General Partners $ 102 (a) $ 3,171 (a)
Total Distributions $ 3,933 $141,762
(a) Includes an estimate of the distribution to be paid in May 1996.
(b) Limited Partners average per Unit return of capital as of May 1996
is $2.82 [$10.85 - $8.03]. 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, 1996 and 1995:
(Amounts in thousands)
1996 1995
Interest income - PIMs:
Base interest $2,921 $3,044
Participation interest 159 -
Interest income on MBS 698 717
Other interest income 47 47
Partnership expenses (432) (431)
Distributable Cash Flow 3,393 3,377
Decrease in accrued participation
income (159) -
Amortization of prepaid fees
and expenses (388) (406)
Net income $2,846 $2,971
Operations, Continued
During the first quarter of 1996 net income did not change materially as
compared to the first quarter of 1995. Net income decreased due primarily to
lower interest income on PIMs which resulted primarily from the restructuring
of the Royal Palm PIM in December 1995.
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
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, 1996