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 June 30, 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 ( I R S 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
<PAGE>
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
<TABLE>
BALANCE SHEETS
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $131,257,560 $139,380,751
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 32,436,264 32,914,934
Total mortgage investments 163,693,824 172,295,685
Cash and cash equivalents 4,591,029 4,666,597
Interest receivable and other assets 1,114,034 1,233,967
Prepaid acquisition expenses and fees, net of
accumulated amortization of $6,835,673 and
$6,717,429, respectively 4,025,481 4,758,829
Prepaid participation servicing fees, net of
accumulated amortization of $1,981,954 and
$2,272,992, respectively 1,308,203 1,530,256
Total assets $174,732,571 $184,485,334
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 11,043 $ 18,716
Partners' equity (deficit) (Note 4):
Limited Partners 174,393,877 184,524,613
(12,770,261 Limited Partner interests
outstanding)
General Partners (164,347) (152,612)
Unrealized gain on MBS 491,998 94,617
Total Partners' equity 174,721,528 184,466,618
Total liabilities and Partners' equity $174,732,571 $184,485,334
</TABLE>
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<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Revenues:
<S> <C> <C> <C> <C>
Interest income - PIMs:
Base interest $2,540,033 $2,916,924 $5,202,997 $5,837,998
Participation interest 138,683 - 1,128,189 -
Interest income - MBS 638,048 684,368 1,285,566 1,382,770
Interest income - other 99,149 55,176 159,114 102,346
Total revenues 3,415,913 3,656,468 7,775,866 7,323,114
Expenses:
Asset management fee to
an affiliate 305,746 345,779 623,246 693,281
Expense reimbursements to
affiliates 33,938 38,912 61,471 85,897
Amortization of prepaid expenses
and fees 595,540 388,408 955,401 776,817
General and administrative 57,714 22,534 123,411 60,666
Total expenses 992,938 795,633 1,763,529 1,616,661
Net income $2,422,975 $2,860,835 $6,012,337 $5,706,453
Allocation of net income (Note 4):
Limited Partners $2,350,285 $2,775,010 $5,831,966 $5,535,259
Average net income per Limited
Partner interest (12,770,261
Limited Partner interests
outstanding) $ .19 $ .21 $ .46 $ .43
General Partners $ 72,690 $ 85,825 $ 180,371 $ 171,194
The accompanying notes are an integral
part of the financial statements.
</TABLE>
-5-
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income $ 6,012,337 $ 5,706,453
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 955,401 776,817
Prepayment penalty (679,193) -
Changes in assets and liabilities:
Decrease in interest receivable and other assets 119,933 639,797
Decrease in liabilities (7,673) (5,737)
Net cash provided by operating activities 6,400,805 7,117,330
Investing activities:
Principal collections on PIMs including a prepayment
penalty of $679,193 in 1997 8,802,384 422,203
Principal collections on MBS 876,051 1,400,466
Net cash provided by investing activities 9,678,435 1,822,669
Financing activities:
Special distributions (8,300,605) -
Quarterly distributions (7,854,203) (7,862,353)
Net cash used for financing activities (16,154,808) (7,862,353)
Net increase (decrease) in cash and cash equivalents (75,568) 1,077,646
Cash and cash equivalents, beginning of period 4,666,597 3,433,885
Cash and cash equivalents, end of period $ 4,591,029 $ 4,511,531
</TABLE>
-6-
<PAGE>
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 June 30, 1997, its results of operations for
the three and six months ended June 30, 1997 and 1996, and
its cash flows for the six months ended June 30, 1997 and
1996.
The results of operations for the three and six months ended
June 30, 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
On April 25, 1997, the Partnership received a prepayment of
the Paces Arbor and Paces Forest Apartment PIMs. The
Partnership received the outstanding principal balances of
$3,390,705 and $4,155,888, respectively. In addition, the
Partnership also received a prepayment penalty of $679,193
and Minimum Additional and Shared Income Interest of $197,939
for 1996 and through the date of prepayment. As a result of
the prepayment, the Partnership fully amortized the remaining
prepaid fees and expenses associated with this PIM and
retired them. On May 23, 1997, the Partnership made a
special distribution of $.65 per Limited Partner interest
with the proceeds from the outstanding principal proceeds and
the prepayment penalty.
At June 30, 1997, the Partnership s PIM portfolio has a fair
value of $134,522,190 and gross unrealized gains and losses
of $3,537,339 and $272,709, respectively. The PIM portfolio
has maturities ranging from 1999 to 2032.
3. MBS
At June 30, 1997, the Partnership's MBS portfolio has an
amortized cost of $31,944,266 and gross unrealized gains and
losses of $725,262 and $233,264, respectively. The
Partnership's MBS have maturities ranging from 2010 to 2035.
<PAGE>
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<CAPTION>
NOTES TO FINANCIAL STATEMENTS, Continued
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June
30, 1997 is as follows:
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31,
1996 $184,524,613 $(152,612) $ 94,617 $184,466,618
Net income 5,831,966 180,371 - 6,012,337
Special distributions (8,300,605) - - (8,300,605)
Distributions (7,662,097) (192,106) - (7,854,203)
Increase in unrealized
gain on MBS - - 397,381 397,381
Balance at June 30, 1997 $174,393,877 $(164,347) $491,998 $174,721,528
</TABLE>
-9-
<PAGE>
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
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 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.
The owner of Rosewood Apartments PIM has notified the
Partnership their intentions to repay the loan due to a potential sale of
the property before year end. The owner is presently negotiating with the
Partnership as to the terms of the prepayment penalty. In addition,
Sundance Apartments PIM has been sold and the new owner has assumed both
the first mortgage and the modified subordinated promissory note payable to
the Partnership.
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 balance, a prepayment penalty and all
accrued Minimum Additional and Shared Income Interest. During May, the
Partnership made a special distribution, from the aforementioned principal
balances and prepayment penalty proceeds, 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
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.
Operations
The following discussion relates to the operations of the
Partnership during the three and six months ended June 30, 1997 and 1996
(Amounts in thousands):
Net income decreased for the three months ended June 30, 1997, as
compared to same period in 1996 by approximately by $437,000. This decrease
was due to lower base interest, interest income on MBS and higher
amortization of prepaid fees and expenses of $377,000, $47,000, and
$206,000, respectively. The decrease in base interest was a result of the
repayments of the Friendly Hills Apartments PIM during the third quarter of
1996 and the Paces Arbor and Paces Forest Apartments during the second
quarter of 1997. The increase in amortization of prepaid fees and expenses
is because the Partnership fully amortized the remaining balances of
prepaid fees and expenses associated with the Paces Arbor and Paces Forest
Apartments PIMs. This was offset by increases in participation income and
other interest income of $139,000 and $44,000, respectively. The
Partnership realized participation income from Windsor, Meredith and
Woodbine Apartments of $93,000, $43,000 and $3,000, respectively.
<PAGE>
Net income increased for the six months ended June 30, 1997, as compared
to the same period in 1996 by approximately $306,000. This increase was
due to higher participation income, other interest income and lower
Partnership expenses of $1,128,000, $57,000 and $31,000, respectively. The
increase in participation income was a result of the prepayment penalty of
$679,000 related to the prepayment of Paces Arbor and Paces Forest
Apartments during the second quarter of 1997 and participation income
received from seven properties totaling $449,000. This was offset by lower
base interest $635,000, higher amortization of prepaid fees and expenses of
$178,000 and lower MBS interest income of $97,000.
The Partnership funds a portion of distributions with MBS and PIM principal
collections which reduces the invested assets generating interest income
for the Partnership. As the invested assets decline so will interest
income on MBS, base interest income on PIMs and other interest income.
-12-
<PAGE>
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
-13-
<PAGE>
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: August 5, 1997
-14-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000832091
<NAME> KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,591,029
<SECURITIES> 163,693,824<F1>
<RECEIVABLES> 1,114,034
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,333,684<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 174,732,571
<CURRENT-LIABILITIES> 11,043
<BONDS> 0
0
0
<COMMON> 174,229,530<F3>
<OTHER-SE> 491,998<F4>
<TOTAL-LIABILITY-AND-EQUITY> 174,732,571
<SALES> 0
<TOTAL-REVENUES> 7,775,866<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,763,529<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,012,337
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,012,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,012,337
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insurd Mortgages ("PIMs") of $131,257,560 and
Mortgage-Backed Securities ("MBS") of $32,436,264.
<F2>Includes prepaid acquisition fees and expenses of $10,861,154 net of
accumulated amortization of $6,835,673 and prepaid participation servicing fees
of $3,290,157 net of accumulated amortization of $1,981,954.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($164,347) and Limited Partners equity of $174,393,877.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $955,401 of amortization of prepaid fees and expenses.
<F7>Net income allocated $180,371 to the General Partners and $5,831,996 to the
Limited Partners. Average net income per Limited Partner interest is $.46 on
12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
