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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 SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
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 (IRS Employer Identification No.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(Registrant's telephone number, including area code)
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 10-11.
PART I
This Form 10-K 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.
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 (the "insured mortgage") guaranteed as to principal and basic
interest and a participation feature that is not insured nor guaranteed. The
insured mortgages were issued or originated under or in connection with the
housing programs of the Government National Mortgage Association ("GNMA") or
Fannie Mae. 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 Fannie Mae, the Federal Home
Loan Mortgage Corporation ("FHLMC") or the Federal Housing Administration
("FHA"). Fannie Mae and FHLMC guarantee the principal and basic interest of the
Fannie Mae and FHLMC MBS, respectively. The Department of Housing and Urban
Development ("HUD") insures the FHA mortgage loan.
The Partnership must distribute proceeds received from prepayments or other
realization of the mortgages to the investors through quarterly or possibly
special distributions.
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 may 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 cannot be predicted. Such factors include interest
rate fluctuations and the credit worthiness of Fannie Mae, 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, 1999, 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, 1999 was approximately
10,400. 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.
During January 2000, the Partnership made a special distribution of $1.17 per
Limited Partner interest from the principal proceeds from the Marina Shores PIM.
During 1999, the Partnership made special distributions consisting primarily of
principal proceeds from the Windsor Court and Mill Ponds PIM prepayments.
During 1998, the Partnership made special distributions consisting primarily of
principal proceeds from the Woodbine, Ironwood, Sundance, Rosewood, Forth Ward
Square and Meredith Square PIM prepayments and the repayment of the Brookside
and Regency Park multi-family MBS.
The Partnership may make special distributions in the future if PIMs prepay or a
sufficient amount of cash is available from MBS and PIM principal collections.
The Partnership made the following distributions, in quarterly installments, and
special distributions, to its Partners during the two years ended
December 31, 1999 and 1998:
1999 1998
Average Average
Amount Per Unit Amount Per Unit
Quarterly Distributions
Limited Partners $ 9,705,323 $ .76 $ 11,110,042 $ .87
General Partners 177,147 310,551
9,882,470 11,420,593
Special Distributions
Limited Partners 21,453,869 $ 1.68 73,811,533 $ 5.78
Total Distributions $ 31,336,339 $ 85,232,126
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.
1999 1998 1997 1996 1995
Total revenues $6,770,135 $10,782,454 $ 18,896,423 $ 15,578,710 $ 15,728,883
Net income 4,930,576 7,713,323 14,893,523 12,021,035 12,335,057
Net income allocated
to:
Limited Partners 4,782,659 7,481,923 14,446,717 11,660,404 11,965,005
Average per Unit .37 .59 1.13 .91 .94
General Partners 147,917 231,400 446,806 360,631 370,052
Total assets at
December 31 68,426,507 95,300,681 173,645,460 184,485,334 201,760,285
Distributions to:
Limited Partners 9,705,323 11,110,042 15,324,194 15,324,193 15,324,192
Average per Unit .76 .87 1.20 1.20 1.20
Special 21,453,869 73,811,533 11,237,742 12,387,057 -
Average per Unit 1.68 5.78 .88 .97 -
General Partners 177,147 310,551 373,032 410,687 421,051
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Management's expectations regarding the future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Impact of the Year 2000 Issue
Starting in 1997 the General Partners conducted an assessment of the
Partnership's core internal and external computer information systems to
understand the nature and extent of work required to make its systems Year 2000
ready. The Year 2000 readiness issue was concerned with the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. The General Partners believed that a system failure or
miscalculation could cause disruptions of operations.
As a result of this concern, the General Partners, along with certain
affiliates, upgraded their computer systems including their hardware and
software so they would be Year 2000 ready. In addition, the General Partners
surveyed the Partnership's material third-party service providers and
significant vendors and received assurances that they were Year 2000 ready. The
General Partners also developed contingency plans for all of their
"mission-critical functions" to insure business continuity. As a result of these
efforts and the efforts of third parties, the Year 2000 did not result in any
disruption of activities to the Partnership.
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are the regular
quarterly distributions paid to investors, which are approximately $2.4 million
each quarter. Funds for the investor distributions come from the monthly
principal and basic interest payments received on the PIMs and MBS, the
principal prepayments of the PIMs and MBS, and interest earned on the
Partnership's cash and cash equivalents. 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 that quarterly distributions do not
fully utilize the cash available for distributions and cash balances increase,
the General Partners may adjust the distribution rate or distribute such funds
through a special distribution. The portion of distributions attributable to the
principal collections reduces the capital resources of the Partnership. As the
capital resources decrease, the total cash flows to the Partnership also will
decrease and over time will result in periodic adjustments to the distributions
paid to investors. Based on current projections, the General Partners believe
the Partnership will need to adjust the current distribution rate beginning with
the August 2000 distribution. The General Partners will determine the new rate
during the first quarter of 2000.
In December of 1999, the Partnership received a prepayment on the Marina Shores
PIM in the amount of $14,491,746 along with $426,321 of Shared Appreciation
Interest. A special distribution in the amount of $1.17 per Limited Partner
Interest was paid during January 2000.
The Partnership made two special distributions during 1999 as a result of the
following PIM prepayments: In February 1999, an $.88 per Unit special
distribution was made with the prepayment proceeds in the amount of $10,876,051
from the Windsor Court PIM that was received in January 1999. In September 1999,
an $.80 per Unit special distribution was made with the prepayment proceeds in
the amount of $9,751,550 from the Mill Ponds PIM that was received during the
third quarter of 1999.
The Partnership made six special distributions during 1998 as a result of the
following PIM prepayments. In January 1998, a $2.30 per Unit special
distribution was made with the prepayment proceeds of the three Paddock Club
PIMs that were received during the fourth quarter 1997. In February 1998, a
$1.01 per Unit special distribution was made with the prepayment proceeds of
Fourth Ward Square and Meredith Square PIMs that were received during January
1998. In April 1998, a $.42 per Unit special distribution was made with the
prepayment proceeds of the Rosewood PIM that was received during the first
quarter of 1998. During July 1998, a $1.28 special distribution was made with
the prepayment proceeds of the Sundance PIM and the Regency and Brookside MBSs.
In December, 1998, two special distributions totaling $.77 per Unit were made
with the prepayment proceeds of the Ironwood and Woodbine PIMs.
In addition to providing guaranteed monthly principal and basic interest
payments, the Partnership's PIM investments also may provide additional income
through its participation feature in the underlying properties if they operate
successfully. The Partnership may receive a share in any operating cash flow
that exceeds debt service obligations and capital needs or a share in any
appreciation in value when the properties are sold or refinanced. However, this
participation interest is neither guaranteed nor insured, and it is dependent
upon whether property operations or its terminal value met certain criteria.
During 1999, the Partnership received approximately $172,000 in participation
interest from operating cash flow from the Mill Ponds PIM investment. The
Partnership also received approximately $829,000 in participation interest
related to the sale or refinance value from the Mill Ponds and Marina Shores
PIM's.
During 1998, the Partnership received approximately $832,000 in participation
interest from operating cash flow from six of its PIM investments: Marina
Shores, Mill Ponds, Rosewood, Ironwood, Woodbine and Windsor Court. The
Partnership also received approximately $1,261,000 in participation interest
related to the sale or refinance value from the Rosewood, Ironwood, Windsor
Court and Woodbine PIM's and the Brookside MBS.
The Partnership's only remaining PIM investments are the MBS backed by the first
mortgage loans on Casa Marina, Harbor Club and Royal Palm Place. Presently, the
General Partner does not expect any of these properties to pay the Partnership
any participation interest or to be sold or refinanced during 2000. Casa Marina,
located in North Miami, is a forty- year old property where the costs of
maintenance, repairs and replacements have escalated as the property has aged.
Occupancy generally hovers in the 90% range, and the property only generates
sufficient cash flow for adequate maintenance and not enough to provide for
major capital improvements or any participation interest. Harbor Club operates
successfully in Ann Arbor, Michigan, which is a very competitive market with
many newer apartment properties. Although Harbor Club has maintained occupancy
rates in the mid 90% range for the past two years, most cash flow generated by
the property is used for capital replacements and improvements that help it
maintain its strong market position. Royal Palm Place operates under a long term
restructure program. As an on going result of the Partnership's 1995 agreement
to modify the payment terms of the Royal Palm Place PIM, the Partnership will
receive basic interest only payments on the Fannie Mae MBS at the rate of 7.875%
per annum during 2000. Thereafter, the interest rate will range from 7.875% to
8.775% per annum through the maturity of the first mortgage in 2006. The
Partnership also received its pro rata share of the January 2000, $250,000
principal payment.
During the first five years, owners are prohibited from prepaying the mortgage
loans underlying the PIMs. During the second five years, owners may prepay the
loans by incurring a prepayment premium. The Partnership has the option to call
certain PIMs by accelerating their maturity if they 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, the interest
rate environment and availability of financing will affect those decisions.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by Fannie
Mae, FHLMC or HUD and therefore the certainty of their cash flows and the risk
of material loss of the amounts invested depends on the creditworthiness of
these entities.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and is
wholly-owned by the twelve Federal Home Loan Banks. These obligations are not
guaranteed by the U.S. Government or the Federal Home Loan Bank Board.
Obligations insured by HUD, an agency of the U.S. Government, are backed by the
full faith and credit of the U.S. Government.
At December 31, 1999 the Partnership includes in cash and cash equivalents
approximately $18.7 million of commercial paper, which is issued by entities
with a credit rating equal to one of the top two rating categories of a
nationally recognized statistical rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
December 31, 1999, the Partnerships PIMs, PIMIs and MBS comprise the majority of
the Partnership's assets. As such decreases in interest rates may accelerate the
prepayment of the Partnership's investments. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular dividend
distribution policy. For MBS, the fund forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For PIMs and PIMIs, the Partnership incorporates prepayment
assumptions into planning as individual properties notify the Partnership of the
intent to prepay or as they mature.
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates. For mortgage investments, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates. The expected maturity date is contractual maturity
adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands)
2000 2001 2002 2003 2004 Thereafter Total Fair
Value
Interest-sensitive assets:
MBS $ 1,061 $ 855 $ 693 $ 565 $ 465 $ 9,252 $12,892 $12,825
Weighted
Average interest rate 7.59% 7.59% 7.59% 7.59% 7.59% 7.59% 7.59%
PIMs 320 150 163 177 192 33,927 34,929 35,105
Weighted
Average interest rate 7.95% 8.16% 8.33% 8.34% 8.34% 8.23% 8.22%
Total Interest-
sensitive assets $ 1,381 $ 1,005 $ 856 $ 742 $ 657 $ 43,179 $47,821 $47,930
Results of Operations
The following discussion relates to the operation of the Partnership during the
years ended December 31, 1999, 1998 and 1997.
(Amounts in Thousands)
1999 1998 1997
Interest income on PIMs:
Basic interest $ 4,210 $6,195 $10,066
Participation interest 1,001 2,093 5,996
Interest income on MBS 1,071 1,695 2,390
Other interest income 488 800 444
Partnership expenses (732) (1,005) (1,549)
Amortization of prepaid fees
and expenses (1,107) (2,065) (2,453)
Net income $ 4,931 $ 7,713 $14,894
Net income decreased during 1999 as compared to the same period in 1998 due
primarily to lower basic interest on PIMs, lower participation interest, lower
interest income on MBS and lower other interest income. This was partially
offset by a decrease in partnership expenses and amortization.
The significant decrease in basic interest on PIMs was caused by the prepayments
of the Windsor Court and Mill Ponds Apartment PIMs in 1999 and the prepayments
of the Sundance, Rosewood, Woodbine and Ironwood Apartment PIMs in 1998. The
decrease in participation interest was primarily a result of the Partnership
receiving a lower level of participation interest and shared interest income
from PIM prepayments occurring during the twelve month period ending December
31, 1999 as compared to the same period in 1998. The decrease in MBS interest
income was primarily due to the prepayment of the Brookside and Regency Park MBS
in 1998. The decrease in other interest income was due to the Partnership having
lower average short-term investment balances during the twelve months ended
December 31, 1999 when compared to the corresponding period in 1998.
The decrease in partnership expenses was primarily due to lower asset management
fees which were a result of the reduction in the asset base occurring from the
prepayments mentioned above. The decrease in amortization for 1999 as compared
to the same period in 1998 was a result of the Partnership fully amortizing the
costs associated with the PIMs that were prepaid in 1998 exceeding the amount
that was fully amortized associated with the PIMs that were prepaid in 1999.
Net income decreased during 1998 as compared to the same period in 1997 due
primarily to lower basic interest on PIMs, lower participation interest and
lower interest income on MBS. This was partially offset by increases in other
interest income and a decrease in partnership expenses and amortization.
The significant decrease in basic interest on PIMs was caused by the prepayments
of the Sundance, Meredith Square, Fourth Ward Square, Rosewood, Woodbine and
Ironwood Apartment PIMs in 1998, and the three Paddock and two Paces PIMs that
occurred in 1997. The decrease in participation interest was primarily a result
of the Partnership receiving a lower level of participation interest and shared
income interest income from PIM prepayments occuring during the twelve month
period ending December 31, 1998 as compared to the same period in 1997. The
decrease in MBS interest income was primarily due to the prepayment of the
Brookside and Regency Park MBS.
The increase in other interest income was due to the Partnership having higher
average short-term investment balances during the twelve months ended December
31, 1998 when compared to the corresponding period in 1997. The decrease in
partnership expenses was primarily due to lower asset management fees which were
a result of the reduction in the asset base occurring from the prepayments
mentioned above. The decrease in amortization for 1998 as compared to the same
period in 1997 was a result of the Partnership fully amortizing the costs
associated with the PIMs that were prepaid in 1997 exceeding the amount that was
fully amortized associated with the PIMs that were prepaid in 1998.
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 (53) President, Co-Chairman of the Board and Director
George Krupp (55) Co-Chairman of the Board and Director
Peter F. Donovan (46) Senior Vice President
Ronald Halpern (58) Senior Vice President
Carol J. C. Mills (50) Vice President
Robert A. Barrows (42) Vice President and Treasurer
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer
of The Berkshire Group, an integrated real estate financial services firm
engaged in real estate acquisitions, property management, investment
sponsorship, venture capital investing, mortgage banking and financial
management, and ownership of three operating companies through private equity
investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire
Group was established as The Krupp Companies in 1969 and he has served as the
Chief Executive Officer since 1992. Mr. Krupp serves as a member of the Board of
Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where
he received an honorary Doctor of Science in Business Administration in 1989 and
was elected trustee in 1990.
George Krupp (age 55) is the Co-Founder and Co-Chairman of The Berkshire Group,
an integrated real estate financial services firm engaged in real estate
acquisitions, property management, investment sponsorship, venture capital
investing, mortgage banking and financial management, and ownership of three
operating companies through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish
High School in Waltham, Massachusetts since September of 1997. Mr. Krupp
attended the University of Pennsylvania and Harvard University and holds a
Master's Degree in History from Brown University.
Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage Finance which
position he has held since January of 1998 and in this capacity, he oversees the
strategic growth plans of this mortgage banking firm. Berkshire Mortgage Finance
is the 16th largest servicer of commercial mortgage loans in the United States
with a servicing and asset management portfolio of $7.2 billion. Previously he
served as President of Berkshire Mortgage Finance from January of 1993 to
January of 1998 and in that capacity he directed the production, underwriting,
servicing and asset management activities of the firm. Prior to that, he was
Senior Vice President of Berkshire Mortgage Finance and was responsible for all
participating 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.
Ronald Halpern is President and COO of Berkshire Mortgage Finance. He has served
in these positions since January of 1998 and in this capacity, he is responsible
for the overall operations of the Company. Prior to January of 1998, he was
Executive Vice President, managing the underwriting, closing, portfolio
management and servicing departments for Berkshire Mortgage Finance. Before
joining the firm in 1987, he held senior management positions with the
Department of Housing and Urban Development in Washington D.C. and several HUD
regional offices. Mr. Halpern has over 30 years of experience in real estate
finance. He is currently a member of the Advisory Council for Fannie Mae and
Freddie Mac and was prior Chairman of the MBA Multifamily Housing Committee. He
holds a B.A. degree from the University of the City of New York and J.D. degree
from Brooklyn Law School.
Robert A. Barrows is Senior Vice President and Chief Financial Officer of
Berkshire Mortgage Finance. Mr. Barrows has held several positions within The
Berkshire Group since joining the company in 1983 and is currently responsible
for accounting, financial reporting, treasury and management information systems
for Berkshire Mortgage Finance. 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.
Carol J.C. Mills is Senior Vice President for Loan Management of Berkshire
Mortgage Finance and in this capacity, she is responsible for the Loan Servicing
and Asset Management functions of the Boston, Bethesda and Seattle offices of
Berkshire Mortgage Finance. She manages the estimated $7.2 billion portfolio of
loans. Ms. Mills joined Berkshire in December 1997 as Vice President and was
promoted to Senior Vice President in January 1999. From January 1989 through
November 1997, Ms. Mills was Vice President of First Winthrop Corporation and
Winthrop Financial Associates, in Cambridge, MA. Ms. Mills earned a B.A. degree
from Mount Holyoke College and a Master of Architecture degree from Harvard
University. Ms. Mills is a member of the Real Estate Finance Association, New
England Women in Real Estate and the Mortgage Bankers Association.
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, 1999, no person owned of record or was known by the General
Partners to own beneficially more than 5% of the Partnership's 12,770,261
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)].*
Casa Marina Apartments
(10.3) 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)].*
(10.4) 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)].*
(10.5) 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)].*
Harbor Club Apartments
(10.6) 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)].*
(10.7) 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 Registrant's Report on Form
10-Q for the quarter ended March 31,1990 (File No. 0-17691)].*
Royal Palm Place
(10.8) Prospectus for FNMA Pool No. MB-109057. [Exhibit 10.45 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 0-17691)].*
(10.9) 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)].*
(10.10) 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)].*
(10.11) 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)].*
(10.12) Amended and Restated Subordinated Promissory Note by and
between Royal Palm, Ltd. and Krupp Insured Plus-III Limited
Partnership.[Exhibit 10.49 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 (File No.
0-17691)].*
* Incorporated by reference
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1999, 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 9th day of March,
2000
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
By: Krupp Plus Corporation,
a General Partner
By: /s/ Douglas Krupp
Douglas Krupp, President, 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 9th day of March, 2000.
Signatures Title(s)
/s/ Douglas Krupp President, Co-Chairman (Principal Executive Officer),
Douglas Krupp and Director of Krupp Plus Corporation, a General Partner
/s/ George Krupp Co-Chairman (Principal Executive Officer) and Director
George Krupp of Krupp Plus Corporation, a General Partner.
/s/ Peter F. Donovan Senior Vice President of Krupp Plus Corporation,
Peter F. Donovan a General Partner
/s/ Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Plus
Robert A. Barrows 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, 1999
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Balance Sheets at
December 31, 1999 and 1998 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8 - F-14
Schedule IV - Mortgage Loans on Real Estate F-15 - F-16
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:
In our opinion, the accompanying balance sheets and the related statements of
income and comprehensive income, of partners' equity and of cash flows, and
Schedule IV, present fairly, in all material respects, the financial position of
Krupp Insured Plus Limited Partnership (the "Partnership") at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with auditing
principles generally accepted in the United States. These financial statements
are the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 17, 2000
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
Participating Insured Mortgages ("PIMs")
(Notes B, C, and H) $ 34,929,389 $ 70,497,441
Mortgage-Backed Securities and insured
mortgages ("MBS")(Notes B, D and H) 12,948,849 15,598,230
Total mortgage investments 47,878,238 86,095,671
Cash and cash equivalents (Notes B, C and H) 19,237,377 6,845,229
Interest receivable and other assets 645,696 588,019
Prepaid acquisition fees and expenses, net of
accumulated amortization of $2,431,337 and
$4,339,027, respectively (Note B) 490,134 1,300,234
Prepaid participation servicing fees, net of
accumulated amortization of $713,125 and
$1,317,338, respectively (Note B) 175,062 471,528
Total assets $ 68,426,507 $ 95,300,681
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 19,548 $ 161,439
Partners' equity (deficit) (Notes A, C and E):
Limited Partners 68,593,209 94,969,742
(12,770,261 Units outstanding)
General Partners (187,219) (157,989)
Accumulated Comprehensive Income (Note B) 969 327,489
Total Partners' equity 68,406,959 95,139,242
Total liabilities and Partners' equity $ 68,426,507 $ 95,300,681
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Revenues:(Notes B, C and D)
Interest income - PIMs:
Basic interest $ 4,209,758 $ 6,194,599 $ 10,066,327
Participation interest 1,000,885 2,092,572 5,996,197
Interest income - MBS 1,071,160 1,694,779 2,389,509
Other Interest income 488,332 800,504 444,390
Total revenues 6,770,135 10,782,454 18,896,423
Expenses:
Asset management fee to an affiliate (Note F) 508,943 753,279 1,217,413
Expense reimbursements to affiliates (Note F) 74,461 44,473 129,348
Amortization of prepaid fees and expenses (Note B) 1,106,566 2,064,507 2,452,816
General and administrative 149,589 206,872 203,323
Total expenses 1,839,559 3,069,131 4,002,900
Net income (Notes E and G) 4,930,576 7,713,323 14,893,523
Comprehensive income:
Net Change in unrealized gain on MBS (326,520) (816,847) 1,049,719
Total Comprehensive Income $ 4,604,056 $6,896,476 $ 15,943,242
Allocation of net income (Notes E and G):
Limited Partners $ 4,782,659 $7,481,923 $ 14,446,717
Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ .37 $ .59 $ 1.13
General Partners $ 147,917 $ 231,400 $ 446,806
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, 1999, 1998 and 1997
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
Balance at December 31, 1996 $ 184,524,613 $ (152,612) $ 94,617 $ 184,466,618
Net income 14,446,717 446,806 - 14,893,523
Quarterly distributions (15,324,194) (373,032) - (15,697,226)
Special distributions (11,237,742) - - (11,237,742)
Change in unrealized gain on MBS - - 1,049,719 1,049,719
Balance at December 31, 1997 172,409,394 (78,838) 1,144,336 173,474,892
Net income 7,481,923 231,400 - 7,713,323
Quarterly distributions (11,110,042) (310,551) - (11,420,593)
Special distributions (73,811,533) - - (73,811,533)
Change in unrealized gain on MBS - - (816,847) (816,847)
Balance at December 31, 1998 94,969,742 (157,989) 327,489 95,139,242
Net income 4,782,659 147,917 - 4,930,576
Quarterly distributions (9,705,323) (177,147) - (9,882,470)
Special distributions (21,453,869) - - (21,453,869)
Change in unrealized gain on MBS - - (326,520) (326,520)
Balance at December 31, 1999 $ 68,593,209 $ (187,219) $ 969 $ 68,406,959
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, 1999, 1998 and 1997
1999 1998 1997
Operating activities:
Net income $ 4,930,576 $ 7,713,323 $14,893,523
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of MBS premium - - 92,322
Amortization of prepaid fees and expenses 1,106,566 2,064,507 2,452,816
Shared Appreciation Interest and prepayment premium (828,829) (1,260,785) (4,460,075)
Changes in assets and liabilities:
Decrease (increase) in interest
receivable and other assets (57,677) 361,599 284,349
Increase (decrease) in liabilities (141,891) (9,129) 151,852
Net cash provided by operating activities 5,008,745 8,869,515 13,414,787
Investing activities:
Principal collections on PIMs including
Shared Appreciation Interest and prepayment premium
of $828,829 in 1999, $1,249,085 in 1998, and $4,460,075
in 1997, respectively 36,396,881 34,917,539 39,674,931
Principal collections on MBS including a
prepayment premium of $11,700 in 1998 2,322,861 12,817,080 4,651,874
Net cash provided by investing activities 38,719,742 47,734,619 44,326,805
Financing activities:
Special distributions (21,453,869) (73,811,533) (11,237,742)
Quarterly distributions (9,882,470) (11,420,593) (15,697,226)
Net cash used for financing activities (31,336,339) (85,232,126) (26,934,968)
Net (decrease) increase in cash and cash equivalents 12,392,148 (28,627,992) 30,806,624
Cash and cash equivalents, beginning of period 6,845,229 35,473,221 4,666,597
Cash and cash equivalents, end of period $ 19,237,377 $ 6,845,229 $ 35,473,221
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 was organized for the purpose of
investing in multi-family loans and mortgage backed securities. 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. In addition, Krupp
Depository owns one hundred units.
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):
MBS
The Partnership, in accordance with Financial Accounting Standards Board's
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"), classifies its MBS portfolio as available-for-sale. As
such the Partnership carries its MBS at fair market value and reflects any
unrealized gains (losses) as a separate component of Partners' Equity. The
Partnership amortizes purchase premiums or discounts over the life of the
underlying mortgages using the effective interest method.
Effective January 1, 1998 the Partnership adopted Statement of Financial
Accounting Standards No. 130, 'Reporting Comprehensive Income' (FAS 130). FAS
130 established standards for reporting and displaying comprehensive income and
its components. FAS 130 requires comprehensive income and its components, as
recognized under accounting standards, to be displayed in a financial statement
with the same prominence as other financial statements, if material.
Accordingly, unrealized gains (losses) on the Partnership's available-for sale
securities have been included in other comprehensive income.
The Federal Housing Administration (FHA) insured mortgage is carried at
amortized cost. The Partnership holds this loan at amortized cost since it is
fully insured by the FHA.
PIMs
The Partnership accounts for its MBS portion of a PIM in accordance with FAS 115
under the classification of held to maturity. The Partnership carries the
Government National Mortgage Association (GNMA) or Fannie Mae MBS at amortized
cost.
Basic interest on PIMs is recognized based on the stated coupon rate of the GNMA
or Fannie Mae MBS. Participation interest is recognized as earned and when
deemed collectible by the Partnership
Cash and 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 commercial paper and money market
funds with a commercial bank and has not experienced any loss to date on its
invested cash.
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Prepaid Fees and Expenses
Prepaid fees and expenses 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 payoff of the
underlying mortgage.
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 GNMA loan and at closing if a Fannie Mae 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, contingent assets and
liabilities and revenues and expenses during the period. Actual results could
differ from those estimates.
C. PIMs
At December 31, 1999 and 1998, the Partnership had investments in three PIMs and
six PIMs, respectively. The Partnership's PIMs consist of a GNMA or Fannie Mae
MBS representing the securitized first mortgage loan on the underlying property
and a participation interest in the revenue stream and appreciation of the
underlying property above specified base levels.
The borrower conveys this participation feature to the Partnership generally
through a subordinated multifamily mortgage (the "Agreement"). The Partnership
receives guaranteed monthly payments of principal and interest on the GNMA and
Fannie Mae MBS and HUD insures the first mortgage loan underlying the GNMA MBS.
The borrower usually can not prepay the first mortgage loan during the first
five years and may prepay the first mortgage loan thereafter subject to a 9%
prepayment premium in years six through nine, a 1% prepayment premium in year
ten and no prepayment premium thereafter. The Partnership may receive interest
related to its participation interest in the underlying property, however, this
amount is neither insured nor guaranteed.
Generally, the participation features consist of the following: (i) "Minimum
Additional Interest" rates 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 30%
to 35% of any increase in the value of the underlying property in excess of a
specified base. Payment of Minimum Additional Interest and Shared Income
Interest from the operations of the property is limited to 50% of net revenue or
surplus cash as defined by Fannie Mae or HUD, respectively.
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMs, Continued
The total amount of Minimum Additional Interest, Shared Income Interest and
Shared Appreciation Interest payable on the maturity date by the underlying
borrower usually can not exceed 50% of any increase in value of the property.
However, generally any net proceeds from a sale or refinancing 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.
In December of 1999, the Partnership received a prepayment on the Marina Shores
PIM in the amount of $14,491,746 along with $426,321 of Shared Appreciation
Interest. A special distribution in the amount of $1.17 per Limited Partner
Interest was paid during January 2000.
In August 1999, the Partnership received a prepayment of the Mill Ponds
Apartments PIM in the amount of $9,751,550 representing the outstanding
principal balance. In addition to the prepayment, the Partnership received
$402,508 of Shared Appreciation Income and $172,464 of Minimum Additional
Interest and Shared Income Interest in July, 1999. The Partnership distributed
the capital transaction proceeds from this prepayment to the Limited Partners
through a special distribution on September 9, 1999 in the amount of $.80 per
limited partner interest.
In January 1999, the Partnership received a prepayment of the Windsor Court
Apartments PIM in the amount of $10,876,051 representing the outstanding
principal balance. In addition to the prepayment, the Partnership received
$243,620 of Shared Appreciation Interest and prepayment premiums and $196,828 of
Minimum Additional Interest and Shared Income Interest during December 1998. The
Partnership distributed the capital transaction proceeds from this prepayment to
the Limited Partners through a special distribution on February 26, 1999 in the
amount of $.88 per limited partner interest.
On October 15, 1998, the Partnership received a prepayment of the Ironwood
Apartments PIM in the amount of $4,844,256 plus a prepayment premium of $325,000
and Shared Income Interest of $226,507, which was received in September 1998.
The Partnership made a special distribution of $.41 per Limited Partner interest
from this prepayment on December 2, 1998.
On September 23, 1998 the Partnership received a prepayment of the Woodbine
Apartments PIM in the amount of $4,180,266, plus a prepayment premium of
$376,224 and Shared Income Interest of $109,939. The Partnership made a special
distribution of $.36 per Limited Partner interest from this prepayment on
December 4, 1998.
On June 15, 1998, the Partnership received a prepayment of the Sundance
Apartments PIM in the amount of $7,187,778. The property had been operating
under a modification agreement with the Partnership; consequently no prepayment
premium or participation interest was due at the time of the prepayment. The
Partnership made a special distribution of $.56 per Limited Partner interest
from this prepayment on July 24, 1998.
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMs, Continued
On February 17, 1998, the Partnership received a prepayment of the Rosewood
Apartments PIM in the amount of $5,047,132. In addition, during January 1998 the
Partnership received Minimum Additional Interest and Shared Income Interest of
$151,263 and a prepayment premium of $304,242. The Partnership made a special
distribution of $.42 per Limited Partner interest from this prepayment on April
13, 1998.
In January 1998, the Partnership received proceeds from the Fourth Ward Square
and Meredith Square Apartment PIM prepayments in the amounts of $7,067,690 and
$4,688,895 respectively. In addition, during December 1997 the Partnership
received $397,462 of Minimum Additional Interest and Shared Income Interest
earned on property operations for these properties, a $422,001 prepayment
premium on Meredith Square and Shared Appreciation Interest of $697,500 on
Fourth Ward Square. The Partnership made a special distribution of $1.01 per
Limited Partner interest from these prepayments on February 27, 1998.
At December 31, 1999 and 1998 there were no loans within the Partnership's
portfolio that were delinquent as to principal or interest.
Listed in the chart is a summary of the Partnership's PIM investments at
December 31, 1999 and 1998:
Aggregate Permanent Aggregate Outstanding
Original Number Interest Maturity Principal Balance at
Issuer Principal of PIMs Rate Range Date Range December 31,
1999 1998
Fannie Mae $ 15,978,742 1 7.875% 4/06 $ 14,946,849 $ 35,817,597
(a) (a)
GNMA 20,661,700 2 8% 12/30 -10/31 19,982,540 34,679,844
$ 36,640,442 3 $ 34,929,389 $ 70,497,441
(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 Fannie Mae
mortgage-backed security ("MBS") and increased its participation
percentage in income and appreciation from 25% to 30%. The
Partnership will receive interest only payments on the Fannie Mae
MBS at interest rates ranging from 7.875% to 8.775% per annum
through maturity. The Partnership will receive its pro-rata share
of the annual principal payment totaling $250,000 due in January,
2000.
The underlying mortgages of the PIMs are collateralized by multi-family
apartment complexes located in two states. The apartment complexes range in size
from 162 to 377 units.
D. MBS
On June 19, 1998, the Partnership received a prepayment of the Brookside MBS in
the amount of $2,944,531, representing the outstanding principal balance and a
prepayment premium of $11,700. On April 24, 1998, the Partnership received a
prepayment of the Regency Park MBS in the amount of $6,232,557, representing the
outstanding principal balance. The Partnership made a special distribution of
$.72 per Limited Partner interest from these prepayments on July 24, 1998.
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
D. MBS, continued
At December 31, 1999, the Partnership's MBS portfolio had an amortized cost of
$4,915,630 and unrealized gains and losses of $89,974 and 89,005, respectively.
At December 31, 1998, the Partnership's MBS portfolio had an amortized cost of
$7,194,406 and unrealized gains of $327,489. At December 31, 1999 and 1998 the
Partnership had an insured mortgage loan at an amortized cost of $8,032,250 and
$8,076,335, respectively. The MBS portfolio has maturity dates ranging from 2016
to 2035.
Unrealized
Maturity Date Fair Value Gain/(Loss)
2001 - 2005 $ - $ -
2006 - 2010 - -
2011 - 2035 12,824,831 (123,049)
Total $ 12,824,831 $ (123,049)
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, 1999, the following cumulative partner contributions and
allocations have been made since inception of the Partnership:
Corporate Accumulated Total
Limited General Comprehensive Partners'
Unitholders Partner Partners Income Equity
Capital contributions $254,686,736 $ 2,000 $ 3,000 $ - $254,691,736
Syndication costs (15,834,700) - - - (15,834,700)
Quarterly Distributions (182,391,852) (1,539) (4,242,470) - (186,635,861)
Special Distributions (118,889,270) (931) - - (118,890,201)
Net income 131,021,670 1,095 4,052,251 - 135,075,016
Unrealized gain on MBS - - - 969 969
Total at December 31,
1999 $68,592,584 $ 625 $ (187,219) $ 969 $ 68,406,959
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
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
remaining face value of the Partnership's 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 1999 federal income tax
return is as follows:
Net income per statement of income $ 4,930,576
Less: Book to tax difference for amortization
of prepaid fees and expenses (533,562)
Net income for federal income tax purposes $ 4,397,014
The allocation of the net income for federal income tax purposes for 1999 is as
follows:
Portfolio
Income
Unitholders $ 4,289,934
Corporate Limited Partner 34
General Partners 107,046
$ 4,397,014
During the years ended December 31, 1999, 1998 and 1997 the average per Unit net
income to the Unitholders for federal income tax purposes was $.34, $.57 and
$1.11, respectively.
The basis of the Partnership's assets for financial reporting purposes is less
than its tax basis by approximately $1,129,000 and $1,336,000 at December 31,
1999 and 1998, respectively. The basis of the Partnership's liabilities for
financial reporting purposes are the same as its tax basis at December 31, 1999
and 1998, 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.
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
H. Fair Value Disclosures of Financial Instruments, continued
MBS
The Partnership estimates the fair value of MBS based on quoted market prices
while it estimates the fair value of insured mortgages based on quoted prices of
MBS with similar interest rates. Based on the estimated fair value determined
using these methods and assumptions, the Partnership's investments in MBS and
insured mortgages had gross unrealized gains and losses of approximately $90,000
and $213, 000 at December 31, 1999 and $327,000 and $0 at December 31, 1998
PIMs
There is no active trading market for these investments. Management estimates
the fair value of the PIMs using quoted market prices of MBS having a similar
interest rate. Management does not include any participation interest in the
Partnership's estimated fair value arising from the properties, because
Management does not believe it can predict the time of realization of the
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 of approximately $176,000 and $1,753,000 at December 31, 1999,
and December 31, 1998, respectively.
At December 31, 1999 and 1998, the Partnership estimates the fair values of its
financial instruments as follows:
(rounded to thousands)
1999 1998
Fair Carrying Fair Carrying
Value Value Value Value
Cash and cash equivalents $ 19,237 $ 19,237 $ 6,845 $ 6,845
MBS and insured mortgages 12,825 12,949 15,598 15,598
PIMs 35,105 34,929 72,250 70,497
$ 67,167 $ 67,115 $ 94,693 $ 92,940
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1999
_
Approx.
Normal
Maturity Monthly Original Current Carrying
Interest Date Payment Face Face Amount at
PIMs (a) Rate (b) (i) (j) Amount Amount 12/31/99 (m)
GNMA
Casa Marina 8.00% 12/15/30 $ 49,000 $ 7,099,700 $ 6,798,238 $ 6,798,238
Apts. (d) (f) (g)
Miami, FL
Harbor Club 8.00% 10/15/31 95,000 13,562,000 13,184,302 13,184,302
Apts. (d) (e)
Ann Arbor, MI (h)
20,661,700 19,982,540 19,982,540
Fannie Mae
Royal Palm Pl. 7.875% 4/1/06 97,000 15,978,742 14,946,849 14,946,849
Apts (c) (k) (l)
Kendall, FL
Total $ 36,640,442 $34,929,389 $34,929,389
(a) The Participating Insured Mortgages ("PIMs") consist of either a
mortgage-backed security ("MBS") issued and guaranteed by the
Fannie Mae or an MBS issued and guaranteed by the Government
National Mortgage Association ("GNMA") and a subordinated
multifamily mortgage 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 Fannie Mae
MBS. The Partnership may also receive additional interest,
consisting of (i) Minimum Additional Interest (ii) Shared Income
Interest and (iii) Shared Appreciation Interest
(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 30% of any increase in
the value of the project over the specified base value.
(h) Shared appreciation interest is based on 35% of any increase in
the value of the project over the specified base value.
(i) The Partnership's GNMA MBS have call provisions, which allow the
Partnership to accelerate their respective maturity date.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE, continued
December 31, 1999
(j) The normal monthly payment consisting of principal and interest
is payable monthly at level amounts over the term of the GNMA
MBS. The normal monthly payment consisting of principal and
interest for Fannie Mae 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 and
Fannie Mae MBS may not be prepaid during the first five years and
may generally be prepaid subject to a 9% prepayment premium in
years six through nine, a 1% prepayment premium in year ten and
no prepayment premium after year ten.
(k) During December 1995, the Partnership agreed to a modification of
the Royal Palm PIM. The Partnership received a reissued Fannie
Mae mortgage-backed security ("MBS") and increased its
participation percentage in income and appreciation from 25% to
30%. The Partnership will receive its pro-rata share of the
annual principal payment totaling $250,000 due in January 2000.
(l) The approximate principal balance due at maturity for the Royal
Palm PIM is $14,946,849
(m) The aggregate cost of PIMs for federal income tax purposes is
$34,929,389.
A reconciliation of the carrying value of PIMs for each of the three years in
the period ended December 31, 1999 is as follows:
1999 1998 1997
Balance at beginning of period $ 70,497,441 $104,165,895 $139,380,751
Deductions during period:
Principal collections (35,568,052) (33,668,454) (35,214,856)
Balance at end of period $ 34,929,389 $ 70,497,441 $104,165,895
(Unaudited) 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, 1998 and
the period from inception through December 31, 1998. 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
12/31/99 12/31/99
Distributable Cash Flow:
Income for tax purposes $ 4,397 $ 136,206
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 1,640 14,673
MBS premium amortization - 92
Acquisition expenses paid from offering
proceeds charged to operations - 184
Shared Appreciation Interest/prepayment premiums (829) (8,363)
Gain on sale of MBS - (253)
Total Distributable Cash Flow ("DCF") $ 5,208 $ 142,539
Limited Partners Share of DCF $ 5,052 $ 138,263
Limited Partners Share of DCF per Unit $ .39 $ 10.83(c)
General Partners Share of DCF $ 156 $ 4,276
Net Proceeds from Capital Transactions:
Principal collections and prepayments
(including Shared Appreciation Interest
and prepayment premiums) on PIMs $ 36,397 $ 141,926
Principal collections and sales proceeds on MBS
(including prepayment premiums and gain on sale) 2,323 82,937
Reinvestment of MBS and PIM principal collections - (41,960)
Total Net Proceeds from Capital Transactions $ 38,720 $ 182,903
Cash available for distribution
(DCF plus proceeds from Capital transactions) $ 43,928 $ 325,442
Distributions:
Limited Partners(includes special distribution) $ 46,100 (a) $ 318,651 (b)
Limited Partners Average per Unit $ 3.61 (a) $ 24.95 (b)(c)
General Partners $ 156 (a) $ 4,276 (b)
Total Distributions $ 46,256 (a) $ 322,927 (b)
(a) Represents all distributions paid in 1999 except the February
1999 distribution and includes the special distribution paid in
January 2000 and an estimate of the distribution to be paid in
February 2000.
(b) Includes the special distribution paid in January 2000 and an
estimate of the distribution to be paid in February 2000.
(c) Limited Partners average per Unit return of capital as of
February 2000 is $14.12 [$24.95 - $10.83] 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.