-----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, CiLGqoG84/LPy1dnjxzX6o8ScJ3tDtcV35fjahszw8nlaMrPg6SpLRiWpuj0Mh+P f5753vsMtVu8d8KbUyPpvQ== 0000832091-96-000009.txt : 19960507 0000832091-96-000009.hdr.sgml : 19960507 ACCESSION NUMBER: 0000832091-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960506 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: 96556854 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 THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 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 KRUPP INSURED PLUS-III LIMITED PARTNERSHIP BALANCE SHEETS ASSETS
March 31, December 31, 1996 1995 Participating Insured Mortgages ("PIMs")(Note 2) $151,256,748 $151,465,652 Mortgage-Backed Securities and insured mortgages ("MBS")(Note 3) 34,748,350 36,693,963 Total mortgage investments 186,005,098 188,159,615 Cash and cash equivalents 4,008,939 3,433,885 Interest receivable and other assets 1,714,663 1,924,402 Prepaid acquisition expenses and fees, net of accumulated amortization of $6,386,272 and $6,091,012, respectively 5,944,791 6,240,051 Prepaid participation servicing fees, net of accumulated amortization of $2,177,349 and $2,084,200, respectively 1,909,183 2,002,332 Total assets $199,582,674 $201,760,285 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 5,386 $ 14,756 Partners' equity (deficit) (Note 4): Limited Partners 199,504,660 200,575,459 (12,770,261 Limited Partner interests outstanding) General Partners (115,645) (102,556) Unrealized gain on MBS 188,273 1,272,626 Total Partners' equity 199,577,288 201,745,529 Total liabilities and Partners' equity $199,582,674 $201,760,285
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, 1996 1995 Revenue: Interest income - PIMs $2,921,074 $3,043,949 Interest income - MBS 698,402 717,024 Other interest income 47,170 47,004 Total revenues 3,666,646 3,807,977 Expense: Asset management fee to an affiliate 347,502 350,238 Expense reimbursements to affiliates 46,985 50,774 Amortization of prepaid expenses and fees 388,409 405,610 General and administrative 38,132 30,235 Total expenses 821,028 836,857 Net income $2,845,618 $2,971,120 Allocation of net income (Note 4): Limited Partners $2,760,249 $2,881,986 Average net income per Limited Partner interest (12,770,261 Limited Partner interests outstanding) $ .22 $ .23 General Partners $ 85,369 $ 89,134
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, 1996 1995 Operating activities: Net income $ 2,845,618 $ 2,971,120 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid expenses and fees 388,409 405,610 Changes in assets and liabilities: Decrease in interest receivable and other assets 209,739 151,945 Decrease in liabilities (9,370) (5,595) Net cash provided by operating activities 3,434,396 3,523,080 Investing activities: Principal collections on PIMs 208,904 225,524 Principal collections on MBS 861,260 534,972 Net cash provided by investing activities 1,070,164 760,496 Financing activity: Distributions (3,929,506) (3,931,831) Net increase in cash and cash equivalents 575,054 351,745 Cash and cash equivalents, beginning of period 3,433,885 3,257,180 Cash and cash equivalents, end of period $ 4,008,939 $ 3,608,925
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, 1995 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, 1996 and its results of operations and cash flows for the three months ended March 31, 1996 and 1995. The results of operations for the three months ended March 31, 1996 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, 1996, the Partnership's PIM portfolio has a fair value of approximately $152,541,000 and gross unrealized gains and losses of approximately $2,516,000 and $1,232,000, respectively. The PIM portfolio has maturities ranging from 1999 to 2032. 3. MBS At March 31, 1996, the Partnership's MBS portfolio has an amortized cost of approximately $34,560,000 and gross unrealized gains and losses of approximately $638,000 and $450,000, 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, 1996 is as follows:
Total Limited General Unrealized Partners' Partners Partners Gain Equity Balance at December 31, 1995 $200,575,459 $(102,556) $1,272,626 $201,745,529 Net income 2,760,249 85,369 - 2,845,618 Distributions (3,831,048) (98,458) - (3,929,506) Decrease in unrealized gain on MBS - - (1,084,353) (1,084,353) Balance at March 31, 1996 $199,504,660 $(115,645) $ 188,273 $199,577,288
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Based on current projections, the General Partners believe the Partnership can maintain the current distribution rate for the foreseeable future. However, in the event of 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 is in the process of negotiating a workout arrangement with the borrower of the Sundance Apartments PIM and anticipates completing these negotiations during the second quarter of 1996. The workout will most likely provide for some current interest payment relief in exchange for enhanced participation interests. The workout would reduce the cash flow of the Partnership in the near term, but not significantly. The borrower of the Friendly Hills Apartments PIM has expressed an interest to repay the PIM in the next six months. In the event the borrower repays the Friendly Hills PIM or any other PIM is repaid, the Partnership would distribute the proceeds to investors as a special distribution and adjust the distribution rate as necessary to reflect the anticipated 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. 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, 1996 and the period from inception through March 31, 1996. 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, 1996 March 31, 1996 Distributable Cash Flow: Income for tax purposes $ 3,189 $100,284 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid expenses, fees and organization costs 204 6,273 Acquisition expenses paid from offering proceeds charged to operations - 184 Shared appreciation income - (800) Gain on sale of MBS - (253) Total Distributable Cash Flow ("DCF") $ 3,393 $105,688 Limited Partners Share of DCF $ 3,291 $102,517 Limited Partners Share of DCF per Limited Partner interests ("Unit") $ .26 8.03 (b) General Partners Share of DCF $ 102 $ 3,171
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions (continued) Three Months Ended Inception to March 31, 1996 March 31, 1996 Net Proceeds from Capital Transactions: Principal collections and prepayments (including Shared Appreciation Income) on PIMs $ 209 $ 18,047 Principal collections and sales proceeds on MBS (including gain on sale) 861 61,405 Reinvestment of MBS and PIM principal collections - (41,960) Total Net Proceeds from Capital Transactions $ 1,070 $ 37,492 Cash available for distribution (DCF plus proceeds from Capital transactions) $ 4,463 $143,180 Distributions: Limited Partners $ 3,831 (a) $138,591 (a) Limited Partners Average per Unit $ .30 (a) $ 10.85 (a)(b) General Partners $ 102 (a) $ 3,171 (a) Total Distributions $ 3,933 $141,762
(a) Includes an estimate of the distribution to be paid in May 1996. (b) Limited Partners average per Unit return of capital as of May 1996 is $2.82 [$10.85 - $8.03]. 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, 1996 and 1995:
(Amounts in thousands) 1996 1995 Interest income - PIMs: Base interest $2,921 $3,044 Participation interest 159 - Interest income on MBS 698 717 Other interest income 47 47 Partnership expenses (432) (431) Distributable Cash Flow 3,393 3,377 Decrease in accrued participation income (159) - Amortization of prepaid fees and expenses (388) (406) Net income $2,846 $2,971
Operations, Continued During the first quarter of 1996 net income did not change materially as compared to the first quarter of 1995. Net income decreased due primarily to lower interest income on PIMs which resulted primarily from the restructuring of the Royal Palm PIM in December 1995. 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 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, 1996 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 such financial statements. 3-MOS DEC-31-1996 MAR-31-1996 4,008,939 186,005,098 1,714,663 0 0 7,853,974 0 0 199,582,674 5,386 0 0 0 199,389,015 188,273 199,582,674 0 3,666,646 0 0 821,028 0 0 2,845,618 0 2,845,618 0 0 0 2,845,618 0 0 Includes Participating Insured Mortgages ("PIMs") of $151,256,748 and mortgage-backed securities ("MBS") of $34,748,350. Includes prepaid acquisition fees and expenses of $12,331,063 net of accumulated amortization of $6,386,272 and prepaid participation servicing fees of $4,086,532 net of accumulated amortization of $2,177,349. Represents total equity of General and Limited Partners. General Partners'deficit ($115,645) and Limited Partners' equity $199,504,660. Unrealized gain on MBS. Represents interest income on investments in mortgages and cash. Includes $388,409 of amortization of prepaid fees and expenses. Net income allocated $85,369 to General Partners and $2,760,249 to Limited Partners. Average net income per Limited Partner interest is $.22 on 12,770,261 Limited Partner interests outstanding.
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