UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q-A
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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
<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
BALANCE SHEETS
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
Participating Insured Mortgages ("PIMs")
<S> <C> <C>
(Note 2) $ 75,449,114 $104,165,895
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 16,979,998 29,220,457
Total mortgage investments 92,429,112 133,386,352
Cash and cash equivalents 11,036,911 35,473,221
Interest receivable and other assets 627,842 949,618
Prepaid acquisition expenses and fees, net of
accumulated amortization of $4,475,668 and
$5,921,472, respectively 1,844,335 2,902,255
Prepaid participation servicing fees, net of
accumulated amortization of $1,676,460 and
$1,680,937, respectively 233,570 934,014
Total assets $106,171,770 $173,645,460
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 22,829 $ 170,568
Partners' equity (deficit) (Note 4):
Limited Partners 105,502,002 172,409,394
(12,770,261 Limited Partner interests
outstanding)
General Partners (148,663) (78,838)
Unrealized gain on MBS 795,602 1,144,336
Total Partners' equity 106,148,941 173,474,892
Total liabilities and Partners' equity $106,171,770 $173,645,460
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Base interest $1,505,670 $2,517,455 $4,854,451 $7,720,452
Participation interest 1,062,400 183,527 1,630,937 1,311,716
Interest income - MBS 324,693 628,174 1,390,987 1,913,740
Interest income - other 140,906 60,661 589,360 219,775
Total revenues 3,033,669 3,389,817 8,465,735 11,165,683
Expenses:
Asset management fee to
an affiliate 179,354 308,040 590,297 931,286
Expense reimbursements to
affiliates 19,329 33,939 25,144 95,410
Amortization of prepaid
expenses and fees 300,479 340,752 1,758,364 1,296,153
General and administrative 42,368 35,491 159,118 158,902
Total expenses 541,530 718,222 2,532,923 2,481,751
Net income 2,492,139 2,671,595 5,932,812 8,683,932
Net unrealized gain (loss)
on MBS 158,944 548,336 (348,734) 945,717
Total comprehensive income $2,651,083 $3,219,931 $5,584,078 $9,629,649
Allocation of net income
(Note 4):
Limited Partners $2,417,376 $2,591,447 $5,754,828 $8,423,414
Average net income per Limited
Partner interest (12,770,261
Limited Partner interests
outstanding) $ .19 $ .20 $ .45 $ .66
General Partners $ 74,763 $ 80,148 $ 177,984 $ 260,518
/TABLE>
The accompanying notes are an integral
part of the financial statements.
TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
1998 1997
Operating activities:
Net income $5,932,812 $ 8,683,932
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 1,758,364 1,296,153
Prepayment premium (1,017,166) (679,193)
Changes in assets and liabilities:
Decrease in interest receivable and
other assets 321,776 139,576
Increase (decrease) in liabilities (147,739) 144,558
Net cash provided by operating activities 6,848,047 9,585,026
Investing activities:
Principal collections on PIMs including prepayment
premium of $1,005,466 in 1998 and $679,193 in 1997,
respectively 29,722,247 8,997,593
Principal collections on MBS including a prepayment
premium of $11,700 in 1998 11,903,425 1,263,198
Net cash provided by investing activities 41,625,672 10,260,791
Financing activities:
Special distributions (63,978,509)(11,775,807)
Quarterly distributions (8,931,520 (8,300,605)
Net cash used for financing activities (72,910,029)(20,076,412)
Net decrease in cash and cash equivalents (24,436,310) (230,595)
Cash and cash equivalents, beginning of period 35,473,221 4,666,597
Cash and cash equivalents, end of period $11,036,911 $ 4,436,002
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<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 September 30, 1998,
its results of operations for the three and nine months ended September
30, 1998 and 1997, and its cash flows for the nine months ended
September 30, 1998 and 1997.
The results of operations for the three and nine months ended September
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 September 23, 1998 the Partnership received a prepayment of the
Woodbine Apartment's PIM in the amount of $4,180,266, representing
the outstanding principal balance plus a prepayment premium of $376,224
and shared interest income of $109,939. On October 15, 1998, the
Partnership also received a prepayment of the Ironwood Apartments PIM
in the amount of $4,844,000 plus a prepayment premium of $325,000 and
shared interest income of $226,507, which was received in September
1998. The Partnership will make special distribution of $.76 per
Limited Partner interest from these prepayments during the fourth
quarter.
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 property had been operating under
a modification agreement with the Partnership; consequently no
prepayment premium or participation income was due at the time of
the prepayment. The Partnership distributed the capital transaction
proceeds from this prepayment to investors through a special
distribution on July 24, 1998 in the amount of $.56 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 premium 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 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
continued
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
2. PIMs, continued
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 premium 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.
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.
At September 30, 1998, the Partnership's PIM portfolio has a fair value
of $76,489,009 and gross unrealized gains and losses of $1,096,627 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 premium of $11,700. 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 distributed the capital proceeds from these transactions
on July 24, 1998 in the form of a special distribution of $.72 per
Limited Partner interest.
At September 30, 1998, the Partnership's MBS portfolio has an amortized
cost of $16,184,396 and gross unrealized gains of $795,602. 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.
continued
<PAGE>
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 six months ended
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at
<S> <C> <C> <C> <C>
December 31, 1997 $172,409,394 $(78,838) $1,144,336 $173,474,892
Net income 5,754,828 177,984 - 5,932,812
Quarterly distributions (8,683,711) (247,809) - (8,931,520)
Special distributions (63,978,509) - - (63,978,509)
Change in unrealized
gain on MBS - - (348,734) (348,734)
Balance at
September 30, 1998 $105,502,002 $(148,663) $795,602 $106,148,941
</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.
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the further necessary steps to understand the nature and extent of the
work required to make its systems Year 2000 ready in those situations in which
it is required to do so. The Year 2000 readiness issue concerns the inability
of computerized information systems to accurately calculate, store or use a
date after 1999. This could result in a system failure or miscalculations
causing disruptions of operations. The Year 2000 issue affects virtually all
companies and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
Partnership incurred hardware costs as well as consulting and other expenses
related to the infrastructure and facilities enhancements necessary to
complete the upgrade and prepare for the Year 2000. There are no other systems
or software that the Partnership is using at the present time.
The General Partners of the Partnership are in the process of evaluating the
potential adverse impact that could result from the failure of material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors to be Year 2000 ready.
No estimate can be made at this time as to the impact of the readiness of such
third parties.
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.
During the nine months ended September 30, 1998, the Partnership has made four
special distributions. Another special distribution is planned for the fourth
quarter of 1998 in the amount of $.76 per Limited Partner interest resulting
from the Woodbine and Ironwood Apartment's PIMs prepayments. 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 premium 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 premium received from the
Rosewood PIM prepayment. In July 1998, the Partnership paid out a special
distribution of $1.28 per Limited Partner interest relating to the payoffs of
the Sundance Apartment PIM and the Regency Park and Brookside MBS'.
As a result of the above mentioned PIM prepayments, the Partnership's capital
resources and its future cash flows will be lower. However, at this time the
General Partners have determined that the Partnership can maintain its current
dividend rate of $.76 per unit per year for the near future. 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 cash available for distribution, the General
Partners may adjust the distribution rate or distribute funds through a special
distribution. In the event of additional 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 General Partners have been informed by the borrower of the Windsor Court
Apartment's PIM that the first mortgage loan underlying the PIM may be prepaid
prior to the end of the year. If this transaction takes 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 property or a
prepayment premium.
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 a
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
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 nine months ended September 30, 1998 and 1997:
Net income decreased for the three months ended September 30, 1998 as
compared to the same period in 1997. This decrease was due primarily to lower
base interest on PIMs and interest income on MBS. This was partially offset
by increases in interest income on cash and cash equivalents and
participation interest and a decrease in asset management fees. The
significant decrease in base interest on PIMs was caused by the prepayments
of the Sundance, Meredith Square, Fourth Ward Square and Rosewood Apartment
PIMs during the first nine months of 1998 and the three Paddock PIMs in the
fourth quarter of 1997. The increase in participation interest was a result of
the Partnership receiving prepayment penalties and shared interest income from
the Woodbine and Ironwood Apartment PIMs prepayments along with shared
interest income and minimum additional interest from the Marina Shores
Apartment PIMs. The decrease in asset management fees was a result of the
1998 PIM prepayments mentioned above that reduced the asset base. The decrease
in MBS interest income was primarily due to the prepayment of the Brookside
and Regency Park MBS' during the first half of 1998. The increase in interest
income on cash and cash equivalents was due to the Partnership having higher
average short-term investment balances during the three months ended
September 30, 1998 when compared to the corresponding period in 1997.
Net income decreased for the nine months ended September 30, 1998 as
compared to the same period in 1997. This decrease was due primarily to lower
base interest on PIMs and interest income on MBS. This was partially offse
by increases in interest income on cash and cash equivalents and participation
interest and a decrease in asset management fees. The significant decrease
in base interest on PIMs was caused by the prepayments of the Sundance, Meredith
Square, Fourth Ward Square, Rosewood and Woodbine Apartment PIMs during the
first nine months of 1998 and the three Paddock PIMs in the fourth quarter of
1997. The increase in participation interest was a result of the Partnership
receiving prepayment penalties and shared interest income from the Woodbine,
Ironwood and Rosewood Apartment PIMs along with shared interest income from
the Marina Shores and Windsor Court Apartment PIMs and a prepayment premium
from the Brookside MBS. The decrease in asset management fees was a result
of a reduction in asset base occuring from the prepayments mentioned above
plus the three Paddock PIMs which prepaid in the fourth quarter of 1997. The
decrease in MBS interest income was primarily due to the prepayment of the
Brookside and Regency Park MBS' during the first half of 1998. The increase in
interest income on cash and cash equivalents was due to the Partnership having
higher average short-term investment balances during the nine months ended
September 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 and
Brookside MBS', and the Woodbine, Fourth Ward Square, Meredith Square Rosewood
and Sundance Apartment PIMs. Expense reimbursements to affiliates decreased
during the nine months ended September 30, 1998 due to the Partnership having
received a rebate for expense reimbursements related to 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
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, 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> 9-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-END> Sep-30-1998
<CASH> 11,036,911
<SECURITIES> 92,429,112<F1>
<RECEIVABLES> 627,842
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,077,905<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,171,770
<CURRENT-LIABILITIES> 22,829
<BONDS> 0
0
0
<COMMON> 105,353,339<F3>
<OTHER-SE> 795,602<F4>
<TOTAL-LIABILITY-AND-EQUITY> 106,171,770
<SALES> 0
<TOTAL-REVENUES> 8,465,735<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,532,923<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,932,812
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,932,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,932,812
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1> Includes Participating Insured Mortgages ("PIMs") of $75,449,114 and
Mortgage-backed Securities ("MBS") of $16,979,998.
<F2>Includes prepaid acquisition fees and expenses of $6,320,003 net of
accumulated amortization of $4,475,668 and prepaid participation servicing fees
of $1,910,030 net of accumulated amortization of $1,676,460.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($148,663) and Limited Partners equity of $105,502,002.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $1,758,364 of amortization of prepaid fees and expenses.
<F7>Net income allocated $177,984 to the General Partners and $5,754,828 to the
Limited Partners. Average net income per Limited Partner interest is $.45 on
12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
