-4-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
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.
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $ 79,745,317 $104,165,895
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 17,948,730 29,220,457
------------ ------------------
Total mortgage investments 97,694,047 133,386,352
Cash and cash equivalents 21,587,137 35,473,221
Interest receivable and other assets 693,972 949,618
Prepaid acquisition expenses and fees, net of
accumulated amortization of $4,565,542 and
$5,921,472, respectively 1,754,461 2,902,255
Prepaid participation servicing fees, net of
accumulated amortization of $1,390,542 and
$1,680,937, respectively 623,923 934,014
------------------ ------------------
Total assets $122,353,540 $173,645,460
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 15,668 $ 170,568
------------ ---------
Partners' equity (deficit) (Note 4):
Limited Partners 121,856,762 172,409,394
(12,770,261 Limited Partner interests
outstanding)
General Partners (155,548) (78,838)
Unrealized gain on MBS 636,658 1,144,336
------------ ------------
Total Partners' equity 122,337,872 173,474,892
------------- -----------
Total liabilities and Partners' equity $122,353,540 $173,645,460
============ ============
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------- ------- ------- ------
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $1,640,321 $2,540,033 $3,348,781 $5,202,997
Participation interest 113,032 138,683 568,537 1,128,189
Interest income - MBS 516,559 638,048 1,066,294 1,285,566
Interest income - othe 243,968 99,149 448,454 159,114
---------- ------------ ---------- ----------
Total revenues 2,513,880 3,415,913 5,432,066 7,775,866
---------- --------- ---------- --------------
Expenses:
Asset management fee to
an affiliate 195,069 305,746 410,943 623,246
Expense reimbursements to
affiliates (28,124) 33,938 5,815 61,471
Amortization of prepaid
expenses and fees 644,134 595,540 1,457,885 955,401
General and administrative 72,604 57,714 116,750 123,411
--------- ------------- --------- --------------
Total expenses 883,683 992,938 1,991,393 1,763,529
--------- ---------- --------- ---------
Net income 1,630,197 2,422,975 3,440,673 6,012,337
Net unrealized gain (loss)
on MBS (482,632) 631,626 (507,678) 397,381
---------- --------- ---------- ----------
Total comprehensive income $1,147,565 $3,054,601 $2,923,995 $6,409,718
========== ========== ========== ==========
Allocation of net income (Note 4):
Limited Partners $1,581,291 $2,350,285 $3,337,453 $5,831,966
========== ========== ========== ==========
Average net income per Limited
Partner interest (12,770,261
Limited Partner interests
outstanding) $ .12 $ .19 $ .26 $ .46
========== ============== ========== ===========
General Partners $ 48,906 $ 72,690 $ 103,220 $ 180,371
========== ========== ========== ==========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
---- ----
Operating activities:
<S> <C> <C>
Net income $ 3,440,673 $ 6,012,337
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 1,457,885 955,401
Prepayment penalties (315,942) (679,193)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 255,646 119,933
Decrease in liabilities (154,900) (7,673)
---------------- --------------
Net cash provided by operating activities 4,683,362 6,400,805
---------------- ----------
Investing activities:
Principal collections on PIMs including prepayment
penalties of $304,242 in 1998 and $679,193 in 1997,
respectively 24,724,820 8,802,384
Principal collections on MBS including a prepayment
penalty of $11,700 in 1998 10,775,749 876,051
---------------- -----------
Net cash provided by investing activities 35,500,569 9,678,435
---------------- -----------
Financing activities:
Special distributions (47,632,702) (8,300,605)
Quarterly distributions (6,437,313) (7,854,203)
----------------- -----------
Net cash used for financing activities (54,070,015) (16,154,808)
----------- -----------
Net increase (decrease) in cash and cash equivalents (13,886,084) (75,568)
Cash and cash equivalents, beginning of period 35,473,221 4,666,597
----------- -----------
Cash and cash equivalents, end of period $21,587,137 $ 4,591,029
=========== ===========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
<PAGE>
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, 1997 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, 1998, its
results of operations for the three and six months ended June 30, 1998
and 1997, and its cash flows for the six months ended June 30, 1998 and
1997.
The results of operations for the three and six months ended June 30,
1998 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 June 15, 1998, the Partnership received a prepayment of the Sundance
Apartments PIM in the amount of $7,187,778, representing the outstanding
principal balance. The Partnership anticipates a third quarter special
distribution of approximately $.57 per Limited Partner interest.
On February 17, 1998, the Partnership received a prepayment of the
Rosewood Apartments PIM in the amount of $5,047,132 representing the
outstanding principal balance. In addition, during January 1998 the
Partnership received minimum additional interest and shared interest
income of $151,263 and a prepayment penalty of $304,242. The partnership
distributed the capital transaction proceeds from this prepayment to
investors through a special distribution on April 13, 1998 in the amount
of $.42 per Limited Partner interest.
In January 1998, the Partnership made a $2.30 per Unit special
distribution with the prepayment proceeds of the Paddock Park II,
Paddock Club Tallahassee and Paddock Club Jacksonville PIMs, which were
received during the fourth quarter of 1997.
In January 1998, the Partnership received proceeds from the Fourth Ward
Square and Meredith Square Apartment PIM prepayments in the amounts of
$7,067,690 and $4,688,895 respectively. In addition, during December
1997 the Partnership received $302,813 of minimum additional interest
and shared interest income earned on property operations for these
properties, a $422,001 prepayment penalty on Meredith Square and Shared
Appreciation Interest of $697,500 on Fourth Ward Square. The Partnership
distributed the capital transaction proceeds from these prepayments to
investors through a special distribution on February 27, 1998 in the
amount of $1.01 per Limited Partner interest.
continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
2. PIMs, continued
At June 30, 1998, the Partnership=s PIM portfolio has a fair value of
$80,786,813 and gross unrealized gains and losses of $1,098,228 and
$56,732, respectively. The PIM portfolio has maturities ranging from
1999 to 2032. At June 30, 1998 there are no insured mortgage loans
within the Partnership's portfolio that are delinquent with respect to
principal or interest payments.
3. MBS
On June 19, 1998, the Partnership received a prepayment of the Brookside
MBS in the amount of $2,944,531, representing the outstanding principal
balance and a prepayment penalty of $11,700. The Partnership anticipates
a third quarter special distribution of approximately $.24 per Limited
Partner interest.
On April 24, 1998, the Partnership received a prepayment of the Regency
Park MBS in the amount of $6,232,557, representing the outstanding
principal balance. The Partnership anticipates a third quarter special
distribution of approximately $.49 per limited partner interest.
At June 30, 1998, the Partnership's MBS portfolio has an amortized cost
of $17,312,072 and gross unrealized gains of $636,658. The Partnership's
MBS have maturities ranging from 2010 to 2035.
In June 1997, Statement of Financial Accounting Standards No. 130,
'Reporting Comprehensive Income' (FASB 130), was issued establishing
standards for reporting and displaying comprehensive income and its
components effective January 1, 1998. FASB 130 requires comprehensive
income and its components, as recognized under accounting standards, to
be displayed in a financial statement with the same prominence as other
financial statements, if material. Accordingly, unrealized gains
(losses) on the Partnership's available-for sale securities have been
included in other comprehensive income.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended June
30, 1998 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at December 31,
<S> <C> <C> <C> <C>
1997 $172,409,394 $(78,838) $1,144,336 $173,474,892
Net income 3,337,453 103,220 - 3,440,673
Special distributions (47,632,702) - - (47,632,702)
Distributions (6,257,383) (179,930) - (6,437,313)
Increase in unrealized
gain on MBS - - (507,678) (507,678)
------------------ --------- -------- -------------
Balance at June 30, 1998 $121,856,762 $(155,548) $636,658 $122,337,872
============ ========= ======== ============
</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 $2.4 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 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.
Since the beginning of 1998, the Partnership has paid three special
distributions, and will be paying a fourth special distribution in the third
quarter of 1998. During January, the Partnership paid out $2.30 per Limited
Partner interest, which represented the principal proceeds and prepayment
penalties received in the fourth quarter of 1997 from the three Paddock property
PIMs. During February, the Partnership paid out $1.01 per Limited Partner
interest, which represented the principal proceeds from Fourth Ward Square and
Meredith Square PIMs, the prepayment penalty from Meredith Square and the Shared
Appreciation Interest from Fourth Ward Square. During April, the Partnership
paid out $.42 per Limited Partner interest, which represented the principal
proceeds and prepayment penalty received from the Rosewood PIM. In July 1998,
the Partnership will pay out a special distribution of $1.30 per Limited Partner
interest relating to the payoffs of the Sundance Apartment PIM and the Regency
Park and Brookside MBS.
The General Partners have been informed by the borrower that the first mortgage
loans underlying the PIMs on Woodbine, Ironwood and Winsdor Court may be prepaid
prior to the end of the year as a result of refinancing. If any of these
transactions take place, the Partnership would receive unpaid participation
interest earned on prior years' operations and either its share of any interest
in the value of the properties or a prepayment premium.
The General Partners estimate that the Partnership can maintain the quarterly
distribution rate of $.19 per Limited Partner interest for the near future.
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.
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
Fannie Mae, the Federal Home Loan Mortgage Corporation (AFHLMC@), the Government
National Mortgage Association (AGNMA@) and the Department of Housing and Urban
Development (AHUD@) 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.
Fannie Mae 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, 1998 and 1997:
Net income decreased for the three months ended June 30, 1998, as compared to
same period in 1997 by approximately by $793,000. This decrease was due to lower
base interest, interest income on MBS and higher amortization of prepaid fees
and expenses of $900,000, $121,000, and $49,000, respectively. This was offset
by an increase in other interest income of $145,000 and decreases in asset
management fees and expense reimbursements of approximately $111,000 and
$62,000, respectively. The decrease in base interest was due to the prepayments
during the first quarter of 1998 of Meredith Square, Fourth Ward Square and the
Rosewood Apartment PIMs, the three Paddock PIMs in the fourth quarter of 1997
and the two Paces PIMs during the second quarter of 1997. The decrease in MBS
interest income was primarily due to the prepayment of the Regency Park MBS in
April of 1998. The increase in other interest income was due to the Partnership
having higher average short-term investment balances during the three months
ended June 30, 1998 when compared to the corresponding period in 1997. The
increase in amortization of prepaid fees and expenses is a result of the
Partnership fully amortizing the remaining balances of prepaid fees and expenses
associated with the Regency Park MBS, and Rosewood and Sundance Apartment PIMs.
The above-mentioned payoffs also caused the decline in asset management fees.
Net income decreased approximately $2,571,000 for the six months ended June 30,
1998 as compared to the same period in 1997, due primarily to lower base
interest, participation income and interest income on MBS of approximately
$1,854,000, $560,000 and $219,000, respectively and higher amortization expense
of $502,000. This was offset by an increase in other interest income of $289,000
and lower asset management fees and expense reimbursements of approximately
$212,000, and $56,000, respectively. The decrease in base interest was due to
the prepayments during the first quarter of 1998 of Meredith Square, Fourth Ward
Square and the Rosewood Apartment PIMs; the three Paddock PIMs in the fourth
quarter of 1997 and the two Paces PIMs during the second quarter of 1997. The
Partnership received prepayment penalties of approximately $316,000 from the
Rosewood PIM and Brookside MBS prepayments in 1998 and approximately $679,000
from the two Paces PIMs in 1997. In addition, the Partnership received SII of
approximately $253,000 from two PIMs as compared to $449,000 from seven PIMs in
1997. The increase in other interest income was due to the Partnership having
higher average short-term investment balances during the six months ended June
30, 1998 when compared to the corresponding period in 1997. The increase in
amortization of prepaid fees and expenses is due to the Partnership fully
amortizing the remaining costs associated with the Regency Park MBS, Rosewood
and Sundance Apartment PIMs. The general and administrative expense decrease was
primarily due to lower transfer agent costs of approximately $26,000 for the six
months ended June 30, 1998 as compared to the same period in 1997.
The Partnership funds a portion of distributions with MBS and PIM principal
collections, which reduce 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.
<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
<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, 1998
<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> Jun-30-1998
<PERIOD-END> Jun-30-1998
<CASH> 21,587,137
<SECURITIES> 97,694,047<F1>
<RECEIVABLES> 693,972
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,378,384<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 122,353,540
<CURRENT-LIABILITIES> 15,668
<BONDS> 0
0
0
<COMMON> 121,701,214<F3>
<OTHER-SE> 636,658<F4>
<TOTAL-LIABILITY-AND-EQUITY> 122,353,540
<SALES> 0
<TOTAL-REVENUES> 5,432,066<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,991,393<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,440,673
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,440,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,440,673
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $79,745,317 and
Mortgage-Backed Securities ("MBS") of $17,948,730.
<F2>Includes prepaid acquisition fees and expenses of $6,320,003 net of
accumulated amortization of $4,565,542 and prepaid participation servicing fees
of $2,014,465 net of accumulated amortization of $1,390,542.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($155,548) and Limited Partners equity of $121,856,762.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,457,885 of amortization of prepaid fees and expenses.
<F7>Net income allocated $103,220 to the General Partners and $3,337,453 to the
Limited Partners. Average net income per Limited Partner interest is $.26 on
12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
