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 SECURITIESx
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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>
<CAPTION>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
March 31, December 31,
1998 1997
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $ 87,054,986 $104,165,895
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 28,602,151 29,220,457
Total mortgage investments 115,657,137 133,386,352
Cash and cash equivalents 9,622,468 35,473,221
Interest receivable and other assets 772,334 949,618
Prepaid acquisition expenses and fees, net of
accumulated amortization of $5,261,806 and
$5,921,472, respectively 2,291,327 2,902,255
Prepaid participation servicing fees, net of
accumulated amortization of $1,462,683 and
$1,680,937, respectively 731,191 934,014
Total assets $129,074,457 $173,645,460
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 24,749 $ 170,568
Partners' equity (deficit) (Note 4):
Limited Partners 128,065,273 172,409,394
(12,770,261 Limited Partner interests
outstanding)
General Partners (134,855) (78,838)
Unrealized gain on MBS 1,119,290 1,144,336
Total Partners' equity 129,049,708 173,474,892
Total liabilities and Partners' equity $129,074,457 $173,645,460
</TABLE>
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<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
<CAPTION>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Three Months
Ended March 31,
1998 1997
<S>
Revenue:
Interest income - PIMs:
<S> <C> <C>
Base interest $1,708,460 $2,662,964
Participation income 455,505 989,506
Interest income - MBS 549,735 647,518
Other interest income 204,486 59,965
Total revenues 2,918,186 4,359,953
Expense:
Asset management fee to an affiliate 215,874 317,500
Expense reimbursements to affiliates 33,939 27,533
Amortization of prepaid expenses and fees 813,751 359,861
General and administrative 44,146 65,697
Total expenses 1,107,710 770,591
Net income $1,810,476 $3,589,362
Allocation of net income (Note 4):
Limited Partners $1,756,162 $3,481,681
Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ .14 $ .27
General Partners $ 54,314 $ 107,681
</TABLE>
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<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
<CAPTION>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
1998 1997
<S>
Operating activities:
<S> <C> <C>
Net income $1,810,476 $3,589,362
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid expenses and fees 813,751 359,861
Prepayment penalty income (304,242) (679,193)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 177,284 66,426
Decrease in liabilities (145,819) (15,223)
Net cash provided by operating activities 2,351,450 3,321,233
Investing activities:
Principal collections on PIMs including prepayment
penalty income 17,415,151 1,064,596
Principal collections on MBS 593,260 454,468
Net cash provided by investing activities 18,008,411 1,519,064
Financing activities:
Distributions (3,941,380)(3,925,054)
Special Distributions (42,269,234) -
Net cash used by financing activities (46,210,614)(3,925,054)
Net (decrease) increase in cash and cash equivalents(25,850,753) 915,243
Cash and cash equivalents, beginning of period 35,473,221 4,666,597
Cash and cash equivalents, end of period $9,622,468 $5,581,840
</TABLE>
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<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, 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 March 31, 1998 and its results of operations and
cash flows for the three months ended March 31, 1998 and 1997.
The results of operations for the three months ended March 31, 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
In January 1998, the Partnership made a $2.30 per unit special distribution
with the prepayment proceeds of the Paddock Park II, Paddock Park Tallahassee
and Paddock Jacksonville PIMs that were received during the fourth quarter of
1997.
In January 1998, the Partnership received proceeds of the Fourth Ward Square
and Meredith Square Apartment PIMs 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.
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.
At March 31, 1998, the Partnership=s PIM portfolio has a fair value of
$88,403,803 and gross unrealized gains and losses of $1,405,549 and $56,732
respectively. The PIM portfolio has maturities ranging from 1999 to 2032.
At March 31, 1998 there are no insured mortgage loans within the
Partnership s portfolio that are delinquent of principal or interest.
-9-
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
3. MBS
At March 31, 1997, the Partnership's MBS portfolio has an amortized cost of
$27,482,861 and gross unrealized gains of $1,119,290. 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, 1998 is as follows:
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at December
31, 1997 $172,409,394 $(78,838) $1,144,336 $173,474,892
Net income 1,756,162 54,314 - 1,810,476
Special Distributions(42,269,234) - - (42,269,234)
Distributions (3,831,049) (110,331) - (3,941,380)
Decrease in unrealized
gain on MBS - - (25,046) (25,046)
Balance at March 31,
1998 $128,065,273 $(134,855) $1,119,290 $129,049,708
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Managements 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. Effective with the May 1998 distribution the
quarterly distribution will be $.19 per unit or approximately $2.4 million per
quarter. 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 quarterly 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.
Since the beginning of 1998, the Partnership has paid three special
distributions. 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.
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
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.
The Partnership includes in cash and cash equivalents approximately $4 million
of commercial paper, which is issued by entities with a credit rating equal to
one of the top two rating categories of a nationally recognized statistical
rating organization.
Operations
The following discussion relates to the operations of the Partnership during
the three months ended March 31, 1998 and 1997:
Net income decreased approximately $1,779,000 for the three months ended March
31, 1998 as compared to the same period in 1997, due primarily to lower
interest income on PIMS and higher amortization expenses, both of which are
related to prepayments. This was offset by an increase in other interest
income due to the Partnership having higher short-term investment balances
as a result of PIM prepayments that occurred in the fourth quarter of 1997
and the first quarter of 1988. PIM interest income was lower due to the
prepayments of the Meredith Square, Fourth Ward Square and Rosewood Apartment
PIM s during the first quarter of 1998 and the prepayments of the Paces
Arbor, Paces Forest, Paddock Park II, Paddock Park Tallahassee and Paddock
Jacksonville PIMs during 1997. Amortization expense increased approximately
$454,000 as a result of the PIM prepayments that occurred in 1998. Interest
income on PIMs and MBS will continue to decline as principal collections
reduce the outstanding balance of the portfolios. The Partnership funds
a portion of distributions with MBS and PIM principal collections, which
reduces the invested assets generating income for the Partnership. As the
invested assets decline so will interest income on MBS, base interest income
on PIMs and other interest income.
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<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
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<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: April 23, 1998
-15-
<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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,622,468
<SECURITIES> 115,657,137<F1>
<RECEIVABLES> 772,334
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,022,518<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,074,457
<CURRENT-LIABILITIES> 24,749
<BONDS> 0
0
0
<COMMON> 127,930,418<F3>
<OTHER-SE> 1,119,290<F4>
<TOTAL-LIABILITY-AND-EQUITY> 129,074,457
<SALES> 0
<TOTAL-REVENUES> 2,918,186<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,107,710<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,810,476
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,810,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,810,476
<EPS-PRIMARY> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $87,054,986 and
Mortgage-Backed Securities ("MBS") of $28,602,151.
<F2>Includes prepaid acquisition fees and expenses of $7,553,133 net of accumulated
amortization of $5,261,806 and prepaid participation servicing fees of
$2,193,874 net of accumulated amortization of $1,462,683.
<F3>Represents total equity of General Partners and Limited Partners. General
Partenrs deficit of ($134,855) and Limited Partners equity of $128,065,273.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortages and cash.
<F6>Includes $814,751 of amortization of prepaid fees and expenses.
<F7>Net income allocated $54,314 to the General Partners and $1,756,162 to the
Limited Partners. Avergage net income per Limited Partner interest is $.14 on
12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
