UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESx
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17691
Krupp Insured Plus-III Limited Partnership
(Exact name of registrant as specified in its charter)
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)
(Registrant's telephone number, including area code) (617) 423-2233
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of
Depositary Receipts representing Units of Limited
Partner Interests
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: see Part IV, Item 14
The exhibit index is located on pages 8-14.
PART I
ITEM 1. BUSINESS
Krupp Insured Plus-III Limited Partnership (the "Partnership") is a
Massachusetts limited partnership which was formed on March 21, 1988. The
Partnership raised approximately $255 million through a public offering of
limited partner interests evidenced by units of depositary receipts
("Units") and used the net proceeds primarily to acquire participating
insured mortgages ("PIMs") and mortgage-backed securities ("MBS"). The
Partnership considers itself to be engaged in only one industry segment,
investment in mortgages.
The Partnership's investments in PIMs on multi-family residential
properties consist of a MBS or an insured mortgage loan (collectively, the
"insured mortgage") guaranteed or insured as to principal and basic
interest and a participation feature that is not insured or guaranteed.
The insured mortgages were issued or originated under or in connection with
the housing programs of the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal
Housing Administration ("FHA") under the authority of the Department of
Housing and Urban Development ("HUD"). PIMs provide the Partnership with
monthly payments of principal and interest on the insured mortgage and also
provide for Partnership participation in the current revenue stream and in
residual value, if any, as a result of a sale or other realization of the
underlying property from the participation feature. The borrower conveys
the participation rights to the Partnership through a subordinated
promissory note and mortgage.
The Partnership also acquired MBS collateralized by single-family or
multi-family mortgage loans issued or originated by GNMA, FNMA, the Federal
Home Loan Mortgage Corporation ("FHLMC") or the FHA. FNMA, FHLMC and GNMA
guarantee the principal and basic interest of the FNMA, FHLMC and GNMA MBS,
respectively. HUD insures the pooled mortgage loans underlying the GNMA
MBS and FHA mortgage loans.
Prior to June 22, 1995 the Partnership could reinvest or commit for
reinvestment principal proceeds or other realization of the mortgages in
new mortgages, but following that date, the Partnership must distribute to
the investors through quarterly, or possibly special distributions,
proceeds received from prepayments or other realizations of mortgage
assets.
Although the Partnership will terminate no later than December 31, 2028
it is expected that the value of the PIMs generally will be realized by the
Partnership through repayment or sale as early as ten years from the dates
of the closings of the permanent loans and that the Partnership will
realize the value of all of its other investments within that time frame
thereby resulting in a dissolution of the Partnership significantly prior
to December 31, 2028.
The Partnership's investments are not expected to be subject to seasonal
fluctuations. However, the future performance of the Partnership will
depend upon certain factors which can not be predicted. Such factors
include interest rate fluctuation and the credit worthiness of GNMA, FNMA,
HUD and FHLMC. Any ultimate realization of the participation features on
PIMs is subject to similar risks associated with equity real estate
investments, including: reliance on the owner's operating skills, ability
to maintain occupancy levels, control operating expenses, maintain the
property and obtain adequate insurance coverage; adverse changes in
government regulations, real estate zoning laws, or tax laws; and other
circumstances over which the Partnership may have little or no control.
The requirements for compliance with federal, state and local
regulations to date have not had an adverse effect on the Partnership's
operations, and no adverse effect therefrom is now anticipated in the
future.
As of December 31, 1995, there were no personnel directly employed by
the Partnership.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership
is a party or to which any of its investments is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1995 was
approximately 12,000. One of the objectives of the Partnership is to
provide quarterly distributions of cash flow generated by its investments
in mortgages. The Partnership anticipates that future operations will
continue to generate cash available for distributions.
The Partnership made the following distributions, in quarterly
installments, to its Partners during the two years ended December 31, 1995
and 1994:
1995 1994
Average Average
Amount Per Unit Amount Per Unit
Limited Partners $15,324,192 $1.20 $21,242,039 $1.66
General Partners 421,051 400,197
$15,745,243 $21,642,236
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Partnership's financial position and operating results. This
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements and Financial Statement Schedule, which are included in Item 7
and Item 8, (Appendix A) of this report, respectively.
1995 1994 1993 1992 1991
Total revenues $ 15,728,883 $ 15,725,544 $ 16,164,307 $ 17,217,037 $ 18,110,154
Net income 12,335,057 12,197,925 12,647,339 13,486,347 14,497,525
Net income allocated
to:
Limited Partners 11,965,005 11,831,987 12,267,919 13,081,757 14,062,599
Average per Unit .94 .93 .96 1.02 1.10
General Partners 370,052 365,938 379,420 404,590 434,926
Total assets at
December 31 201,760,285 203,907,975 213,344,580 222,293,447 230,468,829
Distributions to:
Limited Partners 15,324,192 21,242,039 21,183,876 21,213,068 21,198,422
Average per Unit 1.20 1.66 1.66 1.66 1.66
General Partners 421,051 400,197 411,646 453,383 485,305
ITEM 7. 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 $3.8 million in 1995.
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 cash generated by
these items totaled approximately $16.8 million in 1995. The Partnership
funds a portion of the distributions from principal collections, as a
result, the capital resources of the Partnership will 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 do
not fully utilize the cash available for distribution and cash balances
increase, the General Partners may adjust the distribution rate or
distribute such funds through a special distribution.
During December 1995 the Partnership agreed to a modification of the
Royal Palm PIM. The Partnership received a reissued Federal National
Mortgage Association ("FNMA") mortgage-backed security ("MBS") and
increased its participation percentage in income and appreciation from 25%
to 30%. During December 1995, the Partnership received its pro-rata share
of a $90,644 principal payment and will receive interest only payments on
the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum
through maturity in 2006. Also, the Partnership will receive its pro-rata
share of the $250,000
principal payments due on December 1 of each of the next four years. As a
result of the modification, the Royal Palm PIM will continue to provide the
Partnership with a competitive yield, potential participation in future
income and appreciation, and principal and interest from the FNMA MBS will
continue to be guaranteed by FNMA.
For the first five years of the PIMs the borrowers are prohibited from
repaying. For the second five years, the borrower can repay the loans
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
FNMA, FHLMC, GNMA and 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 year
ended December 31, 1995 and the period from inception through December 31,
1995. 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)
Inception
Year Ended Through
12/31/95 12/31/95
Distributable Cash Flow:
Income for tax purposes $13,070 $ 97,095
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 888 6,069
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") $13,958 $102,295
Limited Partners Share of DCF $13,539 $ 99,226
Limited Partners Share of DCF per Unit $ 1.06 $ 7.77 (c)
General Partners Share of DCF $ 419 $ 3,069
Net Proceeds from Capital Transactions:
Principal collections and prepayments
(including Shared appreciation income) on PIMs $ 972 $ 17,838
Principal collections and sales proceeds on MBS
(including gain on sale) 1,866 60,544
Reinvestment of MBS and PIM principal collections (1,028) (41,960)
MBS and PIM principal collections or prepayment (reserved for reinvestment) released from
reserve 1,030 -
Total Net Proceeds from Capital Transactions $ 2,840 $ 36,422
Cash available for distribution
(DCF plus proceeds from Capital transactions) $16,798 $138,717
Distributions:
Limited Partners $15,324 (a) $134,760 (b)
Limited Partners Average per Unit $ 1.20 (a) $ 10.55 (b)(c)
General Partners $ 419 (a) $ 3,069 (b)
Total Distributions $15,743 (a) $137,829 (b)
(a) Represents all distributions paid in 1995 except the February
1995 distri-bution and includes an estimate of the distribution
to be paid in February 1996.
(b) Includes distribution to be paid in February 1996.
(c) Limited Partners average per Unit return of capital as of
February 1996 is $2.78 [$10.55 - $7.77]. 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 operation of the Partnership
during the years ended December 31, 1995, 1994 and 1993.
(Amounts in Thousands)
1995 1994 1993
Interest income on PIMs:
Base interest $12,078 $11,985 $12,024
Participation interest received 544 302 208
Interest income on MBS 2,913 2,665 2,827
Interest income - other 195 449 576Partnership expenses (1,772) (1,964) (1,995)
Distributable Cash Flow $13,958 $13,437 $13,640
Gain on sale of MBS - - 247
Accrued Participation income - 324 281
Amortization of prepaid expenses and fees (1,623) (1,563) (1,521)
Net income $12,335 $12,198 $12,647
Net income did not change materially during any of the three years in
the periods ended December 31, 1995, primarily because the Partnership's
investments in PIMs remained stable during these periods. Overall, the
change in total interest income was not significant during the three years
ended December 31, 1995. Participation interest received increased
$242,000 or 80.1% during 1995 as compared to 1994 due to the Partnership
receiving participation from 11 of the PIMs as compared to 8 PIMs in 1994.
Interest income on MBS increased $248,000 in 1995 as compared to 1994 due
primarily to the Partnership reinvesting approximately $12 million of
principal collections in additional MBS to obtain the higher yields as
compared to the available yields on short-term investments. These MBS
acquisitions reduced cash available for short-term investment which
resulted in a decline in interest income - other in 1995 as compared to
1994. Interest income on MBS decreased $162,000 or 6% during 1994 as
compared to 1993 primarily as a result of significant prepayments caused
by refinancings of the underlying mortgages during 1993 and the first half
of 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as
to the directors and executive officers of Krupp Plus Corporation which is
a General Partner of the Partnership and is the general partner of Mortgage
Services Partners Limited Partnership, which is the other General Partner
of the Partnership, is as follows:
Position with
Name and Age Krupp Plus Corporation
Douglas Krupp (49) Co-Chairman of the Board
George Krupp (51) Co-Chairman of the Board
Laurence Gerber (39) President
Peter F. Donovan (42) Senior Vice President
Robert A. Barrows (38) Treasurer and Chief Accounting Officer
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate, mortgage and healthcare company which is headquartered in
Boston with regional offices throughout the country. A staff of 3,400 are
responsible for the more than $3 billion under management for institutional
and individual clients. Mr. Krupp is a graduate of Bryant College.
In 1989 he received an honorary Doctor of Science in Business
Administration
from this institution and was elected trustee in 1990. Mr. Krupp serves
as Chairman of the Board and a Director of Berkshire Realty Company,
Inc.(NYSE-BRI).
George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate, mortgage and healthcare company which is headquartered in
Boston with regional offices throughout the country. A staff of 3,400 are
responsible for more than $3 billion under management for institutional and
individual clients. Mr. Krupp attended the University of Pennsylvania and
Harvard University. Mr. Krupp serves as Chairman of the Board and Trustee
of Krupp Government Income Trust and Krupp Government Income Trust II.
Laurence Gerber is the President and Chief Executive Officer of The
Berkshire Group. Prior to becoming President and Chief Executive Officer
in 1991, Mr. Gerber held various positions with The Berkshire Group which
included overall responsibility at various times for: strategic planning
and product development, real estate acquisitions, corporate finance,
mortgage banking, syndication and marketing. Before joining The Berkshire
Group in 1984, he was a management consultant with Bain & Company, a
national consulting firm headquartered in Boston. Prior to that, he was
a senior tax accountant with Arthur Andersen & Co., an international
accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics
from the University of Pennsylvania, Wharton School and an M.B.A. degree
with high distinction from Harvard Business School. He is a Certified
Public Accountant. Mr. Gerber also serves as President and a Director of
Berkshire
Realty Company, Inc. (NYSE-BRI) and President and Trustee of Krupp
Government Income Trust and Krupp Government Income Trust II.
Peter F. Donovan is President of Berkshire Mortgage Finance and directs
the underwriting, servicing and asset management of a $2.5 billion multi-
family loan portfolio. Previously, he was Senior Vice President of
Berkshire Mortgage Finance and was responsible for all mortgage
originations. Before joining the firm in 1984, he was Second Vice
President, Real Estate Finance for Continental Illinois National Bank &
Trust, where he managed a $300 million construction loan portfolio of
commercial properties. Mr. Donovan received a B.A. from Trinity College
and an M.B.A. degree from Northwestern University.
Robert A. Barrows is Senior Vice President and Chief Financial Officer
of Berkshire Mortgage Finance and Corporate Controller of The Berkshire
Group. Mr. Barrows has held several positions within The Berkshire Group
since joining the company in 1983 and is currently responsible for
accounting and financial reporting, treasury, tax, payroll and office
administrative activities. Prior to joining The Berkshire Group, he was
an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received
a B.S. degree from Boston College and is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1995, no person owned of record or was known by the
General Partners to own beneficially more than 5% of the Partnership's
12,770,161 outstanding Units. The only interests held by management or its
affiliates consist of its General Partner and Corporate Limited Partner
interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in Note F to the
Partnership's Financial Statements presented in Appendix A to this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements and
Schedule included under Item 8, Appendix A, on page F-2 of this
report.
2. Financial Statement Schedules - see Index to Financial Statements
and Schedule included under Item 8, Appendix A, on page F-2 of
this report. All other schedules are omitted as they are not
applicable, not required or the information is provided in the
Financial Statements or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
(4) Instruments defining the rights of security holders including
indentures:
(4.1) Agreement of Limited Partnership dated as of June
22, 1988 [Exhibit A included in Amendment No. 1 of
Registrant's Registration Statement on Form S-11
dated June 22, 1988 (File No. 33-21200)].*
(4.2) Subscription Agreement whereby a subscriber agrees
to purchase Units and adopts the provisions of the
Agreement of Limited Partnership [Exhibit D included
in Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated June 22, 1988 (File No.
33-21200)].*
(4.3) Copy of First Amended and Restated Certificate of
Limited Partnership filed with the Massachusetts
Secretary of State on June 22, 1988. [Exhibit 4.4
to Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated June 22, 1988 (File No.
33-21200)].*
(10) Material Contracts:
(10.1) Revised form of Escrow Agreement [Exhibit 10.1 to
Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated June 22, 1988 (File No.
33-21200)] *
(10.2) Form of agreement between the Partnership and Krupp
Mortgage Corporation [Exhibit 10.2 to Registrant's
Registration Statement on Form S-11 dated April 20,
1988 (File No. 33-21200)].*
Sundance Apartments
(10.3) Prospectus for GNMA Pools No. 276431 (CS) and 276432
(PL) [Exhibit 19.1 to Registrant's Report on Form
10-Q for the quarter ended September 30, 1989 (File
No. 0-17691)].*
(10.4) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated July 26, 1989
between Sundance Associates II, Ltd. and Krupp
Insured Plus-III Limited Partnership [Exhibit 19.2
to Registrant's Report on Form 10-Q for the quarter
ended September 30, 1989 (File No. 0-17691)].*
Woodbine Apartments
(10.5) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated August 23, 1989
between Woodbine II Investors Limited Partnership
and Krupp Insured Plus-III Limited Partnership
[Exhibit 19.3 to Registrant's Report on Form 10-Q
for the
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.6) Participation Agreement dated August 23, 1989
between The Krupp Mortgage Corporation ("Mortgagee")
and Krupp Insured Plus-III Limited Partnership (the
"Participant") [Exhibit 19.4 to Registrant Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.7) Mortgage Note dated August 23, 1989 between Woodbine
II Investors Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.5 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.8) Deed of Trust dated August 23, 1989 between Woodbine
II Investors Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.6 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
Ironwood Apartments
(10.9) Prospectus for GNMA Pool No. 272542(CS) and
272543(PN). [Exhibit 19.7 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.10) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated July 18, 1989
between Ironwood Associates Limited Partnership and
Krupp Insured Plus-III Limited Partnership. [Exhibit
19.8 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.11) Mortgage Note dated July 18, 1989 between Ironwood
Associates Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.9 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.12) Mortgage dated July 18, 1989 between Ironwood
Associates Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.10 to Registrant's Report
on Form 10-Q for the quarter ended September 30,
1989 (File No. 0-17691)].*
Casa Marina Apartments
(10.13) Prospectus for GNMA Pool No. 279699 (CS) and 279700
(PL) [Exhibit 19.11 to Registrant's Report on Form
10-Q for the quarter ended September 30, 1989 (File
No. 0-17691)].*
(10.14) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated June 29, 1989
between Beaux Gardens Associates, LTD., a Florida
limited partnership and Krupp Insured Plus-II
Limited Partnership. [Exhibit 19.12 to Registrant's
Report on Form 10-Q for the quarter ended September
30, 1989 (File No. 0-17691)].*
(10.15) Participation Agreement dated July 31, 1989 between
Krupp Insured Plus-II Limited Partnership and Krupp
Insured Plus-III Limited Partnership. [Exhibit 19.13
to Registrant's Report on Form 10-Q for the quarter
ended September 30, 1989 (File No. 0-17691)].*
Rosewood Apartments
(10.16) Prospectus for GNMA Pool No. 280647(CS) and
280648(PL) [Exhibit 10.16 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-17691).*
(10.17) Security Deed Note, dated September 28, 1989 between
Knight Davidson Rosewood I, a Georgia general
partnership and Krupp Mortgage Corporation. [Exhibit
19.14 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.18) Security Deed dated September 28, 1989 between
Knight Davidson Rosewood I, a Georgia general
partnership and Krupp Mortgage Corporation. [Exhibit
19.15 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.19) Subordinated Multifamily Deed to Secure Debt
(including Subordinated Promissory Note) dated
September 28, 1989 between Knight Davidson RosewoodI,
a Georgia general partnership and Krupp Insured
Plus-III Limited Partnership. [Exhibit 19.16 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1989 (File No. 0-17691)].*
Windsor Court
(10.20) Supplement to Prospectus for FNMA Pool No. MX-073006
[Exhibit 10.23 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989
(File No. 0-17691).*
(10.21) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 26,
1989 between Sexton 1986 Windsor-V, an Indiana
limited partnership and Krupp Insured Plus-III
Limited Partnership [Exhibit 10.24 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-17691).*
Paddock Park II Apartments
(10.22) Prospectus for FNMA Pool No. MX-073010 [Exhibit 19.1
to Registrants's Report on Form 10-Q for the quarter
ended March 31, 1990 (File No. 0-17691)].*
(10.23) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated February 21,
1990 between Paddock Park Ocala II, a Georgia
limited partnership and Krupp Insured Plus-III
Limited Partnership [Exhibit 19.2 to Registrants's
Report on Form 10-Q for the quarter ended March
31,1990 (File No. 0-17691)].*
Harbor Club Apartments
(10.24) Prospectus for GNMA Pool No. 259237(CS) and
259238(PN). [Exhibit 19.3 to Registrants's Report
on Form 10-Q for the quarter ended March 31,1990
(File No. 0-17691)].*
(10.25) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated January 30, 1990
between Ann Arbor Harbor Club, a Texas limited
partnership and Krupp Insured Plus-III Limited
Partnership. [Exhibit 19.4 to Registrants's Report
on Form 10-Q for the quarter ended March 31,1990
(File No. 0-17691)].*
Mill Ponds Apartments
(10.26) Prospectus for FNMA Pool No. MX-073012. [Exhibit
19.1 to Regi-strant's Report on Form 10-Q for the
quarter ended June 30, 1990 (File No. 0-17691)].*
(10.27) Multifamily Mortgage (including Subordinated
Promissory Note) dated May 17, 1990 between State
Bank of Countryside, Illinois and Krupp Insured
Plus-III Limited Partnership. [Exhibit 19.2 to
Registrants's Report on Form 10-Q for the quarter
ended June 30, 1990 (File No. 0-17691)].*
Friendly Hills Apartments
(10.28) Multifamily Deed of Trust (including Subordinated
Promissory Note) dated June 27, 1990 between
Friendly Hills Apartments, Ltd., a New Jersey
Limited Partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.3 to Registrants's
Report on Form 10-Q for the quarter ended June 30,
1990 (File No. 0-17691)].*
(10.29) Deed of Trust Note dated June 27, 1990 between
Friendly Hills Apartments, Ltd., a New Jersey
Limited Partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.4 to Regi-strant's
Report on Form 10-Q for the quarter ended June 30,
1990 (File No. 0-17691)].*
Paces Arbor
(10.30) Prospectus for FNMA Pool No. MX-073015. [Exhibit
19.1 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 0-
17691)].*
(10.31) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated June 7, 1990
between Paces Arbor Apartments, Ltd., a North
Carolina limited partnership and Krupp Insured Plus-
III Limited Partnership. [Exhibit 19.2 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1990 (File No. 0-17691)].*
Paces Forest
(10.32) Prospectus for FNMA Pool No. MX-073016. [Exhibit
19.3 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 0-
17691)].*
(10.33) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note dated June 7, 1990
between Paces Forest Apartments Limited Partnership,
a North Carolina limited partnership and Krupp
Insured Plus-III Limited Partnership. [Exhibit 19.4
to Registrant's Report on Form 10-Q for the quarter
ended September 30, 1990 (File No. 0-17691)].*
Fourth Ward
(10.34) Prospectus for GNMA Pool No. 280969(CS) and
280970(PL). [Exhibit 19.5 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1990
(File No. 0-17691)].*
(10.35) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated June 27, 1990
between The Fourth Ward Square Associates Limited
Partnership and Krupp Insured Plus-III Limited
Partnership. [Exhibit 19.6 to Registrant's Report
on Form 10-Q for the quarter ended September 30,
1990 (File No. 0-17691)].*
Paddock Club
(10.36) Prospectus for GNMA Pool No. 280973(CS) and
280974(PL). [Exhibit 19.7 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1990
(File No. 0-17691)].*
(10.37) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated August 2, 1990
between Paddock Club Tallahassee, A Limited
Partnership, and Krupp Insured Plus-III Limited
Partnership. [Exhibit 19.8 to Registrant's Report
on Form 10-Q for the quarter ended September 30,
1990 (File No. 0-17691)].*
Meridith Square
(10.38) Prospectus for FNMA Pool No. MX-073019. [Exhibit
10.41 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No. 0-
17691)].*
(10.39) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 17,
1990 between BAND/Carolina Associates Limited
Partnership, a Virginia limited partnership and
Krupp Insured Plus-III Limited Partnership. [Exhibit
10.42 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No. 0-
17691)].*
Paddock Club Jacksonville
(10.40) Prospectus for FNMA Pool No. MX-073020. [Exhibit
19.01 to Registrant's Report on Form 10-Q for the
quarter ended March 31, 1991 (File No. 0-17691)].*
(10.41) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated December 20,
1991 between Paddock Club Jacksonville, a Georgia
limited partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.02 to Registrant's
Report on Form 10-Q for the quarter ended March 31,
1991 (File No. 0-17691)].*
Marina Shores Apartments
(10.42) Prospectus for GNMA Pool No. 280971(CS) and
280972(PL). [Exhibit 19.03 to Registrant's Report on
Form 10-Q for the quarter ended March 31, 1991 (File
No. 0-17691)].*
(10.43) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated June 27, 1990
between Marina Shores Associates One, a Virginia
limited partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.04 to Registrant's
Report on Form 10-Q for the quarter ended March 31,
1991 (File No. 0-17691)].*
(10.44) Participation Agreement dated June 29, 1990 by and
between Krupp Insured Plus-III Limited Partnership
and Krupp Insured Mortgage Limited Partnership.
[Exhibit 19.05 to Registrant's Report on Form 10-Q
for the quarter ended March 31, 1991 (File No. 0-
17691)].*
Royal Palm Place
(10.45) Prospectus for FNMA Pool No. MB-109057.+
(10.46) Subordinated Multifamily Mortgage dated March 20,
1991 between Royal Palm Place, Ltd., a Florida
Limited Partnership and Krupp Insured Plus-III
Limited
Partnership. [Exhibit 19.2 to Registrant's Report on
Form 10-Q for the quarter ended June 30, 1991 (File
No. 0-17691)].*
(10.47) Modification Agreement dated March 20, 1991, between
Royal Palm Place, Ltd., and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.3 to Registrant's
Report on Form 10-Q for the quarter ended June 30,
1991 (File No. 0-17691)].*
(10.48) Participation Agreement dated March 20, 1991 by and
between Krupp Insured Plus-III Limited Partnership
and Krupp Insured Plus Limited Partnership. [Exhibit
19.1 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1991 (File No. 0-
17691)].*
(10.49) Amended and Restated Subordinated Promissory Note by
and between Royal Palm, Ltd. and Krupp Insured Plus-
III Limited Partnership.+
* Incorporated by reference
+ Filed herein
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1995, the
Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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,
on the 26th day of February, 1996.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
By: Krupp Plus Corporation,
a General Partner
By: /s/George Krupp
George Krupp, Co-Chairman (Principal Executive
Officer) and Director of Krupp Plus Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 26th day of February,
1996.
Signatures Title(s)
/s/Douglas Krupp Co-Chairman (Principal Executive Officer)
Douglas Krupp and Director of Krupp Plus Corporation, a
General Partner.
/s/ George Krupp Co-Chairman (Principal Executive Officer)
George Krupp and Director of Krupp Plus Corporation, a
General Partner.
/s/ Laurence Gerber President of Krupp Plus Corporation, a
Laurence Gerber General Partner.
/s/ Peter F. Donovan Senior Vice President of Krupp Plus
Peter F. Donovan Corporation, a General Partner.
/s/ Robert A. Barrows Treasurer and Chief Accounting Officer
Robert A. Barrows of Krupp Plus Corporation, a General
Partner.
APPENDIX A
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1995
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Balance Sheets at December 31, 1995 and 1994 F-4
Statements of Income for the Years Ended December 31, 1995, 1994
and 1993 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1995, 1994 and 1993 F-6
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 F-7
Notes to Financial Statements F-8 - F-14
Schedule IV - Mortgage Loans on Real Estate F-15 - F-18
All other schedules are omitted as they are not applicable or not required,
or the information is provided in the financial statements or the notes
thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Insured Plus-III Limited Partnership:
We have audited the financial statements and the financial statement
schedule of Krupp Insured Plus-III Limited Partnership (the "Partnership")
listed in the index on page F-2 of this Form 10-K. The financial
statements and financial statement schedule are the responsibility of the
General Partners of the Partnership. Our responsibility is to express an
opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the General Partners of
the Partnership, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Krupp Insured
Plus-III Limited Partnership as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 27, 1996
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
Participating Insured Mortgages ("PIMs")
(Notes B, C and H) $151,465,652 $152,438,036
Mortgage-Backed Securities and insured
mortgages ("MBS")(Notes B, D and H) 36,693,963 36,259,855
Total mortgage investments 188,159,615 188,697,891
Cash and cash equivalents (Notes B and H) 3,433,885 3,257,180
Interest receivable and other assets 1,924,402 2,088,083
Prepaid acquisition expenses, net of
accumulated amortization of $6,091,012 and
$4,926,364, respectively (Note B) 6,240,051 7,404,699
Prepaid participation servicing fees, net of
accumulated amortization of $2,084,200 and
$1,626,410, respectively (Note B) 2,002,332 2,460,122
Total assets $201,760,285 $203,907,975
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,756 $ 24,886
Partners' equity (deficit) (Notes A and E):
Limited Partners 200,575,459 203,934,646
(12,770,261 Units outstanding)
General Partners (102,556) (51,557)
Unrealized gain on MBS (Note B) 1,272,626 -
Total Partners' equity 201,745,529 203,883,089
Total liabilities and Partners' equity $201,760,285 $203,907,975
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues:
Interest income - PIMs:
Base interest $12,078,125 $11,985,295 $12,024,070
Participation interest 543,613 625,632 489,642
Interest income - MBS (Notes B and D) 2,912,632 2,665,309 2,826,975
Interest income - other 194,513 449,308 576,391
Gain on sale of MBS - - 247,229
Total revenues 15,728,883 15,725,544 16,164,307
Expenses:
Asset management fee to an affiliate
(Note F) 1,412,787 1,415,178 1,411,451
Expense reimbursements to affiliates
(Note F) 181,503 382,735 426,271
Amortization of prepaid fees and
expenses (Note B) 1,622,438 1,562,511 1,521,228
General and administrative 177,098 167,195 158,018
Total expenses 3,393,826 3,527,619 3,516,968
Net income (Notes E and G) $12,335,057 $12,197,925 $12,647,339
Allocation of net income (Notes E and G):
Limited Partners $11,965,005 $11,831,987 $12,267,919
Average net income per
Limited Partnerinterest
(12,770,261 Limited Partner
interests outstanding) $ .94 $ .93 $ .96
General Partners $ 370,052 $ 365,938 $ 379,420
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
Balance at December 31, 1992 $222,260,655 $ 14,928 $ - $222,275,583
Net income 12,267,919 379,420 - 12,647,339
Distributions (21,183,876) (411,646) - (21,595,522)
Balance at December 31, 1993 213,344,698 (17,298) - 213,327,400
Net income 11,831,987 365,938 - 12,197,925
Distributions (21,242,039) (400,197) - (21,642,236)
Balance at December 31, 1994 $203,934,646 $ (51,557) - $203,883,089
Net income 11,965,005 370,052 - 12,335,057
Distributions (15,324,192) (421,051) - (15,745,243)
Unrealized gain on MBS - - 1,272,626 1,272,626
Balance at December 31, 1995 $200,575,459 $(102,556) $1,272,626 $201,745,529
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Operating activities:
Net income $12,335,057 $12,197,925 $12,647,339
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 1,622,438 1,562,511 1,521,228
Gain on sale of MBS - - (247,229)
Shared appreciation income - - (25,000)
Changes in assets and liabilities:
Decrease (increase) in interest receivable and other assets 163,681 (416,775) 19,277
Increase (decrease) in liabilities (10,130) 7,706 (684)
Net cash provided by operating
activities 14,111,046 13,351,367 13,914,931
Investing activities:
Principal collections on PIMs 972,384 811,733 711,385
Investment in PIMs - - (2,646,017)
Investment in MBS (1,027,567) (11,278,411) (11,596,373)
Principal collections on MBS 1,866,085 5,161,680 11,869,304
Proceeds from sale of MBS - - 8,371,529
Decrease (increase) in other investment - - 2,440,344
Shared appreciation income - - 25,000
Net cash provided by (used for)
investing activities 1,810,902 (5,304,998) 9,175,172
Financing activity:
Distributions (15,745,243) (21,642,236) (21,595,522)
Net increase (decrease)in cash and
cash equivalents 176,705 (13,595,867) 1,494,581
Cash and cash equivalents, beginning of period 3,257,180 16,853,047 15,358,466
Cash and cash equivalents, end of period $ 3,433,885 $ 3,257,180 $16,853,047
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Insured Plus-III Limited Partnership (the "Partnership") was
formed on March 21, 1988 by filing a Certificate of Limited Partnership
in The Commonwealth of Massachusetts. The Partnership issued all of
the General Partner Interests to Krupp Plus Corporation and Mortgage
Services Partners Limited Partnership in exchange for capital
contributions aggregating $3,000. The Partnership terminates on
December 31, 2028, unless terminated earlier upon the occurrence of
certain events as set forth in the Partnership Agreement.
The Partnership commenced the public offering of Units on June 24, 1988
and completed its public offering having sold 12,770,161 Units for
$254,686,736 net of purchase volume discounts of $716,484 as of June
22, 1990.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which differ in certain respects from those used
for federal income tax purposes (Note G):
PIMs
The Partnership carries its investments in PIMs at amortized cost as
it has the ability and intention to hold these investments. Basic
interest is recognized based on the stated rate of the Federal
Housing Administration ("FHA") mortgage loan (less the servicer's
fee) or the stated coupon rate of the Government National Mortgage
Association ("GNMA") or Federal National Mortgage Association
("FNMA") MBS. Participation interest is recognized as earned and
when deemed collectible by the Partnership.
MBS
At December 31, 1995, the Partnership in accordance with the
Financial Accounting Standards Board's Special Report on Statement
115, "Accounting for Certain Investments in Debt and Equity
Securities", reclassified its MBS portfolio from held-to-maturity to
available-for-sale. The Partnership carries its MBS at fair market
value and reflects any unrealized gains (losses) as a separate
component of Partners' Equity. Prior to December 31, 1995, the
Partnership carried its MBS portfolio at amortized cost. The
Partnership amortizes purchase premiums or discounts over the life of
the underlying mortgages using the effective interest method.
Cash Equivalents
The Partnership includes all short-term investments with maturities
of three months or less from the date of acquisition in cash and cash
equivalents. The Partnership invests its cash primarily in deposits
and money market funds with a commercial bank and has not experienced
any loss to date on its invested cash.
Prepaid Expenses and Fees
Prepaid expenses and fees consist of prepaid acquisition fees and
expenses and prepaid participation servicing fees paid for the
acquisition and servicing of PIMs. The Partnership amortizes the
prepaid acquisition fees and expenses using a method that
approximates the effective interest method over a period of ten to
twelve years,
which represents the actual maturity or anticipated call date of the
underlying mortgage. Acquisition expenses incurred on potential
acquisitions which were not consummated were charged to operations.
The Partnership amortizes prepaid participation servicing fees using
a method that approximates the effective interest method over a ten
year period beginning at final endorsement of the loan if a
Department of Housing and Urban Development ("HUD") insured loan and
at closing if a FNMA loan.
Income Taxes
The Partnership is not liable for federal or state income taxes
because Partnership income is allocated to the partners for income
tax purposes. If the Partnership's tax returns are examined by the
Internal Revenue Service or state taxing authority and such an
examination results in a change in Partnership taxable income, such
change will be reported to the partners.
Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of
revenues and expenses during the period. Actual results could differ
from those estimates.
C. PIMs
The Partnership has investments in eighteen PIMs. The Partnership's
PIMs consist of a GNMA or FNMA MBS representing the securitized first
mortgage loan on the underlying property or a sole participation
interest in a first mortgage loan originated under the FHA lending
program on the underlying property (collectively the "insured
mortgages"), and participation interests in the revenue stream and
appreciation of the underlying property above specified base levels.
The borrower conveys these participation features to the Partnership
generally through a subordinated mortgage (the "Agreement"). The
Partnership receives guaranteed monthly payments of principal and
interest on the GNMA and FNMA MBS and HUD insures the first mortgage
loan underlying the GNMA MBS and the FHA mortgage loan. The borrower
usually can not prepay the first mortgage loan during the first five
years and usually may prepay the first mortgage loan thereafter subject
to a 9% prepayment penalty in years six through nine, a 1% prepayment
penalty in year ten and no prepayment penalty thereafter. The
Partnership may receive interest related to its participation interests
in the underlying property, however, these amounts are neither insured
nor guaranteed.
Generally, the participation features consist of the following: (i)
"Minimum Additional Interest" at a stated rate ranging from .5% to .75%
per annum calculated on the unpaid principal balance of the first
mortgage on the underlying property , (ii) "Shared Income Interest"
ranging from 25% to 30% of the monthly gross rental income generated by
the underlying property in excess of a specified base, but only to the
extent that it exceeds the amount of Minimum Additional Interest
received during such month, (iii) "Shared Appreciation Interest"
ranging from 25% to 30% of any increase in Value of the underlying
property in excess of a specified base. Payment of participation
interest from the operations of the property is limited to 50% of net
revenue or surplus cash as defined by FNMA or HUD, respectively. The
aggregate amount of Minimum Additional Interest, Shared Income Interest
and Shared Appreciation Interest payable on the maturity date by the
underlying borrower generally cannot exceed 50% of any increase in
value of the property. However, generally any net proceeds from the
sale or refinancing of the underlying property will be available to
satisfy any accrued but unpaid Shared Income or Minimum Additional
interest.
Shared Appreciation Interest is payable when one of the following
occurs: (1) the sale of the underlying property to an unrelated third
party on a date which is later than five years from the date of the
Agreement, (2) the maturity date or accelerated maturity date of the
Agreement, or (3) prepayment of amounts due under the Agreement and the
insured mortgage.
Under the Agreement, the Partnership, upon giving twelve months written
notice, can accelerate the maturity date of the Agreement and insured
mortgage to a date not earlier than ten years from the date of the
Agreement for (a) the payment of all participation interest due under
the Agreement as of the accelerated maturity date, or (b) the payment
of all participation interest due under the Agreement plus all amounts
due on the first mortgage note on the property.
Listed in the chart is a summary of the Partnership's PIM investments
at December 31, 1995 and 1994:
Issuer Aggregate Permanent Aggregate Outstanding
Original Number Interest Maturity Principal Balance at
Principal of PIMs Rate Range Date Range December 31,
1995 1994
FNMA $ 70,168,742
(a) 8 6.25%-8%
(a) 10/99 - 4/06
(a) $ 67,790,969 $ 68,362,445
GNMA 69,099,733
(b) 8 8%-8.50% 8/30 - 5/32 68,129,224 68,424,113
FHA 16,012,300 2 8.625%-8.675% 7/25 - 1/31 15,545,459 15,651,478
$155,280,775 18 $151,465,652 $152,438,036
(a) Includes the Partnership's share of the Royal Palm Place PIM, in
which the Partnership holds 73% of the $22,000,000 total PIM and an
affiliate of the Partnership holds the remaining 27%. During
December 1995 the Partnership agreed to a modification of the Royal
Palm PIM. The Partnership received a reissued FNMA MBS with revised
terms that included extending the
maturity from 2001 to 2006. During December 1995, the Partnership
received its
pro-rata share of a $90,644 principal payment related to the
modification. The FNMA MBS will provide the Partnership with monthly
interest payments at interest rates ranging from 6.25% to 8.775% per
annum through maturity, and the Partnership will receives its pro-
rata share of $250,000 principal payments on December 1 of the
following four years. In addition, the
modification changed the maturity of the subordinated promissory
note to 2006, and increased the Shared Income and Appreciation
Interest percentages from 25% to 30%.
(b) Includes the Partnership's share of the Marina Shores PIM in which
the Partnership holds 71% of the $21,200,000 total PIM and an
affiliate of the Partnership holds the remaining 29%.
The underlying mortgages of the PIMs are collateralized by multi-
family apartment complexes located in 9 states, primarily Florida and
North Carolina. The apartment complexes range in size from 96 to 503
units.
D. MBS
At December 31, 1995, the Partnership's MBS portfolio has an
amortized cost of approximately $35,421,000 and unrealized gains and
losses of approximately $1,278,000 and $6,000, respectively. At
December 31, 1994, the Partnership's MBS portfolio had a market value
of approximately $35,503,000 and unrealized gains and losses of
$296,000 and $1,053,000, respectively. The MBS portfolio has a
maturity dates ranging from 2010 to 2035.
During the third quarter of 1994, the Partnership acquired $4,929,288
face value of Federal Home Loan Mortgage Corporation ("FHLMC") MBS
for $4,872,241 having coupon rates of 8% per annum and maturities
ranging from 2017 to 2024.
On August 14, 1995, the Partnership's construction-phase MBS achieved
final endorsement and the Partnership funded its remaining commitment
on this $8,209,800 face value MBS. During the construction-phase the
MBS provided the Partnership with interest only payments at an
interest rate of 8.125% per annum. The permanent MBS will provide
the Partnership with monthly payments of principal and interest at an
interest rate of 7.375% per annum.
E. Partners' Equity
Under the terms of the Partnership Agreement, profits from
Partnership operations and Distributable Cash Flow are allocated 97%
to the Unitholders and Corporate Limited Partner (the "Limited
Partners") and 3% to the General Partners.
Upon the occurrence of a capital transaction, as defined in the
Partnership Agreement, net cash proceeds and profits from the capital
transaction will be distributed first, to the Limited Partners until
they have received a return of their total invested capital, second,
to the General Partners until they have received a return of their
total invested capital, third, 99% to the Limited Partners and 1% to
the General Partners until the Limited Partners receive an amount
equal to any deficiency in the 11% cumulative return on their
invested capital that exists through fiscal years prior to the date of
the capital transaction, fourth, to the class of General
Partners until they have received an amount equal to 4% of all
amounts of
cash distributed under all capital transactions and fifth, 96% to the
Limited Partners and 4% to the General Partners. Losses from a
capital transaction will be allocated 97% to the Limited Partners and
3% to the General Partners.
As of December 31, 1995, the following cumulative partner
contributions and allocations have been made since inception of the
Partnership:
Corporate Total
Limited General Partners'
Unitholders Partner Partners Equity
Capital contributions $254,686,736 $ 2,000 $ 3,000 $254,691,736
Syndication costs (15,834,700) - - (15,834,700)
Distributions (130,928,487) (1,152) (2,971,053) (133,900,692)
Net income 92,650,267 795 2,865,497 95,516,559
Unrealized gain on MBS - - - 1,272,626
Total at December 31, 1995 $200,573,816 $ 1,643 $ (102,556) $201,745,529
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General Partners
or their affiliates are paid an Asset Management Fee equal to .75%
per annum of the value of the Partnership's actual and committed
mortgage assets, payable quarterly. The General Partners may also
receive an incentive management fee in the amount equal to .3% per
annum on the Partnership's total invested assets provided the
Unitholders have received their specified non-cumulative return on
their Invested Capital. Total Asset Management Fees and Incentive
Management Fees payable to the General Partners or their affiliates
shall not exceed 10% of Distributable Cash Flow over the life of
the Partnership.
Additionally, the Partnership reimburses affiliates of the General
Partners for certain expenses incurred in connection with
maintaining the books and records of the Partnership and the
preparation and mailing of financial reports, tax information and
other communications to the investors.
G. Federal Income Taxes
The reconciliation of the net income reported in the accompanying
statement of income with the net income reported in the
Partnership's 1995 federal income tax return is as follows:
Net income per statement of income $12,335,057
Add: Book to tax difference for amortization
of prepaid expenses and fees 734,458
Net income for federal income tax purposes $13,069,515
The allocation of the net income for federal income tax purposes for
1995 is as follows:
Portfolio
Income
Unitholders $12,677,331
Corporate Limited Partner 99
General Partners 392,085
$13,069,515
During the years ended December 31, 1995, 1994 and 1993 the average
per Unit net income to the Unitholders for federal income tax
purposes was $.99, $.95 and $.97, respectively.
H. Fair Value Disclosures of Financial Instruments
The Partnership uses the following methods and assumptions to
estimate the fair value of each class of financial instrument:
Cash and cash equivalents
The carrying amount approximates the fair value because of
the short maturity of those instruments.
MBS
The Partnership estimates the fair value of MBS based on
quoted market prices.
PIMs
There is no established trading market for these investments.
Management estimates the fair value of the PIMs using quoted
market prices of MBS having the same stated coupon rate as
the insured mortgages and the estimated value of the
participation features. Management estimates the fair value
of the participation features using the estimated fair value
of the underlying properties. Management does not include in
the estimated fair value of the participation features any
fair value estimate arising from appreciation of the
properties, because Management does not believe it can
predict the time of realization of the appreciation feature
with any certainty. Based on the estimated fair value
determined using these methods and assumptions, the
Partnership's investments in PIMs had gross unrealized gains
and losses of $5,051,000 and $395,000 at December 31, 1995,
respectively, and a gross unrealized loss of $7,769,000 at
December 31, 1994.
Commitments to Fund Construction Loans and Insured Mortgages
At December 31, 1994, the Partnership approximated the fair
value of commitments to fund its construction-phase insured
mortgage to be equal to the commitment amount of $1,029,667.
At December 31, 1995 and 1994, the Partnership estimates the fair
values of its financial instruments as follows:
(rounded to thousands)
1995 1994
Cash and cash equivalents $ 3,434 $ 3,257
MBS 36,694 35,503
PIMs 156,122 144,669
$196,250 $183,429
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1995
__________
Approx.
Normal
Maturity Monthly Original Current Carrying
PIMs (a) Interest Date Payment Face Face Amount at
Rate (b) (j) (k) Amount Amount 12/31/95(o)
GNMA
Casa Marina
Apts.
Miami, FL 8.00%
(d)(f)(h) 12/15/30 $ 49,000 $ 7,099,700 $ 6,959,826 $ 6,959,826
Fourth Ward Sq.
Apts.
Charlotte, NC 8.00%
(c)(f)(h) 11/15/31 50,000 7,250,000 7,139,886 7,139,886
Harbor Club
Apts.
Ann Arbor, MI 8.00%
(c)(e)
(i)(l) 10/15/31 97,000 13,562,000 13,475,296 13,475,296
Ironwood Place
Apts.
Ann Arbor, MI 8.50%
(c)(f)(h) 8/15/30 37,000 4,997,603 4,912,372 4,912,372
Marina Shores
Apts.
VA Beach, VA 8.00%
(c)(f)(h) 5/15/32 104,000 15,000,000 14,787,937 14,787,937
Paddock Club
Apts.
Tallahassee, FL 8.00%
(c)(f)(h) 3/15/32 60,000 8,600,000 8,479,661 8,479,661
Rosewood Apts.
Cartersville,GA 8.00%
(c)(f)(h) 2/15/31 36,000 5,197,314 5,101,801 5,101,801
Sundance Apts.
Miami, FL 8.50%
(c)(e)(g) 12/15/30 54,000 7,393,116 7,272,445 7,272,445
69,099,733 68,129,224 68,129,224
FNMA
Meridith Square
Apts.
Columbia, SC 8.00%
(c)(e)(g) 10/1/00 35,000
(n) 4,900,000 4,761,595 4,761,595
Mill Ponds
Apts.Naperville, IL7.50%
(c)(f)(g) 6/1/00 70,000
(n) 10,450,000 10,087,068 10,087,068
Paces Arbor
Apts.
Raleigh, NC 7.50%
(c)(e)(g) 7/1/00 24,000
(n) 3,545,000 3,426,418 3,426,418
Paces Forest
Apts.
Raleigh, NC 7.50%
(c)(e)(g) 7/1/00 29,000
(n) 4,345,000 4,199,657 4,199,657
Paddock Club
Apts.
Jacksonville,FL 8.00%
(c)(e)(g) 1/1/01 60,000
(n) 8,500,000 8,264,838 8,264,838
Paddock Park II
Apts.
Ocala, FL 7.50%
(d)(e)(h) 3/1/00 $72,000
(n) 10,750,000 10,345,706 10,345,706
Royal Palm Pl.
Apts.
Kendall, FL 7.75%
(c)(f)
(h)(m) 4/1/06 111,000
(n) 15,978,742 15,491,579 15,491,579
Windsor Court
Apts.
Indianapolis,IN 7.25%
(c)(e)(g) 10/1/99 77,000
(n) 11,700,000 11,214,108 11,214,108
70,168,742 67,790,969 67,790,969
HUD
Friendly Hills
Apts.
Greensboro, NC 8.625%
(c)(e)(g) 7/1/25 88,000 11,684,500 11,310,588 11,310,588
Woodbine Apts.
Boise, ID 8.68%
(c)(e)(g) 1/1/31 32,000 4,327,800 4,234,871 4,234,871
16,012,300 15,545,459 15,545,459
Total $155,280,775 $151,465,652 $151,465,652
(a) The Participating Insured Mortgages ("PIMs") consist of either a
mortgage-backed security ("MBS") issued and guaranteed by the
Federal National Mortgage Association ("FNMA"), an MBS issued or
guaranteed by the Government National Mortgage Association
("GNMA") or a sole participation interest in a first mortgage
insured by the United States Department of Housing and Urban
Development ("HUD") and a subordinated promissory note and
mortgage or shared income and appreciation agreement with the
underlying Borrower that conveys participation interests in the
revenue stream and appreciation of the underlying property above
certain specified base levels.
(b) Represents the permanent interest rate of the GNMA or FNMA MBS
or the HUD-insured first mortgage less servicers fee. The
Partnership may also receive additional interest, consisting of
(i) Minimum Additional Interest based on a percentage of the
unpaid principal balance of the first mortgage on the property,
(ii) Shared Income Interest based on a percentage of monthly
gross income generated by the underlying property in excess of a
specified base amount (but only to the extent it exceeds the
amount of Minimum Additional Interest received during such
month), (iii) Shared Appreciation Interest based on a percentage
of any increase in the value of the underlying property in
excess of a specified base value.
(c) Minimum additional interest is at a rate of .5% per annum
calculated on the unpaid principal balance of the first mortgage
note.
(d) Minimum additional interest is at a rate of .75% per annum
calculated on the unpaid principal balance of the first mortgage
note.
(e) Shared income interest is based on 25% of monthly gross rental
income over a specified base amount.
(f) Shared income interest is based on 30% of monthly gross rental
income over a specified base amount.
(g) Shared appreciation interest is based on 25% of any increase in
the value of the project over the specified base value.
(h) Shared appreciation interest is based on 30% of any increase in
the value of the project over the specified base value.
(i) Shared appreciation interest is based on 35% of any increase in
the value of the project over the specified base value.
(j) The Partnership's GNMA MBS and HUD mortgage loans have call
provisions, which allow the Partnership to accelerate their
respective maturity date.
(k) The normal monthly payment consisting of principal and interest
is payable monthly at level amounts over the term of the GNMA
MBS and the HUD direct mortgages. The normal monthly payment
consisting of principal and interest for FNMA MBS is payable at
level amounts based on a 35 year amortization and all remaining
unpaid principal and accrued interest is due at the end of year
ten. The GNMA MBS, FNMA MBS and HUD-insured first mortgage
loans may not be prepaid during the first five years and may
generally be prepaid subject to a 9% prepayment penalty in years
six through nine, a 1% prepayment penalty in year ten and no
prepayment penalty after year ten.
(l) On April 7, 1992, the Partnership entered into an agreement
which provided for a one-year reduction in the interest rate on
the Harbor Club-Ann Arbor PIM from 8% to 6% for one year
retroactive to February 1, 1992 and to 7% for the following
year. In exchange for the reduction, the Minimum Additional
Interest increased from .50% to .75% and the Shared Appreciation
Interest Base decreased from $14,570,000 to $13,562,000.
(m) During December 1995 the Partnership agreed to a modification of
the Royal Palm PIM. The Partnership received a reissued FNMA
MBS with revised terms that include extending the maturity from
2001 to 2006. During December 1995, the Partnership received
its pro-rata share of a $90,644 principal payment. The FNMA MBS
will provide the Partnership with monthly interest payments at
interest rates ranging from 6.25% to 8.775% per annum through
maturity, and the Partnership will receive its pro-rata share of
$250,000 principal payments on December 1 of the following four
years. In addition, the modification changed the maturity of
the subordinated promissory note to 2006, and increased the
Shared Income and Appreciation Interest percentages from 25% to
30%.
(n) The approximate principal balance due at maturity for each PIM,
listed below, is as follows:
PIM Amount
Meridith Square Apartments $ 4,562,000
Mill Ponds Apartments $ 9,655,000
Paces Arbor Apartments $ 3,275,000
Paces Forest Apartments $ 4,015,000
Paddock Club Apartments $ 7,913,000
Paddock Park II Apartments $ 9,932,000
Royal Palm Place Apartments $14,766,010
Windsor Court Apartments $10,767,000
(o) The aggregate cost of PIMs for federal income tax purposes is
$151,465,652.
A reconciliation of the carrying value of PIMs for each of the three years
in the period ended December 31, 1995 is as follows:
1995 1994 1993
Balance at beginning of period $152,438,036 $153,249,769 $151,315,137
Additions during period:
Investments - - 2,646,017
Deductions during period:
Principal collections (972,384) (811,733) (711,385)
Balance at end of period $151,465,652 $152,438,036 $153,249,769