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, 1999
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 (IRS employer identification no.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(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
June 30, December 31,
1999 1998
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $ 59,282,932 $ 70,497,441
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 14,139,557 15,598,230
Total mortgage investments 73,422,489 86,095,671
Cash and cash equivalents 5,799,430 6,845,229
Interest receivable and other assets 503,748 588,019
Prepaid acquisition fees and expenses, net of
accumulated amortization of $3,781,289 and
$4,339,027, respectively 1,002,033 1,300,234
Prepaid participation servicing fees, net of
accumulated amortization of $1,132,505 and
$1,317,338, respectively 372,702 471,528
Total assets $ 81,100,402 $ 95,300,681
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 9,132 $ 161,439
Partners' equity (deficit) (Note 4):
Limited Partners
(12,770,261 Limited Partner interests
outstanding) 81,117,480 94,969,742
General Partners (186,458) (157,989)
Accumulated comprehensive income 160,248 327,489
Total Partners' equity 81,091,270 95,139,242
Total liabilities and Partners' equity $ 81,100,402 $ 95,300,681
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Basic interest $ 1,150,206 $ 1,640,321 $ 2,307,089 $ 3,348,781
Participation income - 113,032 - 568,537
Interest income - MBS 274,444 516,559 563,048 1,066,294
Interest income - other 74,364 243,968 201,290 448,454
Total revenues 1,499,014 2,513,880 3,071,427 5,432,066
Expenses:
Asset management fee to
an affiliate 137,441 195,069 274,753 410,943
Expense reimbursements to
affiliates 23,151 (28,124) 28,160 5,815
Amortization of prepaid
fees and expenses 152,822 644,134 397,027 1,457,885
General and administrative 47,337 72,604 64,123 116,750
Total expenses 360,751 883,683 764,063 1,991,393
Net income
1,138,263 1,630,197 2,307,364 3,440,673
Other comprehensive income:
Net change in unrealized gain
on MBS (148,177) (482,632) (167,241) (507,678)
Total comprehensive income $ 990,086 $ 1,147,565 $ 2,140,123 $ 2,932,995
Allocation of net income
(Note 4):
Limited Partners $ 1,104,115 $ 1,581,291 $ 2,238,143 $ 3,337,453
Average net income per Limited
Partner interest (12,770,261
Limited Partner interests
outstanding) $ .09 $ .12 $ .18 $ .26
General Partners $ 34,148 $ 48,906 $ 69,221 $ 103,220
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
Operating activities:
<S> <C> <C>
Net income $ 2,307,364 $ 3,440,673
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 397,027 1,457,885
Prepayment premium - (315,942)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 84,271 255,646
Decrease in liabilities (152,307) (154,900)
Net cash provided by operating activities 2,636,355 4,683,362
Investing activities:
Principal collections on PIMs including prepayment
premium of $304,242 in 1998. 11,214,509 24,724,820
Principal collections on MBS including a prepayment
premium of $11,700 in 1998 1,291,432 10,775,749
Net cash provided by investing activities 12,505,941 35,500,569
Financing activities:
Special distributions (11,237,745) (47,632,702)
Quarterly distributions (4,950,350) (6,437,313)
Net cash used for financing activities (16,188,095) (54,070,015)
Net decrease in cash and cash equivalents (1,045,799) (13,886,084)
Cash and cash equivalents, beginning of period 6,845,229 35,473,221
Cash and cash equivalents, end of period $ 5,799,430 $ 21,587,137
</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, 1998 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, 1999, its results of operations for the three
and six months ended June 30, 1999 and 1998, and its cash flows for the six
months ended June 30, 1999 and 1998.
The results of operations for the three and six months ended June 30, 1999
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 1999, the Partnership received a prepayment of the Windsor Court
Apartments PIM in the amount of $10,876,051 representing the outstanding
principal balance. In addition to the prepayment, the Partnership received
$243,620 of Shared Appreciation Interest and prepayment premiums and $196,828 of
Minimum Additional Interest and Shared Income Interest during December 1998. The
Partnership distributed the capital transaction proceeds from this prepayment to
the Limited Partners through a special distribution on February 26, 1999 in the
amount of $.88 per Limited Partner interest.
At June 30, 1999, the Partnership's PIM portfolio has a fair value of
approximately $60,133,796 and gross unrealized gains and losses of $930,082 and
$79,218, respectively. The PIM portfolio has maturities ranging from 2000 to
2032.
3. MBS
At June 30, 1999, the Partnership's MBS portfolio has an amortized cost of
$13,979,309 and gross unrealized gains and losses of $191,492 and $31,244
respectively. The Partnership's MBS have maturities ranging from 2016 to 2035.
At June 30, 1999, the Partnership's insured mortgage loan was not delinquent
with respect to principal or interest payments.
<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
June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
Balance at
<S> <C> <C> <C> <C>
December 31, 1998 $ 94,969,742 $ (157,989) $ 327,489 $ 95,139,242
Net income 2,238,143 69,221 - 2,307,364
Special distributions (11,237,745) - - (11,237,745)
Distributions (4,852,660) (97,690) - (4,950,350)
Increase in unrealized
gain on MBS - - (167,241) (167,241)
Balance at June 30, 1999 $ 81,117,480 $ (186,458) $ 160,248 $ 81,091,270
</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
General Partners of 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 significant internal systems or software that the Partnership
is using at the present time.
The General Partners of the Partnership surveyed the Partnership's material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors and received assurances
that such service providers and vendors are Year 2000 ready. The Partnership
does not anticipate any problems that would materially impact its results of
operations, liquidity or capital resources. Nevertheless the General Partners
are developing contingency plans for all of their "mission-critical functions"
to insure business continuity.
The Partnership is also subject to external forces that might generally
affect industry and commerce, such as utility and transportation company Year
2000 readiness failures and related service interruptions. However, the General
Partners do not anticipate any material impact on the Partnership's results of
operations, liquidity or capital resources.
To date, the Partnership has not incurred any cost associated with being
Year 2000 ready. All costs have been incurred by the General Partners and it is
estimated that any future Year 2000 readiness costs will be borne by the General
Partners.
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.
In February 1999, the Partnership paid out $.88 per Limited Partner
interest, which represented the principal proceeds, Shared Appreciation Interest
and prepayment premium from the Windsor Court Apartment 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
Fannie Mae, 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.
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, 1999 and 1998:
Net income decreased by approximately $492,000 and $1,133,000 during the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Basic interest declined during the three and six months ended
June 30, 1999 as compared to the three and six months ended June 30, 1998 due
primarily to prepayments of the Sundance, Meredith Square, Fourth Ward Square,
Rosewood, Woodbine and Ironwood PIMs in 1998 and the Windsor Court PIM in
January 1999. Participation income was higher in 1998 as compared to 1999 due to
prepayment premiums of $304,000 and $12,000 from the Rosewood PIM and Brookside
MBS prepayments, respectively, and additional interest of $152,000 and $101,000
from the Rosewood and Windsor Court PIMs, respectively. The decrease in interest
income on MBS in 1999 versus 1998 was caused by the prepayments of the Regency
Park and Brookside MBS in April and June of 1998, respectively, and the on-going
principal collections on the single-family MBS. Other interest income decreased
in 1999 as compared to 1998 due to significantly lower cash balances available
for short-term investing.
The higher amortization expense in 1998 versus 1999 was caused by fully
amortizing the remaining prepaid fees and expenses of the Regency Park MBS and
the Rosewood and Sundance PIMs. Asset management fees also decreased due to the
prepayments discussed above and will continue to decline as principal
collections and any prepayments reduce the Partnership's investments in
mortgages.
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 invested assets decline so will interest income on MBS, basic
interest 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 of 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, 1999
<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-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 5,799,430
<SECURITIES> 73,422,489<F1>
<RECEIVABLES> 503,748
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,374,735<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,100,402
<CURRENT-LIABILITIES> 9,132
<BONDS> 0
0
0
<COMMON> 80,931,022<F3>
<OTHER-SE> 160,248<F4>
<TOTAL-LIABILITY-AND-EQUITY> 81,100,402
<SALES> 0
<TOTAL-REVENUES> 3,071,427<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 764,063<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,307,364
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,307,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,307,364
<EPS-BASIC> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $59,282,932 and
Mortgage-Backed Securities ("MBS") of $14,139,557.
<F2>Includes prepaid acquisition fees and expenses of $4,783,322 net of
accumulated amortization of $3,781,289 and prepaid participation servicing
fees of $1,505,207 net of accumulated amortization of $1,132,505.
<F3>Represents total equity of General Partners and Limited Partners.
General Partners deficit of ($186,458) and Limited Partners equity of
$81,117,480.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $397,027 of amortization of prepaid fees and expenses.
<F7>Net income allocated $69,221 to the General Partners and $2,238,143 to
the Limited Partners. Average net income per Limited Partner interest is
$.18 on 12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
