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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 SECURITIESx
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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
P a r t n e r 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 9-15.
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 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, 1996, 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, 1996 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.
During 1996, the Partnership made a special distribution consisting
primarily of principal proceeds from the Friendly Hills PIM prepayment.
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, 1996 and 1995:
1996 1995
Average Average
Amount Per Unit Amount Per Unit
Quarterly Distributions
Limited Partners $15,324,193 $1.20 $15,324,192 $1.20
General Partners 410,687 421,051
15,734,880 $15,745,243
Special Distributions
Limited Partners 12,387,057 $ .97 -
Total Distributions $28,121,937 $15,745,243
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.
1996 1995 1994 1993 1992
Total revenues $ 15,578,710 $ 15,728,883 $ 15,725,544 $ 16,164,307 $17,217,037
Net income 12,021,035 12,335,057 12,197,925 12,647,339 13,486,347
Net income allocated
to:
Limited Partners 11,660,404 11,965,005 11,831,987 12,267,919 13,081,757
Average per Unit .91 .94 .93 .96 1.02
General Partners 360,631 370,052 365,938 379,420 404,590
Total assets at
December 31 184,485,334 201,760,285 203,907,975 213,344,580 222,293,447
Distributions to:
Limited Partners
Quarterly 15,324,193 15,324,192 21,242,039 21,183,876 21,213,068
Average per Unit 1.20 1.20 1.66 1.66 1.66
Special 12,387,057 - - - -
Average per Unit .97 - - - -
General Partners 410,687 421,051 400,197 411,646 453,383
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.
Liquidity and Capital Resources
The most significant demands on the Partnership's liquidity are
quarterly distributions paid to investors of approximately $3.9 million per
quarter in 1996. 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 $29.2 million in
1996. 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 May 1996, the Partnership entered into an agreement with the
borrower of the Sundance Apartments PIM that reduces the monthly interest
paid by the borrower by 1% per annum and modifies the participation
features. The modification will reduce the monthly cash flow of the
Partnership, but will not materially affect the Partnership s liquidity.
The Partnership s invested assets decreased as a result of the
prepayment of the Friendly Hills PIM and the subsequent distribution of
those proceeds to investors in August 1996. In addition to the
outstanding principal balance of approximately $11.3 million, the
Partnership received a prepayment penalty of $1,013,411 and all Shared
Income and Minimum Additional Interest due of $126,820. The Partnership
used the capital transaction proceeds from this prepayment to fund a
special distribution of $.97 per Limited Partner interest in August.
During 1996, the owners of five properties in the portfolio informed the
Partnership of their intention to sell their properties, transactions that
may take place during 1997. The potential sale of the three Paddock
properties in Florida would result in a principal repayment of
approximately $27 million and the potential sale of the two Paces
properties in North Carolina would result in a principal repayment of
approximately $7.6 million. In addition to the repayment of the
outstanding principal on the PIMs, the Partnership would receive the
greater of a 9% prepayment penalty or Shared Appreciation Interest as well
as any unpaid Minimum Additional or Shared Income Interest. If these sales
take place, the Partnership will distribute the capital transaction
proceeds from these prepayments to investors through special distributions.
The General Partners would then review the anticipated cash flows from the
remaining investments to determine whether the current distribution rate
would be sustainable or if an adjustment would be necessary. If the
General Partners determine the distribution rate needs to be adjusted, the
timing of the adjustment would depend on when these PIMs prepay.
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 annual principal payments totaling $250,000 each year for four
years beginning in January 1997. 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.
Many of the other properties in the portfolio had solid performances
during 1996. Average occupancy at most of the properties exceeded 90%, and
moderate increases in market rental rates were achieved at many of the
properties. Twelve properties generated sufficient operating cash to reach
the threshold for payment of participation interest to the Partnership
during 1996.
Two other properties experienced operating difficulties over the past
year, primarily due to soft markets. Woodbine Apartments occupancy
dropped from the high 90% range during 1996 to the mid 80% range as many
new apartments were added to the multifamily housing stock. Boise, Idaho
is an active construction market, and more apartments that are scheduled to
be built will exacerbate the over- built market. Despite its good location
and quality, Woodbine has been severely affected by the glut of new
product. Royal Palm Place Apartments is located in the very competitive
Kendall, Florida market. Deep rental concessions as well as increased
operating and replacement expenses necessary to market the property to
prospective residents resulted in an operating deficit by year-end, which
was funded by the borrower. The General Partners are monitoring both of
these properties closely.
For the first five years of the PIMs the borrowers are prohibited from
repaying. For the second five years, the borrowers 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 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.
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, 1996 and the period from inception through December 31,
1996. The General Partners provide certain of the information below to
meet requirements of the Partnership Agreement and because they believe
that it is an appropriate supplemental measure of operating performance.
However, Distributable Cash Flow and Net Cash Proceeds from Capital
Transactions should not be considered by the reader as a substitute to net
income as an indicator of the Partnership's operating performance or to
cash flows as a measure of liquidity.
(Amounts in thousands, except
per Unit amounts)
Inception
Year Ended Through
12/31/96 12/31/96
Distributable Cash Flow:
Income for tax purposes $12,739 $109,834
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 1,815 7,884
Acquisition expenses paid from offering
proceeds charged to operations - 184
Shared appreciation income/prepayment penalties (1,013) (1,813)
Gain on sale of MBS - (253)
Total Distributable Cash Flow ("DCF") $13,541 $115,836
Limited Partners Share of DCF $13,135 $112,361
Limited Partners Share of DCF per Unit $ 1.03 $ 8.80 (c)
General Partners Share of DCF $ 406 $ 3,475
Net Proceeds from Capital Transactions:
Principal collections and prepayments
(including Shared appreciation income) on PIMs $13,098 $ 30,936
Principal collections and sales proceeds on MBS
(including gain on sale) 2,601 63,145
Reinvestment of MBS and PIM principal collections - (41,960)
Total Net Proceeds from Capital Transactions $15,699 $ 52,121
Cash available for distribution
(DCF plus proceeds from Capital transactions) $29,240 $167,957
Distributions:
Limited Partners(includes special distribution) $27,712 (a) $162,472 (b)
Limited Partners Average per Unit $ 2.17 (a) $ 12.72 (b)(c)
General Partners $ 406 (a) $ 3,475 (b)
Total Distributions $28,118 (a) $165,947 (b)
(a) Represents all distributions paid in 1996 except the February
1996 distri-bution and includes an estimate of the distribution
to be paid in February 1997.
(b) Includes distribution to be paid in February 1997.
(c) Limited Partners average per Unit return of capital as of
February 1996 is $3.92 [$12.72 - $8.80]. 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, 1996, 1995 and 1994.
(Amounts in Thousands)
1996 1995 1994
Interest income on PIMs:
Base interest $11,262 $12,078 $11,985
Participation interest received 939 544 302Interest income on MBS 2,706 2,913 2,665
Interest income - other 238 195 449
Partnership expenses (1,604) (1,772) (1,964)
Distributable Cash Flow $13,541 $13,958 $13,437
Prepayment penalty 1,013 - -Accrued Participation income
(Accrued Participation income
received) (580) - 324
Amortization of prepaid expenses
and fees (1,953) (1,623) (1,563)
Net income $12,021 $12,335 $12,198
Net income did not change materially during any of the three years in
the periods ended December 31, 1996. However, base interest decreased
approximately $817,000 or 6.8% during 1996 as compared to 1995 due
primarily to the Partnership having received the prepayment of the Friendly
Hills PIM and interest rate reductions on the Royal Palm Apartments and
Sundance Apartments PIM. Interest income on MBS decreased $207,000 in 1996
as compared to 1995, because principal collections reduced the outstanding
principal balance of the Partnership s MBS investments. Amortization
expense increased for the year ended December 31, 1996 as to the year ended
December 31, 1995, because the Partnership fully amortized the remaining
balances of prepaid fees and expenses associated with the Friendly Hills
PIM. These items were offset by an increase in participation and prepayment
penalty income of $828,000 which was primarily the result of receiving a
prepayment penalty from Friendly Hills PIM.
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. The MBS
acquisitions in 1995 reduced cash available for short-term investment which
resulted in a decline in interest income - other in 1995 as compared to
1994.
Partnership expenses have decreased for the three periods ended
December 31, 1996, due primarily to lower asset management fees,
expense reimbursements to affiliates, and general and administrative
expenses.
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 (50) Co-Chairman of the Board
George Krupp (52) Co-Chairman of the Board
Laurence Gerber (40) President
Peter F. Donovan (43) Senior Vice President
Robert A. Barrows (39) 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). Mr. Krupp also serves as Chairman of the Board and
Trustee of Krupp Government Income Trust and Krupp Government Income Trust
II.
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.
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
TrustII.
Peter F. Donovan is President of Berkshire Mortgage Finance and directs
the underwriting, servicing and asset management of a $3.9 billion multi-
family loan portfolio. Previously, 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.
Robert A. Barrows is Senior Vice President and Chief Financial Officer
of Berkshire Mortgage Finance and 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, 1996, 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)].*
(10.5) Modification agreement dated May 23, 1996 by and
between Sundance Associates II, Ltd. and Krupp Insured
Plus-III Limited Partnership [Exhibit 10.1 to
Registrant's Report on Form 10-Q for the quarter
ended June 30, 1996 (File No. 0-17691)].*
Woodbine Apartments
(10.6) 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)].*
(10.7) 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)].*
(10.8) 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)].*
(10.9) 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
(10.10) 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)].*
(10.11) 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)].*
(10.12) 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)].*
(10.13) 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
(10.14) 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)].*
(10.15) 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)].*
(10.16) 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
(10.17) 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).*
(10.18) 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)].*
(10.19) 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)].*
(10.20) Subordinated Multifamily Deed to Secure Debt
(including Subordinated Promissory Note) dated
September 28, 1989 between Knight Davidson Rosewood
I, 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
(10.21) 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).*
(10.22) 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
(10.23) 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)].*
(10.24) 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
(10.25) 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)].*
(10.26) 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
(10.27) 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)].*
(10.28) 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
(10.29) 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)].*
(10.30) 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
(10.31) 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)].*
(10.32) 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
(10.33) 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)].*
(10.34) 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
(10.35) 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)].*
(10.36) 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
(10.37) 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)].*
(10.38) 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
(10.39) 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)].*
(10.40) 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
(10.41) 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)].*
(10.42) 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
(10.43) 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)].*
(10.44) 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)].*
(10.45) 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
(10.46) 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)].*
(10.47) 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)].*
(10.48) 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)].*
(10.49) 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)].*
(10.50) 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, 1996, 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 5th day of February, 1997.
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 5th day of February,
1997.
Signatures Title(s)
/s/Douglas Krupp Co-Chairman (Principal Executive
Douglas Krupp (Officer and Director of Krupp
Plus Corporation, a General Partner.
/s/ George Krupp Co-Chairman (Principal Executive
George Krupp (Officer and Director of Krupp Plus
Corporation, a General Partner.
/s/ Laurence Gerber President of Krupp Plus
Laurence Gerber Corporation, a 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
Robert A. Barrows Officer 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, 1996
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Balance Sheets at December 31, 1996 and 1995 F-4
Statements of Income for the Years Ended December 31, 1996, 1995
and 1994 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1996, 1995 and 1994 F-6
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 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, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996 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 30, 1997
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
Participating Insured Mortgages ("PIMs")
(Notes B, C and H) $139,380,751 $151,465,652
Mortgage-Backed Securities and insured
mortgages ("MBS")(Notes B, D and H) 32,914,934 36,693,963
Total mortgage investments 172,295,685 188,159,615
Cash and cash equivalents (Notes B and H) 4,666,597 3,433,885
Interest receivable and other assets 1,233,967 1,924,402
Prepaid acquisition expenses, net of
accumulated amortization of $6,717,429 and
$6,091,012, respectively (Note B) 4,758,829 6,240,051
Prepaid participation servicing fees, net of
accumulated amortization of $2,272,992 and
$2,084,200, respectively (Note B) 1,530,256 2,002,332
Total assets $184,485,334 $201,760,285
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 18,716 $ 14,756
Partners' equity (deficit) (Notes A and E):
Limited Partners 184,524,613 200,575,459
(12,770,261 Units outstanding)
General Partners (152,612) (102,556)
Unrealized gain on MBS (Note B) 94,617 1,272,626
Total Partners' equity 184,466,618 201,745,529
Total liabilities and Partners' equity $184,485,334 $201,760,285
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:(Notes B, C and D)
Interest income - PIMs:
Base interest $11,262,507 $12,078,125 $11,985,295
Participation interest 1,371,889 543,613 625,632
Interest income - MBS 2,705,932 2,912,632 2,665,309
Interest income - other 238,382 194,513 449,308
Total revenues 15,578,710 15,728,883 15,725,544
Expenses:
Asset management fee to an affiliate
(Note F) 1,352,679 1,412,787 1,415,178
Expense reimbursements to affiliates
(Note F) 123,639 181,503 382,735
Amortization of prepaid fees and
expenses (Note B) 1,953,298 1,622,438 1,562,511
General and administrative 128,059 177,098 167,195
Total expenses 3,557,675 3,393,826 3,527,619
Net income (Notes E and G) $12,021,035 $12,335,057 $12,197,925
Allocation of net income (Notes E and G):
Limited Partners $11,660,404 $11,965,005 $11,831,987
Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ .91 $ .94 $ .93
General Partners $ 360,631 $ 370,052 $ 365,938
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, 1996, 1995 and 1994
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
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
Net income 11,660,404 360,631 - 12,021,035
Quarterly distributions (15,324,193) (410,687) - (15,734,880)
Special distributions (12,387,057) - - (12,387,057)
Change in unrealized gain on MBS - - (1,178,009) (1,178,009)
Balance at December 31, 1996 $184,524,613 $(152,612) $ 94,617 $184,466,618
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, 1996, 1995 and 1994
1996 1995 1994
Operating activities:
Net income $12,021,035 $12,335,057 $12,197,925
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 1,953,298 1,622,438 1,562,511
Prepayment penalty (1,013,411) - -
Changes in assets and liabilities:
Decrease (increase) in interest
receivable and other assets 690,435 163,681 (416,775)
Increase (decrease) in liabilities 3,960 (10,130) 7,706
Net cash provided by operating
activities 13,655,317 14,111,046 13,351,367
Investing activities:
Principal collections on PIMs including
prepayment penalty of $1,013,411 in 1996 13,098,312 972,384 811,733
Investment in MBS - (1,027,567) (11,278,411)
Principal collections on MBS 2,601,020 1,866,085 5,161,680
Net cash provided by (used for)
investing activities 15,699,332 1,810,902 (5,304,998)
Financing activities:
Special distributions (12,387,057) - -
Quarterly distributions (15,734,880) (15,745,243) (21,642,236)
Net cash used for financing
activities (28,121,937) (15,745,243) (21,642,236)
Net increase (decrease)in cash and
cash equivalents 1,232,712 176,705 (13,595,867)
Cash and cash equivalents, beginning of
period 3,433,885 3,257,180 16,853,047
Cash and cash equivalents, end of period $ 4,666,597 $ 3,433,885 $ 3,257,180
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 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 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, contingent assets and liabilities and 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.
During May 1996, the Partnership entered into an agreement with the
borrower of the Sundance Apartments PIM that reduces the monthly
interest paid by the
borrower by 1% per annum and modifies the participation features. The
modification will reduce the monthly cash flow of the Partnership, but
will not materially affect the Partnership s liquidity.
Listed in the chart is a summary of the Partnership's PIM investments
at December 31, 1996 and 1995:
Aggregate Permanent Aggregate Outstanding
Original Number Interest Maturity Principal Balance at
Issuer Principal of PIMs Rate Range Date Range December 31,
1996 1995
FNMA $ 70,168,742
(a) 8 6.25%-8%
(a) 10/99 - 4/06
(a) $ 67,356,096 $ 67,790,969
GNMA 69,099,733
(b) 8 8%-8.50% 8/30 - 5/32 67,808,790 68,129,224
FHA 4,327,800 1 8.675% 1/31 4,215,865 15,545,459
$143,596,275 17 $139,380,751 $151,465,652
(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 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. Also, the Partnership will receive its pro-
rata share of annual principal payment totaling $250,000 due each
year for four years beginning in January 1997.
(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, 1996, the Partnership's MBS portfolio has an
amortized cost of $32,820,315 and unrealized gains and losses of
approximately $515,192 and $420,575, respectively. At December 31,
1995, the Partnership's MBS portfolio had a market value of
approximately $35,421,337 and unrealized gains and losses of
$1,278,148 and $5,522, respectively. The MBS portfolio has a
maturity dates ranging from 2010 to 2035.
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, 1996, the following cumulative partner
contributions and allocations have been made since inception of the
Partnership:
Corporate Total
Limited General Unrealized Partners'
Unitholders Partner Partners gain on MBS Equity
Capital contributions $254,686,736 $ 2,000 $ 3,000 $ - $254,691,736
Syndication costs (15,834,700) - - - (15,834,700)
Distributions (158,639,520) (1,369) (3,381,740) - (162,022,629)
Net income 104,310,580 886 3,226,128 - 107,537,594
Unrealized gain on MBS - - - 94,617 94,617
Total at December 31, 1996 $184,523,096 $ 1,517 $ (152,612) $ 94,617 $184,466,618
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
1996 federal income tax return is as follows:
Net income per statement of income $12,021,035
Add: Book to tax difference for participation
income 580,226
Book to tax difference for amortization
of prepaid expenses and fees 138,590
Net income for federal income tax purposes $12,739,851
The allocation of the net income for federal income tax purposes for
1996 is as follows:
Portfolio
Income
Unitholders $12,357,559
Corporate Limited Partner 97
General Partners 382,195
$12,739,851
During the years ended December 31, 1996, 1995 and 1994 the average per
Unit net income to the Unitholders for federal income tax purposes was
$1.00, $.99 and $.95, 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. Management does
not include any participation income in the Partnership s estimated
fair value arising from appreciation of 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 and
losses of $2,784,000 and $1,123,000 at December 31, 1996,
respectively, and gross unrealized gains and losses of $5,051,000
and $395,000 at December 31, 1995, respectively.
H. Fair Value Disclosures of Financial Instruments, Continued
At December 31, 1996 and 1995, the Partnership estimates the fair
values of its financial instruments as follows:
(rounded to thousands)
1996 1995
Cash and cash equivalents $ 4,667 $ 3,434
MBS 32,915 36,694
PIMs 141,042 156,122
$178,624 $196,250
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
__________
Approx.
Normal
Maturity Monthly Original Current Carrying
Interest Date Payment Face Face Amount at
PIMs (a) Rate (b) (j) (k) Amount Amount 12/31/96 (p)
GNMA
Casa Marina
Apts.
Miami, FL 8.00%
(d)(f)(h) 12/15/30 $ 49,000 $ 7,099,700 $ 6,924,266 $ 6,924,266
Fourth Ward Sq.
Apts.
Charlotte, NC 8.00%
(c)(f)(h) 11/15/31 50,000 7,250,000 7,106,209 7,106,209
Harbor Club
Apts.
Ann Arbor, MI 8.00%
(e)
(i)(l) 10/15/31 97,000 13,562,000 13,411,259 13,411,259
Ironwood Place
Apts.
Ann Arbor, MI 8.50%
(c)(f)(h) 8/15/30 37,000 4,997,603 4,889,470 4,889,470
Marina Shores
Apts.
VA Beach, VA 8.00%
(c)(f)(h) 5/15/32 104,000 15,000,000 14,721,129 14,721,129
Paddock Club Apts.
Tallahassee, FL 8.00%
(c)(f)(h) 3/15/32 60,000 8,600,000 8,440,794 8,440,794
Rosewood Apts.
Cartersville,GA 8.00%
(c)(f)(h) 2/15/31 36,000 5,197,314 5,076,104 5,076,104
Sundance Apts.
Miami, FL 8.50%
(c)(e)
(g)(n) 12/15/30 54,000 7,393,116 7,239,559 7,239,559
69,099,733 67,808,790 67,808,790
FNMA
Meridith
Square Apts.
Columbia, SC 8.00%
(c)(e)(g) 10/1/00 35,000(o) 4,900,000 4,726,828 4,726,828
Mill Ponds
Apts.
Naperville, IL 7.50%
(c)(f)(g) 6/1/00 70,000
(o) 10,450,000 10,003,149 10,003,149
Paces Arbor
Apts.
Raleigh, NC 7.50%
(c)(e)(g) 7/1/00
24,000
(o) 3,545,000
3,398,144 3,398,144
Paces Forest
Apts.
Raleigh, NC 7.50%
(c)(e)(g) 7/1/00
29,000
(o) 4,345,000
4,165,003 4,165,003
Paddock Club
Apts.
Jacksonville,FL 8.00%
(c)(e)(g) 1/1/01 60,000(o) 8,500,000
8,204,978 8,204,978
Paddock ParkII
Apts.
Ocala, FL 7.50%
(d)(e)(h) 3/1/00 $72,000
(o) 10,750,000 10,256,136 10,256,136
Royal Palm Pl.
Apts.
Kendall, FL 6.25%
(c)
(m) 4/1/06
111,000
(o)
15,978,742
15,491,579 15,491,579
Windsor Court
Apts.
Indianapolis,
IN 7.25%
(c)(e)
(g) 10/1/99 77,000
(o)
11,700,000
11,110,279 11,110,279
70,168,742
67,356,096 67,356,096
HUD
Woodbine Apts.
Boise, ID 8.68%
(c)(e)(g) 1/1/31 32,000 4,327,800 4,215,865 4,215,865
Total $143,596,275 $139,380,75 $139,380,751
(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
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. Also, the Partnership will receive its
pro-rata share of annual principal payments $250,000 due each
year for four years beginning in January 1997.
(n) On May 23, 1996, the Partnership entered into an agreement with
the borrower of the Sundance Apartments PIM that reduces the
monthly interest paid by the borrower by 1% per annum.
(o) 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
(p) The aggregate cost of PIMs for federal income tax purposes is
$139,380,751.
A reconciliation of the carrying value of PIMs for each of the three years
in the period ended December 31, 1996 is as follows:
1996 1995 1994
Balance at beginning of period $151,465,652 $152,438,036 $153,249,769
Deductions during period:
Principal collections (12,084,901) (972,384) (811,733)
Balance at end of period $139,380,751 $151,465,652 $152,438,036