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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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17691
Krupp Insured Plus-III Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3007489
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617)423-2233
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of
Depositary Receipts
representing Units of
Limited Partner Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: see Part IV, Item 14
The exhibit index is located on pages 8-12.
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 FHA mortgage loan and the mortgage loans
underlying the GNMA MBS.
Prior to June 22, 1995 the Partnership could reinvest or commit for
reinvestment proceeds received from prepayments or other realization of the
mortgages in new mortgages, but following that date, the Partnership must
distribute such proceeds 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 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, 1997, 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, 1997 was
approximately 11,400. 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 1997, the Partnership made special distributions consisting
primarily of principal proceeds from the Paces Arbor and Paces Forest PIM
prepayments and the repayment of a multi-family MBS.
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, 1997 and 1996:
1997 1996
Average Average
Amount Per Unit Amount Per Unit
Distributions
Limited Partners $ 15,324,194 $1.20 $15,324,193 $1.20
General Partners 373,032 410,687
15,697,226 15,734,880
Special Distributions
Limited Partners 11,237,742 $ .88 12,387,057 $ .97
Total Distributions $ 26,934,968 $28,121,937
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.
1997 1996 1995 1994 1993
Total revenues $18,896,423 $ 15,578,710 $ 15,728,883 $ 15,725,544 $ 16,164,307
Net income 14,893,523 12,021,035 12,335,057 12,197,925 12,647,339
Net income allocated
to:
Limited Partners 14,446,717 11,660,404 11,965,005 11,831,987 12,267,919
Average per Unit 1.13 .91 .94 .93 .96
General Partners 446,806 360,631 370,052 365,938 379,420
Total assets at
December 31 173,645,460 184,485,334 201,760,285 203,907,975 213,344,580
Distributions to:
Limited Partners 15,324,194 15,324,193 15,324,192 21,242,039 21,183,876
Average per Unit 1.20 1.20 1.20 1.66 1.66
Special 11,237,742 12,387,057 - - -
Average per Unit .88 .97 - - -
General Partners 373,032 410,687 421,051 400,197 411,646
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 $3.8 million per
quarter in 1997. Funds used for investor distributions come from interest
received on the PIMs, MBS, cash and cash equivalents net of operating
expenses, and certain principal collections received on the PIMs and MBS.
The Partnership funds a portion of the quarterly distributions from
principal collections and funds all of any special distributions from
principal collections and Shared Appreciation Income or Prepayment
Penalties. As a result of principal collections, 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 the second quarter of 1997, the Partnership received the proceeds
from the principal prepayments of the Paces Arbor and Paces Forest PIMs,
together totaling $7,546,593. In addition to principal proceeds, the
Partnership received a total of $197,939 of unpaid Additional Interest
earned on property operations for the two properties and $679,193 of
prepayment penalties. The Partnership made a special distribution of the
capital proceeds from these transactions, the principal repayments and the
prepayment penalties, of $.65 per limited partner interest in May 1997.
During the fourth quarter of 1997, the Partnership received proceeds
from the principal prepayments of the three Paddock Club PIMs, together
totaling $26,714,879. In addition to principal proceeds, the Partnership
received a total of $728,114 of unpaid Additional Interest earned on
property operations for the three properties and $1,508,073 of prepayment
penalties on the Jacksonville and Tallahassee properties. The Partnership
also received $1,153,308 of Shared Appreciation Interest on the Ocala
property. The Partnership made a special distribution of the capital
proceeds from these transactions, the principal prepayments, the prepayment
penalties and Shared Appreciation Interest of $2.30 per limited partner
interest in January 1998. In addition, during the fourth quarter of
1997, the Partnership received a prepayment on a multi-family
MBS in the amount of $2,889,030. The Partnership then made a special
distribution of $.23 per Limited Partner interest with the proceeds from
this prepayment.
During the fourth quarter of 1997, the General Partners were informed of
pending repayments for three other properties, which occurred during the
first quarter of 1998. In January 1998, the Partnership received proceeds
from the principal prepayments of the Fourth Ward Square and Meredith
Square PIMs together totaling $11,756,585. In addition to principal
proceeds, during December of 1997 the Partnership received a total of
$397,462 of unpaid Additional Interest earned on property operations for
both properties, a $422,001 prepayment penalty on Meredith Square and
Shared Appreciation Interest of $697,500 on Fourth Ward Square. The
Partnership distributed the capital transaction proceeds from these
prepayments to investors through a special distribution in February of 1998
of $1.01 per limited partner interest. In February 1998, the Partnership
received proceeds from the principal prepayment of $5,047,132 of the
Rosewood PIM, $151,263 of minimum and shared income interest and $304,242
in prepayment penalties. The General Partners will distribute the capital
proceeds from this transaction to investors through a special distribution
during April 1998 of $.42 per limited partner interest.
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 1996.
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. The modification will reduce the
monthly cash flow of the Partnership, but will not materially affect the
Partnership s liquidity.
-7-
The Partnership s invested assets have decreased as a result of these
prepayments and subsequent distributions. The General Partners expect that
there could be other loan repayments during 1998, although of the remaining
properties held in the Partnership's portfolio, only a few may be
positioned for a favorable sale or refinance at this time. The mediocre
operating performance of many of the properties have not generated
sufficient increases in property values to provide an incentive for their
owners to pursue either a sale or refinance of their properties.
During 1996, 1997 and the first quarter of 1998, the Partnership
received significant prepayments on its PIMs. Due to this, the General
Partners reviewed the Partnership's liquidity needs and determined that the
regular distribution rate should be adjusted to $.76 per Unit per year
(approximately $9.7 million per year and $2.43 million per quarter)
commencing with the May 1998 distribution. The General Partners expect to
periodically adjust the distribution rate as mortgage proceeds are received
and subsequently distributed to the Limited Partners while also maintaining
sufficient liquidity to meet the Partnership's anticipated needs. The
General Partners will continue to monitor the appropriateness of this
distribution rate in the future and will adjust it as necessary.
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.
Operations
The following discussion relates to the operation of the Partnership
during the years ended December 31, 1997, 1996 and 1995.
(Amounts in Thousands)
1997 1996 1995
Interest income on PIMs:
Base interest $10,066 $11,262 $12,078
Participation interest 5,996 1,372 544
Interest income on MBS 2,390 2,706 2,913
Interest income - other 444 238 195
Partnership expenses (1,549) (1,604) (1,772)Amortization of prepaid expenses
and fees (2,453) (1,953) (1,623)
Net income $14,894 $12,021 $12,335
-8-
Net income increased during 1997 as compared to 1996 by approximately
$2,873,000. This increase was primarily due to higher participation
income, net of lower base interest on PIMs and interest income on MBS and
higher amortization expense directly related to the prepayments of the
Paces Arbor, Paces Forest, Paddock Club Jacksonville, Paddock Club
Tallahassee and Paddock Park II Apartment PIMs. An increase in
Participation Interest of $4,624,000 was primarily a result of receiving
Shared Appreciation Income and prepayment penalties from the prepayments of
the Paces Arbor and Forest Apartments, the three Paddock Apartments, Fourth
Ward Square Apartments and Meredith Apartment PIMs totaling $5,784,000 and
$212,000 from five of the Partnerships PIMs. Also, the Partnership received
participation income from the Fourth Ward Square and Meredith Square
Apartments PIMs.
Net income did not change materially when comparing 1996 to 1995. However,
base interest decreased approximately by $816,000 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 PIMs.
Interest income on MBS decreased when comparing 1997 to 1996 and 1996 to
1995, because principal collections reduce the outstanding principal of the
Partnership s MBS investments.
Interest income other increased when comparing 1997 to 1996 and 1996 to
1995, primarily due to the Partnership s higher short-term investment
balances.
The Partnership expenses have decreased when comparing 1997 to 1996 and
1996 to 1995, primarily due to lower asset management fees.
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 (51) President, Co-Chairman and Director
of the Board
George Krupp (53) Co-Chairman and Director of the Board
Peter F. Donovan (44) Senior Vice President
Robert A. Barrows (40) Treasurer and Chief Accounting Officer
Douglas Krupp and George Krupp are Co-Founders of The Berkshire Group.
Established in 1969 as the Krupp Companies and headquartered in Boston, the
Berkshire Group is a privately held real estate-based firm that has
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility management. The Berkshire Group s interests include
ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition, The
Berkshire Group has a majority ownership interest in Harborside Healthcare
(NYSE-HBR), a long-term and subacute care company and a significant
ownership interest in Berkshire Realty Company, Inc. (NYSE-BRI), a real
estate investment trust specializing in apartment investments.
Douglas 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. Douglas Krupp is Chairman of The Berkshire
Group, Chairman of the Board and a Director of both Berkshire Realty
Company, Inc. and Harborside Healthcare. Mr. Krupp also serves as Chairman
of the Board and Trustee of both Krupp Government Income Trust and Krupp
Government Income Trust II.
George Krupp received his undergraduate education from the University of
Pennsylvania and Harvard University Extension School and holds a Master s
Degree in History from Brown University.
Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage
Finance and oversees the strategic growth plans of this mortgage banking
firm which is the 12th largest in the United States based on servicing and
asset management of a $4.4 billion loan portfolio. Previously he served as
President of Berkshire Mortgage Finance and directed the production,
underwriting and 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.
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,
management information systems and loan closing and servicing 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.
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, 1997, 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
-10-
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).*
Harbor Club Apartments
(10.23) 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)].*
(10.24) 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
(10.25) 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)].*
(10.26) 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)].*
Fourth Ward
(10.27) 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)].*
(10.28) 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)].*
Meridith Square
(10.29) 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)].*
(10.30) 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)].*
-14-
Marina Shore Apartments
(10.31) 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)].*
(10.32) 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)].*
(10.33) 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
(10.34) 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)].*
(10.35) 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)].*
(10.36) 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)].*
(10.37) 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)].*
(10.38) 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, 1997, 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 2nd day of February, 1998.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
By: Krupp Plus Corporation,
a General Partner
By: /s/ Douglas Krupp
Douglas Krupp, President, Co-
Chairman (Principal ExecutiveOfficer)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 2nd day of February,
1998.
Signatures Title(s)
/s/ Douglas Krupp President,Co-Chairman (Principal Executive
Douglas Krupp Officer), and Director of Krupp Plus
Corporation, a General Partner.
/s/ George Krupp Co-Chairman (Principal Executive Officer)
George Krupp and Director of Krupp Plus Corporation, a
General Partner.
/s/ Peter F. Donovan Senior Vice President of Krupp Plus
Peter F. Donovan Corporation, a General Partner.
/s/ Robert A. Barrows Treasurer and Chief Accounting Officer
Robert A. Barrows of Krupp Plus Corporation, a
General Partner.
-16-
APPENDIX A
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULEITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1997
F-1
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Income for the Years Ended December 31, 1997, 1996
and 1995 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 F-7
Notes to Financial Statements F-8 - F-15
Schedule IV - Mortgage Loans on Real Estate F-16 - 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.
F-2
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. These 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, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997 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
February 2, 1998, except as to the
information presented in Note I, for
which the date is February 17, 1998
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
Participating Insured Mortgages ("PIMs")
(Notes B, C, H and I) $104,165,895 $139,380,751
Mortgage-Backed Securities and insured
mortgages ("MBS")(Notes B, D and H) 29,220,457 32,914,934
Total mortgage investments 133,386,352 172,295,685
Cash and cash equivalents (Notes B, H and I) 35,473,221 4,666,597
Interest receivable and other assets 949,618 1,233,967
Prepaid acquisition expenses, net of
accumulated amortization of $5,921,472 and
$6,717,429, respectively (Note B) 2,902,255 4,758,829
Prepaid participation servicing fees, net of
accumulated amortization of $1,680,937 and
$2,272,992, respectively (Note B) 934,014 1,530,256
Total assets $173,645,460 $184,485,334
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 170,568 $ 18,716
Partners' equity (deficit) (Notes A, E and I):
Limited Partners 172,409,394 184,524,613
(12,770,261 Units outstanding)
General Partners (78,838) (152,612)
Unrealized gain on MBS (Note B) 1,144,336 94,617
Total Partners' equity 173,474,892 184,466,618
Total liabilities and Partners' equity $173,645,460 $184,485,334
The accompanying notes are an integral
part of the financial statements.
F-4
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:(Notes B, C and D)
Interest income - PIMs:
Base interest $10,066,327 $11,262,507 $12,078,125
Participation interest 5,996,197 1,371,889 543,613
Interest income - MBS 2,389,509 2,705,932 2,912,632
Interest income - other 444,390 238,382 194,513
Total revenues 18,896,423 15,578,710 15,728,883
Expenses:
Asset management fee to an affiliate
(Note F) 1,217,413 1,352,679 1,412,787
Expense reimbursements to affiliates
(Note F) 129,348 123,639 181,503
Amortization of prepaid fees and
expenses (Note B) 2,452,816 1,953,298 1,622,438
General and administrative 203,323 128,059 177,098
Total expenses 4,002,900 3,557,675 3,393,826
Net income (Notes E and G) 14,893,523 $12,021,035 $12,335,057
Allocation of net income (Notes E and G):
Limited Partners $14,446,717 $11,660,404 $11,965,005
Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ 1.13 $ .91 $ .94
General Partners $ 446,806 $ 360,631 $ 370,052
F-5
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, 1997, 1996 and 1995
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
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
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
The accompanying notes are an integral
part of the financial statements.
F-7
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Operating activities:Net income $ 14,893,523 $12,021,035 $12,335,057
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of MBS premium 92,322 - -
Amortization of prepaid fees and expenses 2,452,816 1,953,298 1,622,438
Prepayment penalties and shared
appreciation interest (4,460,075) (1,013,411) -
Changes in assets and liabilities:
Decrease in interest receivable and other assets 284,349 690,435 163,681
Increase (decrease) in liabilities 151,852 3,960 (10,130)
Net cash provided by operating
activities 13,414,787 13,655,317 14,111,046
Investing activities:
Principal collections and prepayments on PIMsincluding prepayment penalties and shared
appreciation interest of $4,460,075 and
$1,013,411 in 1997 and 1996, respectively 39,674,931 13,098,312 972,384
Investment in MBS - - (1,027,567)
Principal collections and prepayments on
MBS 4,651,874 2,601,020 1,866,085
Net cash provided by investing activities 44,326,805 15,699,332 1,810,902
Financing activities:
Special distributions (11,237,742) (12,387,057) -
Quarterly distributions (15,697,226) (15,734,880) (15,745,243)
Net cash used for financing
activities (26,934,968) (28,121,937) (15,745,243)
Net increase in cash and cash equivalents 30,806,624 1,232,712 176,705
Cash and cash equivalents, beginning of
period 4,666,597 3,433,885 3,257,180
Cash and cash equivalents, end of period $ 35,473,221 $ 4,666,597 $ 3,433,885
The accompanying notes are an integral
part of the financial statements.
F-8
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):
MBS
The Partnership, in accordance with Financial Accounting Standards
No. 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.
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 Federal National Mortgage Association ( FNMA ) MBS
at amortized cost.
The Federal Housing Administration PIM is carried at amortized cost
unless the General Partner of the Partnership believes there is a
impairment in value, in which case a valuation allowance would be
established in accordance with Financial Accounting Standards No.
114, Accounting by Creditors for impairment of a Loan, and
Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures.
Basic interest on PIMs 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 GNMA or FNMA MBS.
Participation interest is recognized as earned and when deemed
collectible by the Partnership.
F-9
Continued
B. Significant Accounting Policies, Continued
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.
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
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 loan if a
Department of Housing and Urban Development ("HUD") insured loan or
GNMA 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 twelve 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
Continued
F-10
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMs, Continued
not prepay the first mortgage loan during the first five years and 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 December 1997, the Partnership received prepayments of the
Paddock Park II, Paddock Park Tallahassee and Paddock Jacksonville
Apartment PIMs. The Partnership received the outstanding principal
balances of $10,167,304, $8,402,247 and $8,145,328 respectively. In
addition, the Partnership also received Shared Appreciation or
prepayment penalties of $1,153,308, $774,000, and $734,073 and Minimum
and Shared Income Interest of $211,835, $170,377, and $345,902 for
Paddock Park II, Paddock Park Tallahassee and Paddock Park Jacksonville
PIMs, respectively. The Partnership made a special distribution of
$2.30 per Limited Partner interest with the proceeds from the
outstanding principal proceeds and the prepayment penalties during
January 1998.
Furthermore, during December 1997, the Partnership also received
F-11
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
prepayment penalties and Shared Appreciation of $422,001 and $697,500
and Minimum and Shared Income Interest of $87,972 and $309,490 for the
Meredith and Fourth Ward Square Apartment PIMs, respectively (See Note
I).
Continued.
C. PIMs, Continued
On April 25, 1997, the Partnership received a prepayment of the Paces
Arbor and Paces Forest Apartment PIMs. The Partnership received the
outstanding principal balances of $3,390,705 and $4,155,888,
respectively. In addition, the Partnership also received a prepayment
penalty of $679,193 and Minimum Additional and Shared Income Interest
of $197,939. On May 23, 1997, the Partnership made a special
distribution of $.65 per Limited Partner interest with the proceeds
from the outstanding principal proceeds and the prepayment penalty.
On August 1, 1996, the Partnership received a prepayment of the
Friendly Hills PIM. The Partnership received the outstanding principal
balance of $11,260,118, a prepayment penalty of $1,013,411 and Minimum
Additional and Shared Income Interest of $126,820. On August 15,
1996, the Partnership made a special distribution of $.97 per Limited
Partner interest with the proceeds from this repayment.
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.
At December 31, 1997 and 1996 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, 1997 and 1996:
Aggregate Permanent Aggregate Outstanding
Original Number Interest Maturity Principal Balance at
Issuer Principal of PIMs Rate Range Date Range December 31,
1997 1996
FNMA $ 43,028,742 4 6.5%-8% 10/99 - 4/06 $ 40,908,767 $ 67,356,096
(a) (a) (a)
GNMA 60,499,733 7 8%-8.50% 8/30 - 5/32 59,061,999 67,808,790
(b)
FHA 4,327,800 1 8.675% 1/31 4,195,129 4,215,865
$107,856,275 12 $104,165,895 $139,380,751
(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 Federal National Mortgage Association
("FNMA") 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 FNMA MBS at interest rates
ranging from 6.25% to 8.775% per annum through maturity. Also, the
Partnership has received its pro-rata share of a $90,644 principal
payment made in December 1995 and its pro-rata share of a $250,000
principal payment made in January 1997. The Partnership will also
receive its pro-rata share of annual principal payments totaling $250,000
due each year in January for the next three years.
Continued
C. PIMs, Continued
(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 392 units.
D. MBS
During the fourth quarter of 1997, the Partnership received a prepayment
on a multi-family MBS in the amount of $2,889,030. The Partnership then
made a special distribution of $.23 per Limited Partner interest with the
proceeds from this prepayment.
At December 31, 1997, the Partnership's MBS portfolio has an amortized
cost of $28,076,121 and unrealized gains and losses of approximately
$1,144,469 and $133, respectively. At December 31, 1996, the
Partnership's MBS portfolio had an amortized cost of $32,820,317 and
unrealized gains and losses of $515,192 and $420,575, respectively. The
MBS portfolio has maturity dates ranging from 2010 to 2035.
E. Partners' Equity
Under the terms of the Partnership Agreement, profits from Partnership
operations and Distributable Cash Flow are allocated 97% to the
Unit holders 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 GeneralPartners 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.
F-13
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
As of December 31, 1997, the following cumulative partner contributions
and allocations have been made since inception of the Partnership:
Continued
E. Partners' Equity, continued
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 (161,576,650) (1,376) (3,754,772) - (165,332,798)
Special Distributions (23,624,614) (185) - - (23,624,799)
Net income 118,757,184 999 3,672,934 - 122,431,117
Unrealized gain on MBS - - - 1,144,336 1,144,336
Total at December 31, 1997 $172,407,956 $ 1,438 $ (78,838) $ 1,144,336 $173,474,892
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 1997 federal income tax return is as follows:
Net income per statement of income $14,893,523
Book to tax difference for amortization
of prepaid expenses and fees (377,178)
Net income for federal income tax purposes $14,516,345
The allocation of the net income for federal income tax purposes for
1997 is as follows:
F-15
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
G. Federal Income Taxes, continued
Portfolio
Income
Unitholders $14,214,546
Corporate Limited Partner 111
General Partners 301,688
$14,516,345
During the years ended December 31, 1997, 1996 and 1995 the average
per Unit net income to the Unitholders for federal income tax
purposes was $1.11, $1.00 and $.99, respectively.
The basis of the Partnership s assets for financial reporting
purposes is less than its tax basis by approximately $773,000 and
$2,200,000 at December 31, 1997 and 1996, respectively. The basis
of the Partnership s liabilities for financial reporting purposes
are the same for its tax basis at December 31, 1997 and 1996,
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 active 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
notinclude 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
$1,407,000 and $57,000 at December 31, 1997, respectively,and gross
unrealized gains and losses of $2,784,000 and
$1,123,000 at December 31, 1996, respectively.
At December 31, 1997 and 1996, the Partnership estimates the fair
values of its financial instruments as follows:
F-16
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
Continued
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, Continued
H. Fair Value Disclosures of Financial Instruments, continued
(rounded to thousands)
1997 1996
Cash and cash equivalents $ 35,473 $ 4,667
MBS 29,220 32,915
PIMs 105,516 141,042
$170,209 $178,624
I. Subsequent Events
On January 15, 1998 and January 26, 1998, the Partnership received
proceeds from the prepayments of the Fourth Ward Square Apartments
and Meredith Square Apartments PIMs, respectively. The Partnership received
the outstanding principal balances of $7,067,690 and
$4,688,895 on the Fourth Ward Square and Meredith Square Apartment
PIMs, respectively, plus outstanding interest. The Partnership
distributed $1.01 per Limited Partner Interest in February, 1998 from
the proceeds of the principal balances, Shared Appreciation Income
and prepayment penalty income received on these loans.
On February 17, 1998, the Partnership received proceeds from the
prepayment of the Rosewood Apartments PIM. The Partnership received
the outstanding principal balance of $5,047,132 plus, minimum and
shared income interest of $151,263 and a prepayment penalty of
$304,242. The Partnership plans on distributing $.42 per Limited
Partner Interest during April 1998 from the principal proceeds and
prepayment penalty income received on this loan.
F-18
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1997
__________
Approx.
Normal
Maturity Monthly Original Current Carrying
Interest Date Payment Face Face Amount at
PIMs (a) Rate (b) j k Amount Amount 12/31/97(p)
GNMA
Casa Marina
Apts.
Miami, FL 8.00%(h) 12/15/30 $ 49,000 $ 7,099,700 $ 6,885,660 $ 6,885,660
(d)(f)(h)
Fourth Ward Sq. 8.00% 11/15/31 50,000 7,250,000 7,069,647 7,069,647
Apts. (c)(f)(h)
Charlotte, NC
Harbor Club 8.00% 10/15/31 97,000 13,562,000 13,341,735 13,341,735
Apts. (e)
Ann Arbor, MI (I)(1)
Ironwood Place 8.50% 8/15/30 37,000 4,997,603 4,864,481 4,864,481
Apts. (c)(f)(h)
Ann Arbor, MI
Marina Shores 8.00% 5/15/32 104,000 15,000,000 14,648,595 14,648,595
Apts. (c)(f)(h)
VA Beach, VA
Rosewood Apts. 8.00% 2/15/31 36,000 5,197,314 5,048,204 5,048,204
Cartersville, GA
Sundance Apts. 8.50% 12/15/30 54,000 7,393,116 7,203,677 7,203,677
Miami, FL (c)(e)
(g)(n)
60,499,733 59,061,999 59,061,999
FNMA
Meridith Square 8.00% 10/1/00 35,000 4,900,000 4,688,895 4,688,895
Apts. (c)(e)(g) (o)
Columbia, SC
Mill Ponds 7.50% 6/1/00 70,000 10,450,000 9,912,039 9,912,039
Apts. (c)(f)(g) (o)
Naperville, IL
Royal Palm Pl. 6.5% 4/1/06 111,000 15,978,742 15,310,002 15,310,002
Apts. (c)(m) (o)
Kendall, FL
Windsor Court 7.25% 10/1/99 77,000 11,700,000 10,997,831 10,997,831
Apts. (c)(e)(g) (o)
Idianapolis,
IN
43,028,742 40,908,767 40,908,767
FHA
Woodbine Apts 8.68% 1/1/31 32,000 4,327,800 4,195,129 4,495,129
Boise, ID (c)(e)(g)
Total $107,856,275 $104,165,895 $104,165,895
(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 theunderlying
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 the 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.
F-20
(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.
Continued
(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%. Also, the Partnership
has received its pro-rata share of a $90,644 principal payment
made in December 1995 and its pro-rata share of a $250,000
principal payment made in January 1997. The Partnership will
also receive its pro-rata share of annual principal payments
totaling $250,000 due each year in January for the next three
years.
(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
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
$104,165,895.
A reconciliation of the carrying value of PIMs for each of the three years
in the period ended December 31, 1997 is as follows:
1997 1996 1995
Balance at beginning of period $139,380,751 $151,465,652 $152,438,036
Deductions during period:
Principal collections (35,214,856) (12,084,901) (972,384)
Balance at end of period $104,165,895 $139,380,751 $151,465,652