-----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, NpRgrobXnX+cXkYoI8+pOTo2SgyGdVtfUwPZvGPOwu71EupWzO2ZWtpI+DcSmj7h foRULGXUgIpkvCHepPSWfg== 0000805297-97-000016.txt : 19970815 0000805297-97-000016.hdr.sgml : 19970815 ACCESSION NUMBER: 0000805297-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97663109 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 June 30, 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 ( I R S 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 June 30, December 31, 1997 1996 Participating Insured Mortgages ("PIMs")(Note 2) $131,257,560 $139,380,751 Mortgage-Backed Securities and insured mortgages ("MBS")(Note 3) 32,436,264 32,914,934 Total mortgage investments 163,693,824 172,295,685 Cash and cash equivalents 4,591,029 4,666,597 Interest receivable and other assets 1,114,034 1,233,967 Prepaid acquisition expenses and fees, net of accumulated amortization of $6,835,673 and $6,717,429, respectively 4,025,481 4,758,829 Prepaid participation servicing fees, net of accumulated amortization of $1,981,954 and $2,272,992, respectively 1,308,203 1,530,256 Total assets $174,732,571 $184,485,334 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 11,043 $ 18,716 Partners' equity (deficit) (Note 4): Limited Partners 174,393,877 184,524,613 (12,770,261 Limited Partner interests outstanding) General Partners (164,347) (152,612) Unrealized gain on MBS 491,998 94,617 Total Partners' equity 174,721,528 184,466,618 Total liabilities and Partners' equity $174,732,571 $184,485,334
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STATEMENTS OF INCOME For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 Revenues: Interest income - PIMs: Base interest $2,540,033 $2,916,924 $5,202,997 $5,837,998 Participation interest 138,683 - 1,128,189 - Interest income - MBS 638,048 684,368 1,285,566 1,382,770 Interest income - other 99,149 55,176 159,114 102,346 Total revenues 3,415,913 3,656,468 7,775,866 7,323,114 Expenses: Asset management fee to an affiliate 305,746 345,779 623,246 693,281 Expense reimbursements to affiliates 33,938 38,912 61,471 85,897 Amortization of prepaid expenses and fees 595,540 388,408 955,401 776,817 General and administrative 57,714 22,534 123,411 60,666 Total expenses 992,938 795,633 1,763,529 1,616,661 Net income $2,422,975 $2,860,835 $6,012,337 $5,706,453 Allocation of net income (Note 4): Limited Partners $2,350,285 $2,775,010 $5,831,966 $5,535,259 Average net income per Limited Partner interest (12,770,261 Limited Partner interests outstanding) $ .19 $ .21 $ .46 $ .43 General Partners $ 72,690 $ 85,825 $ 180,371 $ 171,194 The accompanying notes are an integral part of the financial statements.
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STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 1996 Operating activities: Net income $ 6,012,337 $ 5,706,453 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid expenses and fees 955,401 776,817 Prepayment penalty (679,193) - Changes in assets and liabilities: Decrease in interest receivable and other assets 119,933 639,797 Decrease in liabilities (7,673) (5,737) Net cash provided by operating activities 6,400,805 7,117,330 Investing activities: Principal collections on PIMs including a prepayment penalty of $679,193 in 1997 8,802,384 422,203 Principal collections on MBS 876,051 1,400,466 Net cash provided by investing activities 9,678,435 1,822,669 Financing activities: Special distributions (8,300,605) - Quarterly distributions (7,854,203) (7,862,353) Net cash used for financing activities (16,154,808) (7,862,353) Net increase (decrease) in cash and cash equivalents (75,568) 1,077,646 Cash and cash equivalents, beginning of period 4,666,597 3,433,885 Cash and cash equivalents, end of period $ 4,591,029 $ 4,511,531
-6- 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 June 30, 1997, its results of operations for the three and six months ended June 30, 1997 and 1996, and its cash flows for the six months ended June 30, 1997 and 1996. The results of operations for the three and six months ended June 30, 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 On April 25, 1997, the Partnership received a prepayment of the Paces Arbor and Paces Forest Apartment PIMs. The Partnership received the outstanding principal balances of $3,390,705 and $4,155,888, respectively. In addition, the Partnership also received a prepayment penalty of $679,193 and Minimum Additional and Shared Income Interest of $197,939 for 1996 and through the date of prepayment. As a result of the prepayment, the Partnership fully amortized the remaining prepaid fees and expenses associated with this PIM and retired them. On May 23, 1997, the Partnership made a special distribution of $.65 per Limited Partner interest with the proceeds from the outstanding principal proceeds and the prepayment penalty. At June 30, 1997, the Partnership s PIM portfolio has a fair value of $134,522,190 and gross unrealized gains and losses of $3,537,339 and $272,709, respectively. The PIM portfolio has maturities ranging from 1999 to 2032. 3. MBS At June 30, 1997, the Partnership's MBS portfolio has an amortized cost of $31,944,266 and gross unrealized gains and losses of $725,262 and $233,264, respectively. The Partnership's MBS have maturities ranging from 2010 to 2035. 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, 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 5,831,966 180,371 - 6,012,337 Special distributions (8,300,605) - - (8,300,605) Distributions (7,662,097) (192,106) - (7,854,203) Increase in unrealized gain on MBS - - 397,381 397,381 Balance at June 30, 1997 $174,393,877 $(164,347) $491,998 $174,721,528
-9- 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 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 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. The owner of Rosewood Apartments PIM has notified the Partnership their intentions to repay the loan due to a potential sale of the property before year end. The owner is presently negotiating with the Partnership as to the terms of the prepayment penalty. In addition, Sundance Apartments PIM has been sold and the new owner has assumed both the first mortgage and the modified subordinated promissory note payable to the Partnership. 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 balance, a prepayment penalty and all accrued Minimum Additional and Shared Income Interest. During May, the Partnership made a special distribution, from the aforementioned principal balances and prepayment penalty proceeds, 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 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. Operations The following discussion relates to the operations of the Partnership during the three and six months ended June 30, 1997 and 1996 (Amounts in thousands): Net income decreased for the three months ended June 30, 1997, as compared to same period in 1996 by approximately by $437,000. This decrease was due to lower base interest, interest income on MBS and higher amortization of prepaid fees and expenses of $377,000, $47,000, and $206,000, respectively. The decrease in base interest was a result of the repayments of the Friendly Hills Apartments PIM during the third quarter of 1996 and the Paces Arbor and Paces Forest Apartments during the second quarter of 1997. The increase in amortization of prepaid fees and expenses is because the Partnership fully amortized the remaining balances of prepaid fees and expenses associated with the Paces Arbor and Paces Forest Apartments PIMs. This was offset by increases in participation income and other interest income of $139,000 and $44,000, respectively. The Partnership realized participation income from Windsor, Meredith and Woodbine Apartments of $93,000, $43,000 and $3,000, respectively. Net income increased for the six months ended June 30, 1997, as compared to the same period in 1996 by approximately $306,000. This increase was due to higher participation income, other interest income and lower Partnership expenses of $1,128,000, $57,000 and $31,000, respectively. The increase in participation income was a result of the prepayment penalty of $679,000 related to the prepayment of Paces Arbor and Paces Forest Apartments during the second quarter of 1997 and participation income received from seven properties totaling $449,000. This was offset by lower base interest $635,000, higher amortization of prepaid fees and expenses of $178,000 and lower MBS interest income of $97,000. The Partnership funds a portion of distributions with MBS and PIM principal collections which reduces 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. -12- 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 -13- 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, 1997 -14- 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 6-MOS DEC-31-1997 JUN-30-1997 4,591,029 163,693,824 1,114,034 0 0 5,333,684 0 0 174,732,571 11,043 0 0 0 174,229,530 491,998 174,732,571 0 7,775,866 0 0 1,763,529 0 0 6,012,337 0 6,012,337 0 0 0 6,012,337 0 0 Includes Participating Insurd Mortgages ("PIMs") of $131,257,560 and Mortgage-Backed Securities ("MBS") of $32,436,264. Includes prepaid acquisition fees and expenses of $10,861,154 net of accumulated amortization of $6,835,673 and prepaid participation servicing fees of $3,290,157 net of accumulated amortization of $1,981,954. Represents total equity of General Partners and Limited Partners. General Partners deficit of ($164,347) and Limited Partners equity of $174,393,877. Unrealized gain on MBS. Represents interest income on investments in mortgages and cash. Includes $955,401 of amortization of prepaid fees and expenses. Net income allocated $180,371 to the General Partners and $5,831,996 to the Limited Partners. Average net income per Limited Partner interest is $.46 on 12,770,261 Limited Partner interests outstanding.
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