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 September 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 (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
<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.
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<CAPTION>
BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $131,062,351 $139,380,751
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 32,597,453 32,914,934
Total mortgage investments 163,659,804 172,295,685
Cash and cash equivalents 4,436,002 4,666,597
Interest receivable and other assets 1,094,391 1,233,967
Prepaid acquisition expenses and fees, net of
accumulated amortization of $7,094,433 and
$6,717,429 respectively 3,766,721 4,758,829
Prepaid participation servicing fees, net of
accumulated amortization of $2,063,946 and
$2,272,992, respectively 1,226,211 1,530,256
Total assets $174,183,129 $184,485,334
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 163,274 $ 18,716
Partners' equity (deficit) (Note 4):
Limited Partners 173,154,277 184,524,613 (12,770,261 Limited Partner interests
outstanding)
General Partners (174,756) (152,612)
Unrealized gain on MBS 1,040,334 94,617
Total Partners' equity 174,019,855 184,466,618
Total liabilities and Partners' equity $174,183,129 $184,485,334
</TABLE>
The accompanying notes are an integral
part of the financial statements
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<PAGE>
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<CAPTION>
STATEMENTS OF INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
<S>
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $2,517,455 $2,754,783 $ 7,720,452 $ 8,592,781
Participation interest
(Note 2) 183,527 1,279,146 1,311,716 1,279,146
Interest income - MBS 628,174 664,957 1,913,740 2,047,727
Interest income - other 60,661 75,429 219,775 177,775
Total revenues 3,389,817 4,774,315 11,165,683 12,097,429
Expenses:
Asset management fee to
an affiliate 308,040 334,049 931,286 1,027,330
Expense reimbursements to
affiliates 33,939 46,986 95,410 132,883
Amortization of prepaid
expenses and fees 340,752 816,619 1,296,153 1,593,436
General and administrative 35,491 35,725 158,902 96,391
Total expenses 718,222 1,233,379 2,481,751 2,850,040
Net income $2,671,595 $3,540,936 $ 8,683,932 $ 9,247,389
Allocation of net income (Note 4):
Limited Partners $2,591,448 $3,434,708 $ 8,423,414 $ 8,969,967
Average net income per
Limited Partner interest
(12,770,261 Limited
Partner interests
outstanding) $ .20 $ .27 $ .66 $ .70
General Partners $ 80,147 $ 106,228 $ 260,518 $ 277,422
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-5-
<PAGE>
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
1997 1996
<S>
Operating activities:
<S> <C> <C>
Net income $ 8,683,932 $ 9,247,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 1,296,153 1,593,436
Prepayment penalty (679,193) (1,013,411)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 139,576 742,069
Increase (decrease) in liabilities 144,558 (915)
Net cash provided by operating activities 9,585,026 10,568,568
Investing activities:
Principal collections on PIMs including prepayment
penalty of $679,193 and $1,013,411 respectively 8,997,593 12,898,670
Principal collections on MBS 1,263,198 2,106,755
Net cash provided by investing activities 10,260,791 15,005,425
Financing activities:
Quarterly distributions (11,775,807) (11,802,675)
Special distributions (8,300,605) (12,387,057)
Net cash used for financing activities (20,076,412) (24,189,732)
Net increase (decrease) in cash and cash equivalents (230,595) 1,384,261
Cash and cash equivalents, beginning of period 4,666,597 3,433,885
Cash and cash equivalents, end of period $ 4,436,002 $ 4,818,146
</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 withgenerally 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 September 30, 1997, its results of operations
for the three and nine months ended September 30, 1997 and
1996, and its cash flows for the nine months ended September
30, 1997 and 1996.
The results of operations for the three and nine months endedSeptember 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. 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.
3. MBS
At September 30, 1997, the Partnership's MBS portfolio has an
amortized cost of approximately $31,557,119 and gross
unrealized gains and loses of approximately $1,067,225 and
$26,891 respectively. The Partnership's MBS have maturities
ranging from 2010 to 2035.
-8-
<PAGE>
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the nine months ended
September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain (Loss) Equity
<S>
Balance at December 31,
<S> <C> <C> <C> <C> <C>
1996 $184,524,613 $(152,612) $ 94,617 $184,466,618
Net income 8,423,414 260,518 - 8,683,932
Quarterly distributions (11,493,145) (282,662) - (11,775,807)
Special distributions (8,300,605) - - (8,300,605)
Increase in unrealized
gain on MBS - - 945,717 945,717
Balance at September 30,
1997 $173,154,277 $(174,756) $1,040,334 $174,019,855
</TABLE>
<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.
On April 25, 1997, the Partnership received prepayments of the Paces Arbor
and Paces Forest PIMs that included the outstanding first mortgage
principal balance, a prepayment penalty and all accrued additional interest
earned through the payoff date. The Partnership made a special
distribution of the capital proceeds from these transactions, principal and
prepayment penalties, of $.65 per limited partner interest in May.
The General Partners expect that the Partnership can maintain the current
quarterly distribution rate of $.30 per limited partner interest through
1997. However, if additional PIMs are prepaid, the quarterly distribution
rate in the future may be adjusted downward to reflect fewer cash inflows
from the remaining mortgage investments. In the event additional PIMs are
prepaid, the Partnership will make special distributions from the capital
proceeds of the prepayments.
A number of borrowers have informed the General Partners of their
intentions to prepay the Partnership s PIMs. The owner of three properties
in the portfolio, the Paddock properties in Florida, expects to payoff each
PIM in November 1997 as a result of a merger transaction with a NYSE-listed
real estate investment trust. If the Paddocks transaction is finalized as
expected, the Partnership will receive a principal repayment totaling
approximately $27 million. The borrower on the Meredith Square PIM expects
to close a refinance of the property in December 1997 and payoff the
outstanding balance on the first mortgage loan. The Partnership will
receive a principal repayment of approximately $4.7 million if the Meredith
-10-
<PAGE>
Square transaction is finalized. In addition to the repayment of the
principal balances of these four PIMs, the Partnership will also received
accrued additional interest earned on each property s operations and either
the greater of a 9% prepayment penalty or additional interest earned on the
appreciation in each property s value.
Three other borrowers have indicated there is a possibility they may payoff
the Partnership s PIMs. A sale transaction of Rosewood Apartments fell
through earlier in 1997, but the PIM could be prepaid if the borrower is
successful in obtaining another purchase offer. The owner of Fourth Ward
Square has notified the General Partners of his intention to refinance the
property and payoff the Partnership s PIM. The new owner of Sundance
Apartments, who purchased the property during the second quarter 1997 and
assumed the Partnership s PIM and modified subordinated Promissory Note
from the original borrower, has indicated that he may refinance the
property and payoff the Partnership s PIM after he stabilizes property
operations.
If any or all of these transactions occur, the General Partners will review
the anticipated cash flows from the remaining mortgage investments to
determine whether the current distribution rate would be sustainable or
whether an adjustment would be necessary. If the General Partners
determine that the distribution rate needs to be adjusted, the timing of
the adjustment would depend on when these PIMs prepay.
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
and 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 nine months ended September 30, 1997 and
1996.
Net income decreased by $869,341 for the three months ended September
30, 1997 as compared to the same period in 1996, due primarily to a
$1,095,619 reduction in participation income. However, the Partnership did
receive $183,527 of participation from three properties during the third
quarter of 1997. Base interest income on PIMs decreased by $237,328 in the
third quarter of 1997 as compared to the third quarter of 1996 due
primarily to the prepayment of the Friendly Hills, Paces Arbor and Paces
Forest PIM s. Interest income on MBS decreased by $36,783 in the third
quarter of 1997 as compared to the third quarter of 1996, because of
principal collections from the Partnership s MBS investments. Amortization
expense decreased by $475,867 due to the prepayments of Friendly Hills PIM
in August 1996 and Paces Arbor and Paces Forest PIM s in April 1997.
Net income decreased by $563,457 for the nine months ended September 30,
1997 as compared to same period in 1996 due primarily to lower base
interest income on PIMs and interest income on MBS and higher general and
administrative expenses. These decreases were offset in part by increases
in participation interest income, interest income on cash and cash
equivalents and decreases in asset management fees and amortization of
prepaid expense and fees. The decrease in base interest of $872,329
resulted primarily from the prepayments of the Friendly Hills, Paces Arbor
and Paces Forest PIM s. In addition, the prepayments the Partnership has
experienced also caused decreases in asset managements and amortization of
prepaid expense and fees.
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
-12-
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: October 28, 1997
-13-
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,436,002
<SECURITIES> 163,659,804<F1>
<RECEIVABLES> 1,094,391
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,992,932<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 174,183,129
<CURRENT-LIABILITIES> 163,274
<BONDS> 0
0
0
<COMMON> 172,979,521<F3>
<OTHER-SE> 1,040,334<F4>
<TOTAL-LIABILITY-AND-EQUITY> 174,183,129
<SALES> 0
<TOTAL-REVENUES> 11,165,683<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,481,751<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,683,932
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,683,932
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,683,932
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0
<FN>
<F1>Includes Participating Insured Mortgages("PIMs") of $131,062,351 and
Mortgage-Backed Securities ("MBS") of $32,597,453.
<F2>Includes prepaid acquisition fees and expenses of $10,861,154 net of
accumulated amortization of $7,094,433 and prepaid participation servicing fees
of $3,290,157 net of accumulated amortization of $2,063,946.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($174,756) and Limited Partners equity of $173,154,277.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,295,153 of amortization of prepaid fees and expenses.
<F7>Net income allocated $260,518 to the General Partners and $8,423,414 to the
Limited Partners. Average net income per Limited Partner interest is $.66 on
12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
