-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QI6SNP5DHIu+XqjA88pDpr1Lk5W0CUkVFDxZSGeVwVnDR3W6EHfHqW3v+zG63sK7 H0Okd643lzmOszdvoWKLjw== 0000805297-97-000007.txt : 19970513 0000805297-97-000007.hdr.sgml : 19970513 ACCESSION NUMBER: 0000805297-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED PLUS III LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000832091 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 043007489 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17691 FILM NUMBER: 97600978 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 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 THEx SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 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. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP BALANCE SHEETS ASSETS
March 31, December 31, 1997 1996 Participating Insured Mortgages ("PIMs")(Note 2)$138,995,348 $139,380,751 Mortgage-Backed Securities and insured mortgages ("MBS")(Note 3) 32,227,221 32,914,934 Total mortgage investments 171,222,569 172,295,685 Cash and cash equivalents 5,581,840 4,666,597 Interest receivable and other assets 1,167,541 1,233,967 Prepaid acquisition expenses and fees, net of accumulated amortization of $6,991,247 and $6,717,429, respectively 4,485,011 4,758,829 Prepaid participation servicing fees, net of accumulated amortization of $2,359,035 and $2,272,992, respectively 1,444,213 1,530,256 Total assets $183,901,174 $184,485,334 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 3,493 $ 18,716 Partners' equity (deficit) (Note 4): Limited Partners 184,175,245 184,524,613 (12,770,261 Limited Partner interests outstanding) General Partners (138,936) (152,612) Unrealized gain (loss)on MBS (138,628) 94,617 Total Partners' equity 183,897,681 184,466,618 Total liabilities and Partners' equity $183,901,174 $184,485,334
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF INCOME
For the Three Months Ended March 31, 1997 1996 Revenue: Interest income - PIMs: Base interest $2,662,964 $2,921,074 Participation income 989,506 - Interest income - MBS 647,518 698,402 Other interest income 59,965 47,170 Total revenues 4,359,953 3,666,646 Expense: Asset management fee to an affiliate 317,500 347,502 Expense reimbursements to affiliates 27,533 46,985 Amortization of prepaid expenses and fees 359,861 388,409 General and administrative 65,697 38,132 Total expenses 770,591 821,028 Net income $3,589,362 $2,845,618 Allocation of net income (Note 4): Limited Partners $3,481,681 $2,760,249 Average net income per Limited Partner interest (12,770,261 Limited Partner interests outstanding) $ .27 $ .22 General Partners $ 107,681 $ 85,369
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 1996 Operating activities: Net income $3,589,362 $ 2,845,618 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid expenses and fees 359,861 388,409 Shared appreciation income (679,193) - Changes in assets and liabilities: Decrease in interest receivable and other assets 66,426 209,739 Decrease in liabilities (15,223) (9,370) Net cash provided by operating activities 3,321,233 3,434,396 Investing activities: Principal collections on PIMs including Shared appreciation 1,064,596 208,904 Principal collections on MBS 454,468 861,260 -3- Net cash provided by investing activities 1,519,064 1,070,164 Financing activity: Distributions (3,925,054) (3,929,506) Net increase in cash and cash equivalents 915,243 575,054 Cash and cash equivalents, beginning of period 4,666,597 3,433,885 Cash and cash equivalents, end of period $5,581,840 $ 4,008,939
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, 1996 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, 1997 and its results of operations and cash flows for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 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 At March 31, 1997, the Partnership s PIM portfolio has a fair value of $139,612,314 and gross unrealized gains and losses of approximately $1,567,124 and $950,158 respectively. The PIM portfolio has maturities ranging from 1999 to 2032. -4- 3. MBS At March 31, 1997, the Partnership's MBS portfolio has an amortized cost of $32,365,849 and gross unrealized gains and losses of $421,179 and $559,807, respectively. 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, 1997 is as follows:
Total Limited General Unrealized Partners' Partners Partners Gain Equity Balance at December 31, 1996 $184,524,613 $(152,612) $ 94,617 $184,466,618 Net income 3,481,681 107,681 - 3,589,362 Distributions (3,831,049) (94,005) - (3,925,054) Decrease in unrealized gain on MBS - - (233,245) (233,245) Balance at March 31, 1997 $184,175,245 $(138,936) $ (138,628) $183,897,681
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, continued 5.Subsequent Event Paces Arbor and Paces Forest Apartments On April 25, 1997, the Partnership received prepayments of the Paces Arbor and Paces Forest Apartment PIMs. The Partnership received the outstanding first mortgage principal balances of $3,390,705 and $4,155,884, respectively, plus outstanding interest. In addition, the Partnership received $305,163 and $374,030 representing the prepayment penalties associated with the payoff. In May 1997, the Partnership will make a special distribution of $.65 per unit per Limited Partner interest with the proceeds from this prepayment. -5- 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 $3.9 million. 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 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. During April, the Partnership will receive proceeds from the repayment of the Paces Arbor and Paces Forest Apartment PIMs. During May, the Partnership will make a special distribution to the investors of $.65 per limited partner interest. The General Partners estimate that the Partnership can maintain the current quarterly distribution rate of $.30 per limited partner interest through 1997. 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. For the first five years of the PIMs the borrowers are prohibited from prepaying. For the second five years, the borrower can prepay the loan incurring a prepayment penalty. 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 -6- 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. Distributable Cash Flow and Net Cash Proceeds from Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions as defined in Section 17 of the Partnership Agreement and the source of cash distributions for the three months ended March 31, 1997 and the period from inception through March 31, 1997. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. (Amounts in thousands except per Unit amounts)
Three Months Ended Inception to March 31, 1997 March 31, 1997 Distributable Cash Flow: Income for tax purposes $ 3,624 $ 113,458 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid expenses, fees and organization costs 325 8,209 Acquisition expenses paid from offering proceeds charged to operations - 184 Shared appreciation income/prepayment penalties (679) (2,492) Gain on sale of MBS - (253) Total Distributable Cash Flow ("DCF") $ 3,270 $ 119,106 Limited Partners Share of DCF $ 3,172 $ 115,533 Limited Partners Share of DCF per Limited Partner interests ( Unit ) $ .25 9.05(b) General Partners Share of DCF $ 98 $ 3,573 -7- Net Proceeds from Capital Transactions: Principal collections and prepayments (including Shared Appreciation Income) on PIMs $ 1,065 $ 32,001 Principal collections and sales proceeds on MBS (including gain on sale) 454 63,599 Reinvestment of MBS and PIM principal collections - (41,960) Total Net Proceeds from Capital Transactions $ 1,519 $ 53,640 Cash available for distribution (DCF plus proceeds from Capital transactions) $ 4,789 $172,746 Distributions: Limited Partners $ 3,831 (a) $166,303 Limited Partners Average per Unit $ .30 (a) $ 13.02 General Partners $ 98 (a) $ 3,573(a) Total Distributions $ 3,929 $169,876 (a) Includes an estimate of the distribution to be paid in May 1997. (b) Limited Partners average per Unit return of capital as of May 1997 is $3.97 [$13.02 - $9.05]. Return of capital represents that portion of distributions which is not funded from DCF such as proceeds from the sale of assets and substantially all of the principal collections received from MBS and PIMs.
Operations The following discussion relates to the operations of the Partnership during the three months ended March 31, 1997 and 1996:
(Amounts in thousands) 1997 1996 Interest income - PIMs: Base interest $2,663 $2,921 Shared income and minimum additional interest 310 159 Interest income on MBS 648 698 Other interest income 60 47 Partnership expenses (411) (432) Distributable Cash Flow 3,270 3,393 Shared appreciation income 679 - Decrease in accrued participation income - (159) Amortization of prepaid fees and expenses (360) (388) Net income $3,589 $2,846
Net income increased by approximately $743,000 for the three months ended March 31, 1997 as compared to the same period in 1996. The increase is primarily attributed to participation interest associated with the Paces Forest and Paces Arbor PIMs totaling approximately $877,000. In addition, the -9- Partnership received participation interest relating to the Mill Ponds and Rosewood PIMs in the amount of $62,000 and $51,000, respectively. These increases were somewhat offset by a reduction in base interest income on PIMs of approximately $258,000 due to the prepayment of the Friendly Hills PIM in August 1996. -10- 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 -11- 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, 1997 -12- EX-27 2
5 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. 0000832091 KRUPP INSURED PLUS III LIMITED PARTNERSHIP 3-MOS DEC-31-1997 MAR-31-1997 5,581,840 171,222,569 1,167,541 0 0 5,929,224 0 0 183,901,174 3,493 0 0 0 184,036,309 (138,628) 183,901,174 0 4,359,953 0 0 770,591 0 0 3,589,362 0 3,589,362 0 0 0 3,589,362 0 0 Includes Participating Insured Mortgages ("PIMS") of $138,995,348 and Mortgage-Backed Securities ("MBS") of $32,227,221. Includes prepaid acquisition fees and expenses of $11,476,258 net of accumulated amortization of $6,991,247 and prepaid participation servicing fees of $3,803,248 net of accumulated amortization of $2,359,035. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($138,936) and Limited Partners equity of $184,175,245. Unrealized gain on MBS. Represents interest income on investments in mortgages and cash. Includes $359,861 of amortization of prepaid fees and expenses. Net income allocated $107,681 to the General Partners and $3,481,681 to the Limited Partners. Average net income per Limited Partner interest is $.27 on 12,770,261 Limited Partner interests outstanding.
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