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 September 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
September 30, December 31,
1999 1998
<S> <C> <C>
Participating Insured Mortgages ("PIMs")(Note 2) $ 49,468,630 $ 70,497,441
Mortgage-Backed Securities and insured
mortgages ("MBS")(Note 3) 13,390,582 15,598,230
Total mortgage investments 62,859,212 86,095,671
Cash and cash equivalents 5,455,806 6,845,229
Interest receivable and other assets 430,986 588,019
Prepaid acquisition fees and expenses, net of
accumulated amortization of $ 3,187,977 and
$4,339,027, respectively 830,852 1,300,234
Prepaid participation servicing fees, net of
accumulated amortization of $ 935,882 and
$1,317,338, respectively 315,971 471,528
Total assets $ 69,892,827 $ 95,300,681
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 13,499 $ 161,439
Partners' equity (deficit) (Note 4):
Limited Partners
(12,770,261 Limited Partner interests
outstanding) 69,961,128 94,969,742
General Partners (179,229) (157,989)
Accumulated comprehensive income 97,429 327,489
Total Partners' equity 69,879,328 95,139,242
Total liabilities and Partners' equity $ 69,892,827 $ 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
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenues:
Interest income - PIMs:
<S> <C> <C> <C> <C>
Basic interest $ 1,027,725 $ 1,505,670 $ 3,334,814 $ 4,854,451
Participation interest 574,564 1,062,400 574,564 1,630,937
Interest income - MBS 259,326 324,693 822,374 1,390,987
Interest income - other 99,976 140,906 301,266 589,360
Total revenues 1,961,591 3,033,669 5,033,018 8,465,735
Expenses:
Asset management fee to
an affiliate 125,279 179,354 400,032 590,297
Expense reimbursements to
affiliates 23,151 19,329 51,311 25,144
Amortization of prepaid
fees and expenses 227,912 300,479 624,939 1,758,364
General and administrative 53,182 42,368 117,305 159,118
Total expenses 429,524 541,530 1,193,587 2,532,923
Net income 1,532,067 2,492,139 3,839,431 5,932,812
Other comprehensive income:
Net unrealized gain (loss) on MBS (62,819) 158,944 (230,060) ( 348,734)
Total comprehensive income $ 1,469,248 $ 2,651,083 $ 3,609,371 $ 5,584,078
Allocation of net income
(Note 4):
Limited Partners $ 1,486,105 $ 2,417,376 $ 3,724,248 $ 5,754,828
Average net income per Limited
Partner interest (12,770,261
Limited Partner interests
outstanding) $ .11 $ .19 $ .29 $ .45
General Partners $ 45,962 $ 74,763 $ 115,183 $ 177,984
</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 Nine Months
Ended September 30,
1999 1998
Operating activities:
<S> <C> <C>
Net income $ 3,839,431 $ 5,932,812
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 624,939 1,758,364
Shared appreciation income and prepayment premiums (402,508) (1,017,166)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 157,033 321,776
Decrease in liabilities (147,940) (147,739)
Net cash provided by operating activities 4,070,955 6,848,047
Investing activities:
Principal collections on PIMs including shared appreciation income
of $402,508 in 1999 and a prepayment premium of $1,005,466 in 1998 21,431,319 29,722,247
Principal collections on MBS including a prepayment
premium of $11,700 in 1998 1,977,588 11,903,425
Net cash provided by investing activities 23,408,907 41,625,672
Financing activities:
Special distributions (21,453,869) (63,978,509)
Quarterly distributions (7,415,416) (8,931,520)
Net cash used for financing activities (28,869,285) (72,910,029)
Net decrease in cash and cash equivalents (1,389,423) (24,436,310)
Cash and cash equivalents, beginning of period 6,845,229 35,473,221
Cash and cash equivalents, end of period $ 5,455,806 $ 11,036,911
</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, 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, 1999, its results of operations for the three and
nine months ended September 30, 1999 and 1998, and its cash flows for the nine
months ended September 30, 1999 and 1998.
The results of operations for the three and nine months ended September 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.
In August 1999, the Partnership received a prepayment of the Mill Ponds
Apartments PIM in the amount of $9,751,550 representing the outstanding
principal balance. In addition to the prepayment, the Partnership received
$402,508 of Shared Appreciation income and $172,464 of Minimum Additional and
Shared Interest income in July, 1999. The Partnership distributed the capital
transaction proceeds from this prepayment to the Limited Partners through a
special distribution on September 9, 1999 in the amount of $.80 per limited
partner interest.
At September 30, 1999, the Partnership's PIM portfolio had a fair value of
$50,239,414 and gross unrealized gains and losses of $792,965 and $22,181,
respectively. The PIM portfolio has maturities ranging from 2000 to 2032.
3. MBS
At September 30, 1999, the Partnership's MBS portfolio had an amortized
cost of $13,293,153 and gross unrealized gains and losses of $146,454 and
$49,025, respectively. The Partnership's MBS have maturities ranging from 2016
to 2035. At September 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 nine months ended
September 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 3,724,248 115,183 - 3,839,431
Special distributions (21,453,869) - - (21,453,869)
Distributions (7,278,993) (136,423) - (7,415,416)
Increase in unrealized
gain on MBS - - (230,060) (230,060)
Balance at September 30, 1999 $ 69,961,128 $ (179,229) $ 97,429 $ 69,879,328
</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.
Impact of the Year 2000 Issue
The General Partners have conducted an assessment of the Partnership's core
internal and external computer information systems and have taken the necessary
steps to further 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, 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
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 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 incurred $13,851 of costs associated with
being Year 2000 ready. The Partnership does not expect to incur any additional
Year 2000 readiness costs.
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.
In September 1999, the Partnership paid out $.80 per Limited Partner
Interest, which represented the principal proceeds and Shared Appreciation
Interest from the Mill Ponds Apartment PIM.
Royal Palm Place operates under a long-term restructure program. As an
ongoing result of the Partnership's 1995 agreement to modify the payment terms
of the Royal Palm Place PIM, the Partnership will receive basic interest-only
payments on the Fannie Mae MBS at the rate of 7.375% per annum during 1999.
Thereafter, the interest rate will range from 7.5% to 8.775% per annum through
the maturity of the first mortgage loan in 2006. The Partnership also received
its share ($181,577) of the scheduled $250,000 principal payment in January
1999.
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.
<PAGE>
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.
Results of Operations
The following discussion relates to the operations of the Partnership
during the three and nine months ended September 30, 1999 and 1998:
Net income decreased by approximately $960,000 and $2,093,000 during the
three and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. Basic interest declined during the three and nine months ended
September 30, 1999 as compared to the three and nine months ended September 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 and
Mill Ponds PIMs in 1999. Participation income was higher in 1998 as compared to
1999 due to prepayment premiums of $304,000, $376,000, $325,000 and $12,000 from
the Rosewood, Woodbine and Ironwood PIMs and the Brookside MBS prepayments,
respectively, and additional interest of $152,000, $227,000, $110,000, $25,000
and $101,000 from the Rosewood, Ironwood, Woodbine, Marina Shores, 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 associated with the 1998
prepayments mentioned above. 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.
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, interest income to the Partnership will decline.
<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: October 29, 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> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 5,455,806
<SECURITIES> 62,859,212<F1>
<RECEIVABLES> 430,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,146,823<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 69,892,827
<CURRENT-LIABILITIES> 13,499
<BONDS> 0
0
0
<COMMON> 69,781,899<F3>
<OTHER-SE> 97,429<F4>
<TOTAL-LIABILITY-AND-EQUITY> 69,892,827
<SALES> 0
<TOTAL-REVENUES> 5,033,018<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,193,587<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,839,431
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,839,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,839,431
<EPS-BASIC> 0<F7>
<EPS-DILUTED> 0<F7>
<FN>
<F1>Includes Participating Insured Mortgages ("PIMs") of $49,468,630 and
Mortgage-Backed Securities ("MBS") of $13,390,582.
<F2>Includes prepaid acquisition fees and expenses of $4,018,829 net of
accumulated amortization of $3,781,829 and prepaid participation servicing
fees of $1,251,853 net of accumulated amortization of $1,317,338.
<F3>Represents total equity of General Partners and Limited Partners. General
Partners deficit of ($179,229) and Limited Partners equity of $69,961,128.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $624,939 of amortization of prepaid fees and expenses.
<F7>Net income allocated $115,183 to the General Partners and $3,724,248 to the
Limited Partners. Average net income per Limited Partner interest is
$.29 on 12,770,261 Limited Partner interests outstanding.
</FN>
</TABLE>
