KRUPP INSURED PLUS III LIMITED PARTNERSHIP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

or

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 0-17691

Krupp Insured Plus - III Limited Partnership
(Exact name of registrant as specified in its charter)

Massachusetts 04-3007489
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)

(617) 523-0066
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Units of Depositary
Receipts representing Units of Limited Partner Interests.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be continued, 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. |_|

SEC 1673 (11-03) Persons who respond to the collection of information contained
in this form are not required to respond unless the form
displays a currently valid OMB control number.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes |_| No |X|

Aggregate market value of voting securities held by non-affiliates: Not
applicable.

Documents incorporated by reference: see Item 15

The exhibit index is located on pages 12 - 13.

-1-

PART I

This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. 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 remaining PIM investment consists of a MBS (the "insured
mortgage") guaranteed as to principal and basic interest and a participation
feature that is not insured nor guaranteed. The insured mortgage was issued or
originated under or in connection with the housing programs of the Government
National Mortgage Association ("GNMA"). The PIM provides the Partnership with
monthly payments of principal and interest on the insured mortgage and also
provides 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. The borrower conveys the participation rights to the
Partnership through a subordinated promissory note and mortgage.

The Partnership also has investments in MBS collateralized by single-family
mortgage loans issued or originated by Fannie Mae or the Federal Home Loan
Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC guarantee the principal and
basic interest of the Fannie Mae and FHLMC MBS, respectively.

The Partnership must distribute proceeds received from prepayments or other
realization of the mortgages to the investors through quarterly or possibly
special distributions.

Although the Partnership will terminate no later than December 31, 2028 it is
expected that the value of the remaining PIM will be realized by the Partnership
through repayment well before December 31, 2028 and that the Partnership may
realize the value of all of its other investments well before December 31, 2028.

The Partnership's investments are not expected to be subject to seasonal
fluctuations. However, the future performance of the Partnership will depend
upon certain factors which cannot be predicted. Such factors include interest
rate fluctuations and the credit worthiness of Fannie Mae, GNMA, the Department
of Housing and Urban Development ("HUD") and FHLMC. Any ultimate realization of
the participation features on the remaining PIM are 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 Partnership anticipates that there will be sufficient cash flow from the
mortgages to meet cash requirements. To the extent that the Partnership's cash
flow should be insufficient to meet the Partnership's operating expenses and
liabilities, it will be necessary for the Partnership to obtain additional funds
by liquidating its investment in one or more mortgages or by borrowing. The
Partnership may borrow money on an unsecured or secured basis to further the
purposes of the Partnership. The Partnership may pledge mortgages as security
for any permitted borrowing. The Partnership, under some circumstances, may
borrow funds from any general partner or an affiliate of any general partner.
However, the transaction must include interest rates and other finance charges
and fees not in excess of the amounts that are charged by unaffiliated lenders
for comparable loans and must satisfy other conditions specified in the
partnership agreement. The Partnership has not borrowed any funds during the
past and does not intend to do so in the future.

The subordinated promissory note and subordinated mortgage that secure the
participation feature of the GNMA PIM provides for acceleration of maturity at
the earlier of the sale of the underlying property or the call date, typically
expected to be a date ten years after the date of the final endorsement for
mortgage insurance.

The Partnership will not underwrite securities of other issuers, offer
securities in exchange for property, invest in securities of other issuers for
the purpose of exercising control or issue senior securities and has not engaged
in any of these actives during the past. The Partnership has not repurchased or
reacquired any of the partner interests from partners or Units from Unitholders
in the past and does not intend to do so in the future. The Partnership may not
make loans to any general partner or any affiliate of any general partner and
will not make loans to any other persons, other than mortgage investments of the
type described above.

-2-

The requirements for compliance with federal, state and local regulations to
date have not had a material adverse effect on the Partnership's operations, and
no material adverse effect there from is now anticipated in the future.

As of December 31, 2003, no personnel were 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 are the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR 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, 2003 was approximately
6,200. 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 April 2003, the Partnership made a special distribution of $0.64 per
Limited Partner interest from the principal proceeds and Shared Appreciation
Interest received from the Signature Pointe MBS.

During March 2002, the Partnership made a special distribution of $1.24 per
Limited Partner interest from the principal proceeds and Shared Appreciation
Interest received from the Royal Palm Place PIM.

The Partnership may make special distributions in the future if the remaining
PIM prepays 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,
2003 and 2002:

2003 2002
---------------------- -----------------------
Average Average
Amount Per Unit Amount Per Unit
---------- -------- ----------- --------

Quarterly Distributions
Limited Partners $1,787,824 $0.14 $ 4,086,450 $0.32
General Partners 35,671 -- 66,876 --
---------- -----------

1,823,495 4,153,326
---------- -----------
Special Distributions
Limited Partners 8,172,903 $0.64 15,835,000 $1.24
---------- -----------

Total Distributions $9,996,398 $19,988,326
========== ===========

-3-

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 which are
included in Item 7 and Item 8 (Appendix A) of this report, respectively.

2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------

Total revenues $ 1,567,696 $ 3,465,405 $ 3,531,049 $ 3,998,335 $ 6,770,135

Net income 1,092,228 2,953,935 2,763,540 2,993,654 4,930,576

Net income allocated to:
Limited Partners 1,059,461 2,865,317 2,680,634 2,903,844 4,782,659
Average per Unit 0.08 0.22 0.21 0.23 0.37

General Partners 32,767 88,618 82,906 89,810 147,917

Total assets at December 31 15,507,890 24,416,786 41,417,200 49,584,641 68,426,507

Distributions to:
Quarterly to Limited Partners 1,787,824 4,086,450 4,086,451 6,895,888 9,705,323
Average per Unit 0.14 0.32 0.32 0.54 0.76

Special to Limited Partners 8,172,903 15,835,000 6,768,186 14,941,091 21,453,869
Average per Unit 0.64 1.24 0.53 1.17 1.68

General Partners 35,671 66,876 95,244 108,116 177,147

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the Partnership's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. These factors include, among other
things, federal, state or local regulations; adverse changes in general economic
or local conditions; pre-payments of mortgages; failure of borrowers to pay
participation interests due to poor operating results at properties underlying
the mortgages; uninsured losses and potential conflicts of interest between the
Partnership and its Affiliates, including the General Partners.

Liquidity and Capital Resources

At December 31, 2003, the Partnership had liquidity consisting of cash and cash
equivalents of approximately $1.4 million as well as the cash flow provided by
its investments in the remaining PIM and MBS. The Partnership anticipates that
these sources will be adequate to provide the Partnership with sufficient
liquidity to meet its obligations as well as to provide distributions to its
investors.

The most significant demand on the Partnership's liquidity is the quarterly
distribution paid to investors of approximately $383,000, which represents the
current quarterly distribution rate of $0.03 per Limited Partner interest. Funds
for quarterly distributions come from interest income received on the remaining
PIM and MBS and cash and cash equivalents, net of operating expenses, and the
principal collections received on the remaining PIM and MBS. The portion of
distributions attributable to the principal collections and cash reserves
reduces the capital resources of the Partnership. As the capital resources
decrease, the total cash flows to the Partnership will also decrease and over
time will result in periodic adjustments to the distributions paid to investors.
The General Partners periodically review the distribution rate to determine
whether an adjustment 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. To the extent that quarterly distributions do not
fully utilize the cash available for distributions and cash balances increase,
the General Partners may adjust the distribution rate or distribute such funds
through a special distribution. Based on current projections, the General
Partners have determined that the Partnership will continue to pay a
distribution rate of $0.03 per Limited Partner interest per quarter for the near
future.

-4-

On April 10, 2003, the Partnership received a prepayment of the Signature Point
insured mortgage for $7,863,532. The Partnership also received a prepayment
premium of $235,918 from this payoff. On May 5, 2003, the Partnership paid a
special distribution of $0.64 per Limited Partner interest from the proceeds
received.

In addition to providing insured and guaranteed monthly principal and basic
interest payments from the GNMA MBS portion of the PIM, the Partnership's
remaining PIM investment also may provide additional income through a
participation interest in the underlying property. The Partnership may receive a
share in any operating cash flow that exceeds debt service obligations and
capital needs or a share in any appreciation in value when the property is sold
or refinanced. However, this participation is neither guaranteed nor insured,
and it is dependent upon whether property operations or its terminal value meet
certain criteria.

During 2002, the Partnership received a prepayment of the Royal Palm Place
Subordinated Promissory note. On January 2, 2002, the Partnership received
$1,004,379 of Shared Appreciation Interest and $334,793 of Minimum Additional
Interest. On February 25, 2002, the Partnership received $14,764,062
representing the principal proceeds on the first mortgage. On March 19, 2002,
the Partnership paid a special distribution of $1.24 per Limited Partner
interest from the principal proceeds and Shared Appreciation Interest received.

During June 2001, the Partnership received a payoff of the Casa Marina PIM in
the amount of $6,727,016. In addition, the Partnership received $15,000 of
Shared Appreciation Interest and $10,000 of Minimum Additional Interest upon the
payoff of the underlying mortgage. On July 18, 2001, the Partnership paid a
special distribution of $0.53 per Limited Partner interest from the principal
proceeds and Shared Appreciation received from Casa Marina.

The Partnership's only remaining PIM investment is backed by the first mortgage
loan on Harbor Club. Presently, the General Partners expect the property to be
refinanced during 2004. There are no contractual obligations remaining that
would prevent a prepayment of the first mortgage loan. In response to more
competitive market conditions brought on by low interest rates and low
unemployment, which encourages more home ownership, Harbor Club began offering
generous concessions to attract residents. Although physical occupancy is in the
mid 90% range, the economic occupancy continues to hover in the mid 80% range as
a result of the concessions. Due to the effect of the low occupancy on property
operations and cash flow, Harbor Club did not pay the Partnership any
participation interest during 2003.

In the event that the Harbor Club PIM is paid off, the Partnership would then
commence an orderly liquidation of the remaining assets of the Partnership and
subsequently pay a liquidating distribution.

In the event that the remaining PIM does not pay off as discussed above, the
Partnership does have the option to call this PIM by accelerating its maturity.
If the call feature is exercised then the insurance feature of the loan would be
canceled. Therefore, the Partnership will determine the merits of exercising the
call option as economic conditions warrant. Such factors as the condition of the
asset, local market conditions, the interest rate environment and availability
of financing will affect this decision.

Critical Accounting Policies

The Partnership's critical accounting policies relate to revenue recognition
related to the Partnership's remaining PIM investment, the amortization of
Prepaid Fees and Expenses and the carrying value of the MBS. The Partnership's
policies are as follows:

The Partnership accounts for its MBS portion of its PIM investment in accordance
with Financial Accounting Standards Board's Statement 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("FAS 115"), under the
classification of held to maturity as this investment has a participation
feature. As a result, the Partnership would not sell or otherwise dispose of the
MBS. Accordingly, the Partnership has both the intention and ability to hold
this investment to expected maturity. The Partnership carries this MBS at
amortized cost. The Partnership, in accordance with FAS115, classifies its MBS
portfolio as available-for-sale. The Partnership classifies its MBS portfolio as
available-for-sale as a portion of the MBS portfolio may remain after all of the
PIMs pay off and that it will be necessary to then sell the remaining MBS
portfolio at that time in order to close out the Partnership. In addition, other
situations such as liquidity needs could arise which would necessitate the sale
of a portion of the MBS portfolio. 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. The Partnership also held a Federal Housing Administration ("FHA")
insured mortgage, which was classified as an MBS. The Partnership held this loan
at amortized cost and did not establish loan loss reserves on this investment as
it was fully insured by the FHA.

Basic interest on PIMs is recognized based on the stated coupon rate of the GNMA
MBS. The Partnership recognizes interest related to the participation features
when the amount becomes fixed and the transaction that gives rise to such amount
is finalized, cash is received and all contingencies are resolved. This could be
the sale or refinancing of the underlying real estate,

-5-

which results in a cash payment to the Partnership or a cash payment made to the
Partnership from surplus cash relative to the participation feature.

Prepaid fees and expenses consisted of prepaid acquisition fees and expenses and
prepaid participation servicing fees paid for the acquisition and servicing of
PIMs. The Partnership amortized the prepaid acquisition fees and expenses using
a method that approximated the effective interest method over a period of ten to
twelve years, which represented the estimated life of the underlying mortgage.
The Partnership amortized prepaid participation servicing fees using a method
that approximated the effective interest method over a ten year period beginning
at final endorsement of the GNMA loan and at closing if a Fannie Mae loan. Upon
the repayment of a PIM, any unamortized acquisition fees and expenses and
unamortized participation servicing fees related to such loan were expensed.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Assessment of Credit Risk

The Partnership's investments in its MBS portion of its PIM and MBS are
guaranteed and/or insured by GNMA, Fannie Mae or FHLMC and therefore the
certainty of their cash flows and the risk of material loss of the amounts
invested depends on the creditworthiness of these entities.

Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs. These
obligations are not guaranteed by the U.S. Government or the Federal Home Loan
Bank Board. However, Fannie Mae and FHLMC are two of the largest corporations in
the United States, and both have significant experience in mortgage
securitizations. In addition, their MBS carry the highest credit rating given to
financial instruments. GNMA guarantees the full and timely payment of principal
and basic interest on the securities it issues, which represents interest 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.

At December 31, 2003, the Partnership includes in cash and cash equivalents
approximately $1.1 million of commercial paper, which is issued by entities with
a credit rating equal to one of the top two rating categories of a nationally
recognized statistical rating organization.

Interest Rate Risk

The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At
December 31, 2003, the Partnerships remaining PIM and MBS comprise the majority
of the Partnership's assets. Decreases in interest rates may accelerate the
prepayment of the Partnership's investments. Increases in interest rates may
decrease the proceeds from a sale of the MBS. The Partnership does not utilize
any derivatives or other instruments to manage this risk as the Partnership
plans to hold its PIM investment to expected maturity, while it is expected that
substantially all of the MBS will prepay over the same period, thereby
mitigating any potential interest rate risk to the disposition value of any
remaining MBS.

The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the Partnership forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For its remaining PIM, the Partnership incorporates prepayment
assumptions into planning as the property notifies the Partnership of the intent
to prepay or as it matures.

The following table provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates ("WAIR") by expected maturity dates. The expected
maturity date is contractual maturity adjusted for expectations of prepayments.

-6-

Expected maturity dates ($ in thousands)
--------------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter Total Fair
Face Value (1)
Value
--------------------------------------------------------------------------

Interest-sensitive assets:

MBS $ 1,147 $-- $-- $-- $-- $-- $ 1,147 $ 1,217
WAIR 8.06% 8.06%

PIM 12,780 -- -- -- -- -- 12,780 12,780
WAIR 8.00% 8.00%
------- --- --- --- --- --- ------- -------

Total Interest-
sensitive assets $13,927 $-- $-- $-- $-- $-- $13,927 $13,997
======= === === === === === ======= =======

(1) The methodology used by the Partnership to estimate the fair value of each
class of financial instrument is described in Note H to the Partnership's
financial statements presented in Appendix A to this report. As described
in that note, the Partnership does not include an estimate of value for
the participation interest associated with its remaining PIM investment.

Also included in the Partnership's assets are cash and cash equivalents. Due to
the short-term maturity of these investments, generally less than three months,
the Partnership is not exposed to significant interest rate risk on these
investments.

Results of Operations

The following discussion relates to the operation of the Partnership during the
years ended December 31, 2003, 2002 and 2001.

(Amounts in Thousands)
2003 2002 2001
------- ------- -------
Interest income on PIMs:
Basic interest $ 1,026 $ 1,138 $ 2,511
Participation interest -- 1,339 25
Interest income on MBS 507 800 894
Other interest income 34 188 101
Partnership expenses (475) (440) (553)
Amortization of prepaid fees
and expenses -- (71) (214)
------- ------- -------

Net income $ 1,092 $ 2,954 $ 2,764
======= ======= =======

Net income decreased in 2003 as compared to 2002 primarily due to decreases in
basic interest on PIMs, MBS interest income, other interest income,
participation interest and an increase in expense reimbursements to affiliates.
Basic interest on PIMs decreased primarily due to the Royal Palm Place PIM
payoff in 2002. MBS interest income decreased due to the prepayment of the
Signature Pointe MBS in 2003 and principal collections on the single family MBS.
Other interest income decreased due to lower average cash balances available for
short-term investing and lower interest rates earned on those balances in 2003
when compared to 2002. Participation income decreased in 2003 when compared to
2002 due to the collection of Shared Appreciation Interest and Minimum
Additional interest from the Royal Palm Place PIM payoff in 2002. Expense
reimbursements to affiliates increased primarily due to a change in the
estimated cost of services provided to the Partnership in 2002 that was paid in
2003 and an increase in the cost of 2003's services associated with the wind
down of the Partnership's activities and the expected liquidation of the
Partnership's assets.

Net income increased during 2002 when compared to 2001 due to an increase in
participation interest and a decrease in amortization expense net of a decrease
in basic interest income on PIMs. Participation interest increased due to the
collection of Shared Appreciation Interest and Shared Interest Income from the
Royal Palm Place payoff. Amortization expense decreased primarily due to the
full recognition of prepaid fees and expenses associated with the Casa Marina
and Royal Palm Place PIMs during 2001. Basic interest income decreased due to
the payoff of the Royal Palm Place PIM in February 2002 and the Casa Marina PIM
in June of 2001.

-7-

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.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Within the 90 days prior to the date of this Annual Report on Form 10-K, the
Senior Vice President and Chief Accounting Officer of Krupp Plus Corporation, a
general partner of the Partnership, carried out an evaluation of the
effectiveness of the design and operation of the Partnership's disclosure
controls and procedures. Based upon that evaluation, the Senior Vice President
and the Chief Accounting Officer concluded that the Partnership's disclosure
controls and procedures were effective as of the date of their evaluation in
timely alerting them to material information relating to the Partnership
required to be included in this Annual Report on Form 10-K.

(b) Changes in Internal Controls

There were no significant changes in the Partnership's internal controls or in
other factors that could significantly affect such internal controls subsequent
to the date of the evaluation described in paragraph (a) above.

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 (57) President, Co-Chairman of the Board and Director
George Krupp (59) Co-Chairman of the Board and Director
Peter F. Donovan (50) Senior Vice President
Ronald Halpern (62) Senior Vice President
Carol J. C. Mills (54) Vice President
Alan Reese (50) Vice President and Treasurer

Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer
of The Berkshire Group, an integrated real estate financial services firm
engaged in real estate acquisitions, property management, investment
sponsorship, venture capital investing, mortgage banking and financial
management, and ownership of one operating company through private equity
investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire
Group was established as The Krupp Companies in 1969 and he has served as the
Chief Executive Officer since 1992. He is a graduate of Bryant College where he
received an honorary Doctor of Science in Business Administration in 1989.

George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group, an
integrated real estate financial services firm engaged in real estate
acquisitions, property management, investment sponsorship, venture capital
investing, mortgage banking and financial management, and ownership of one
operating company through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp attended the University of Pennsylvania and Harvard
University and holds a Master's Degree in History from Brown University. Douglas
and George Krupp are brothers.

Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage Finance which
position he has held since January of 1998 and in this capacity, he oversees the
strategic growth plans of this mortgage banking firm. Berkshire Mortgage Finance
is the 12th largest servicer of commercial mortgage loans in the United States
with a servicing and asset management portfolio of $18.3 billion. Previously he
served as President of Berkshire Mortgage Finance from January of 1993 to
January of 1998 and in that

-8-

capacity he directed the production, underwriting, servicing and asset
management activities of the firm. Prior to that, he was Senior Vice President
of Berkshire Mortgage Finance and was responsible for all participating mortgage
originations. Before joining the firm in 1984, he was Second Vice President,
Real Estate Finance for Continental Illinois National Bank & Trust, where he
managed a $300 million construction loan portfolio of commercial properties. Mr.
Donovan received a B.A. from Trinity College and an M.B.A. degree from
Northwestern University. Mr. Donovan is currently a member of the Advisory
Council for Fannie Mae.

Ronald Halpern is President and COO of Berkshire Mortgage Finance. He has served
in these positions since January of 1998 and in this capacity he is responsible
for the overall operations of the Company. Prior to January of 1998, he was
Executive Vice President, managing the underwriting, closing, portfolio
management and servicing departments for Berkshire Mortgage Finance. Before
joining the firm in 1987, he held senior management positions with the
Department of Housing and Urban Development in Washington D.C. and several HUD
regional offices. Mr. Halpern has over 30 years of experience in real estate
finance which includes his experience as prior Chairman of the Mortgage Bankers
Association Multifamily Housing Committee. He holds a B.A. degree from the
University of the City of New York and J.D. degree from Brooklyn Law School.

Alan Reese is the Executive Vice President, Corporate Operations and Chief
Financial Officer of Berkshire Mortgage Finance. Mr. Reese joined Berkshire
Mortgage Finance in February of 2003 and is currently responsible for the
accounting, financial planning and reporting, treasury, mortgage trading desk
and loan servicing functions. Prior to joining Berkshire Mortgage Finance, Mr.
Reese was the Chief Financial Officer of Visible Markets, Inc. from 2000 to 2001
and was engaged in business as a consultant from 2001-January, 2003. Prior to
Visible Markets, Inc., he was the Senior Vice President and Chief Financial
Officer of Mortgage Lenders Network USA, Inc. from 1998-2000. Mr. Reese held
several positions with BankBoston Corporation from 1990 to 1998 and most
recently held the position of Director of Operations, National Consumer Lending
from 1996-1998. In addition, Mr. Reese was employed with Coopers & Lybrand from
1976 to 1990, and was a partner from 1987-1990. Mr. Reese presently serves on
the Board of Trustees for Berklee College of Music. He received a B.B.A. degree
from the University of Wisconsin - Eau Claire and is a Certified Public
Accountant.

Carol J.C. Mills is Senior Vice President for Loan Management of Berkshire
Mortgage Finance and in this capacity she is responsible for the Asset
Management functions of Berkshire Mortgage Finance. She manages the estimated
$18.3 billion portfolio of loans. Ms. Mills joined Berkshire in December 1997 as
Vice President and was promoted to Senior Vice President in January 1999. From
January 1989 through November 1997, Ms. Mills was Vice President of First
Winthrop Corporation and Winthrop Financial Associates, in Cambridge,
Massachusetts. Ms. Mills earned a B.A. degree from Mount Holyoke College and a
Master of Architecture degree from Harvard University. Ms. Mills is a member of
the Real Estate Finance Association, New England Women in Real Estate and the
Mortgage Bankers Association. Ms. Mills is currently a member of the Servicing
Advisory Council for Freddie Mac.

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, 2003, the following were known by the General Partners to own
beneficially more than 5% of the Partnership's 12,770,261 outstanding Limited
Partner interests. In addition to those noted below, the only other interests
held by management or its affiliates consist of the 2.5% general partner
interest held by Krupp Plus Corporation, the 97.5% general partner interest held
by Mortgage Services Limited Partnership and the 100 limited partner interests
(0.0008% of the total outstanding) held by Krupp Depositary Corporation, an
affiliate of the General Partners.

The amounts and percentages of Limited Partner interests beneficially owned are
reported on the basis of regulations of the SEC governing the determination of
beneficial ownership of securities. Under these rules, a person is deemed to be
a beneficial owner of a security if that person has or shares voting power,
which includes the power to vote or to direct the voting of such security, or
investment power, which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
to be a beneficial owner of the same securities.

-9-

Class of Name of Beneficial Amount and Nature of Percent
Stock Owner Beneficial Interest of Class
- -------- ------------------ -------------------- --------

Units of Berkshire Income Realty - OP, L.P. ("BIR - OP") 3,655,838 Interests (1) 28.63%
Depositary One Beacon Street, Suite 1500
Receipts Boston, MA 02108

Units of Berkshire Income Realty, Inc. ("BIR") 3,655,838 Interests (1) 28.63%
Depositary One Beacon Street, Suite 1500
Receipts Boston, MA 02108

Units of BIR GP, L.L.C. 3,655,838 Interests (2) 28.63%
Depositary One Beacon Street, Suite 1500
Receipts Boston, MA 02108
Units of KRF Company, L.L.C. 3,655,838 Interests (3) 28.63%
Depositary One Beacon Street, Suite 1500
Receipts Boston, MA 02108

Units of The Krupp Family Limited Partnership - 94 3,655,838 Interests (4) 28.63%
Depositary One Beacon Street, Suite 1500
Receipts Boston, MA 02108

Units of The George Krupp 1980 Family Trust 3,655,838 Interests (5) 28.63%
Depositary One Beacon Street, Suite 1500
Receipts Boston, MA 02108

Units of The Douglas Krupp 1980 Family Trust 3,655,838 Interests (5) 28.63%
Depositary One Beacon Street, Suite 1500
Receipts Boston, MA 02108

Units of George D. Krupp 3,655,838 Interests (6) 28.63%
Depositary c/o Berkshire Income Realty, Inc.
Receipts One Beacon Street, Suite 1500
Boston, MA 02108

Units of Douglas Krupp 3,655,838 Interests (6) 28.63%
Depositary c/o Berkshire Income Realty, Inc.
Receipts One Beacon Street, Suite 1500
Boston, MA 02108

(1) In connection with the April 4, 2003 closing of BIR's offer to exchange
shares of it's 9% Series A Cumulative Redeemable Preferred Stock,
liquidation value $25 per share ("Preferred Stock") for units of
depositary receipts representing units of limited partner interests
("Interests") in Krupp Insured Plus III Limited Partnership ("the
Partnership"), BIR acquired 3,655,838 Interests of the Partnership. On
April 4, 2003, BIR contributed such shares to BIR - OP in exchange for
100% of the preferred limited partnership interest in BIR - OP. BIR also
owns 100% of the limited liability company interests of BIR GP, L.L.C.,
the general partner of BIR - OP. By virtue of such interests, BIR may be
deemed to beneficially own indirectly the Interests of the Partnership
owned by BIR - OP.

(2) BIR GP, L.L.C. owns 100% of the general partnership interests in BIR - OP,
and by virtue of such interest, BIR GP, L.L.C. may be deemed to
beneficially own indirectly the Interests of the Partnership owned by BIR
- OP.

(3) KRF Company, L.L.C. owns 100% of the common limited partnership interests
in BIR - OP and 100% of the common stock of BIR, and by virtue of such
interests, KRF Company, L.L.C. may be deemed to beneficially own
indirectly the Interests of the Partnership owned by BIR - OP.

(4) The Krupp Family Limited Partnership - 94 owns 100% of the limited
liability company interests in KRF company, L.L.C., and by virtue of such
interest, The Krupp Family Limited Partnership - 94 may be deemed to
beneficially own indirectly the Interests of the Partnership owned by BIR
- OP.

(5) Each of the Douglas Krupp 1980 Family Trust and The George Krupp 1980
Family Trust owns 50% of the limited partnership interests in the Krupp
Family Limited Partnership - 94, and by virtue of such interests, The
Douglas Krupp 1980 Family Trust and The George Krupp 1980 Family Trusts
each may be deemed to beneficially own indirectly the Interests of the
Partnership owned by BIR - OP. The trustees of The Douglas Krupp 1980
Family Trust are Paul Krupp, Lawrence Silverstein and Vincent O'Reilly,
and the trustees of the George Krupp 1980 Family Trust are Paul Krupp and
Lawrence Silverstein. Each of the trustees of The Douglas Krupp 1980
Family Trust and The George Krupp 1980 Family Trust disclaims beneficial
ownership of any such Interests of the Partnership that are or may be
deemed to be beneficially owned by Douglas Krupp, George D. Krupp, The
Douglas Krupp 1980 Family Trust or The George Krupp 1980 Family Trust.

-10-

(6) The general partners of The Krupp Family Limited Partnership - 94 are
George D. Krupp and Douglas Krupp, each of whom owns 50% of the general
partner interests in the Krupp Family Limited Partnership - 94, and by
virtue of such interests, George D. Krupp and Douglas Krupp each may be
deemed to beneficially own indirectly the Interests of the Partnership
owned by BIR - OP.

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 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.

Upon the occurrence of a Terminating Capital Transaction, as defined in the
Partnership Agreement profits from the Terminating Capital Transaction shall be
allocated first to the Limited Partners and General Partners to the extent of
any then existing negative account balances or if in an amount insufficient to
reduce those negative capital account balances to zero, then in proportion to
any negative account balances, second, to the Limited Partners until their
Capital Account is equal to their Invested Capital, third, to the General
Partners until their Capital Account is equal to their Invested Capital, fourth,
99% to the Limited Partners and 1% to the General Partners until the Limited
Partners have been allocated profits equal to the Cumulative Return on Invested
Capital less the sum of all amounts of cash distributed to the Limited Partners
from Distributable Cash Flow and from Capital Transaction Proceeds, fifth, to
the General Partners until they have received profits whenever allocated
pursuant to Section 8.1(b) Third and Fourth and Section 8.1(c) Fourth equals 4%
of all amounts distributed of the Net Cash Proceeds of the Terminating Capital
Transaction and all other Capital Transactions whenever occurring, and sixth,
any remaining profits shall be allocated 96% to the Limited Partners and 4% to
the General Partners.

Losses from a Terminating Capital Transaction shall be allocated to the Limited
Partners and the General Partners to the extent of, and any excess in proportion
to, the positive balances in their Capital Accounts. The net cash proceeds of a
Terminating Capital Transaction will be allocated among the Partners first, to
each class of Partners in the amount equal to, or if less than, in proportion
to, the positive balance in the Partner's capital accounts, second, to the
Limited Partners until they have received a return of their total Invested
Capital, third, to the General Partners until they have received a return of
their total Invested Capital, fourth, 99% to the Limited Partners and 1% to the
General Partners until the Limited Partners have received any deficiency in the
11% cumulative return on their Invested Capital that exists through fiscal years
prior to the date of the Terminating Capital Transaction, fifth, to the General
Partners until they have received an amount equal to 4% of all amounts of cash
distributed under all capital transactions and sixth, 96% to the Limited
Partners and 4% to the General Partners.

Upon the dissolution and termination of the Partnership, the General Partners
will contribute to the Partnership an amount equal to the lesser of the deficit
balances in their capital accounts or the excess of 1.01% of the total Capital
Contributions of the Limited Partners over the amount of capital previously
contributed by the General Partners.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Under the terms of the Partnership Agreement, the General Partners or their
affiliates are paid an Asset Management Fee equal to 0.75% per annum of the
remaining face value of the Partnership's mortgage assets, payable quarterly.
The General Partners may also receive an incentive management fee in the amount
equal to 0.3% 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. During 2003, Mortgage
Services Partners Limited Partnership, a General Partner, received $122,563
related to the Asset Management Fee.

Additionally, the Partnership reimburses affiliates of the General Partners for
certain expenses incurred in connection with maintaining the books and records
of the Partnership, the preparation and mailing of financial reports, tax
information and other communications to the investors and legal fees and
expenses. During 2003, The Berkshire Companies Limited Partnership and Berkshire
Mortgage Finance Limited Partnership, affiliates of the General Partners,
received a total of $205,441 in reimbursements

During 2003, the General Partners received distributions totaling $35,671
related to their 3% share of Distributable Cash Flow.

-11-

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following is a summary of the fees billed to the Partnership by
PricewaterhouseCoopers LLP for professional services rendered for the fiscal
years ended December 31, 2003 and December 31, 2002:

Fee Category Fiscal 2003 Fees Fiscal 2002 Fees
- ------------ ---------------- ----------------

Audit Fees $17,500 $17,500
Audit-Related Fees -- 2,901
Tax Fees 2,205 2,100
------- -------

Total Fees $19,705 $22,501
======= =======

Audit Fees. Consists of fees billed for professional services rendered for the
audit of Partnership's annual financial statements and for the reviews of the
unaudited financial statements included in the Partnership's Quarterly Reports
on Form 10-Q during 2003.

Audit-Related Fees. Consists of fees billed for assurance and related services
that are reasonably related to the performance of the audit of the Partnership's
annual financial statements and for the reviews of the unaudited quarterly
financial statements and are not reported under "Audit Fees." For 2002,
represents fees for S-11 research and SEC Comment Letter response in connection
with the BIR exchange offer.

Tax Fees. Consists of fees billed for professional services for tax compliance.

PART IV

ITEM 15. 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) Reports on Form 8-K

During the last quarter of the year ended December 31, 2003, the
Partnership did not file any reports on Form 8-K.

(c) 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)].*

-12-

(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)].*

Harbor Club Apartments

(10.3) Prospectus for GNMA Pool No. 259237(CS) and 259238(PN).
[Exhibit 19.3 to Registrant's Report on Form 10-Q for
the quarter ended March 31,1990 (File No. 0-17691)].*

(10.4) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated January 30, 1990
between Ann Arbor Harbor Club, a Texas limited
partnership and Krupp Insured Plus-III Limited
Partnership. [Exhibit 19.4 to Registrant's Report on
Form 10-Q for the quarter ended March 31,1990 (File No.
0-17691)].*

(31) Other

(31.1) Senior Vice President Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.+

(31.2) Chief Accounting Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.+

(32) Other

(32.1) Senior Vice President Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. +

(32.2) Chief Accounting Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. +

* Incorporated by reference

+ Filed herewith

-13-

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 18th day of March,
2004

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

By: Krupp Plus Corporation,
a General Partner

By: /s/ Peter F. Donovan
-------------------------------
Peter F. Donovan, Senior Vice
President 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 18th day of March, 2004.

Signatures Title(s)
---------- --------

/s/ Peter F. Donovan Senior Vice President of Krupp Plus
- ------------------------ Corporation, a General Partner
Peter F. Donovan

/s/ George Krupp Co-Chairman (Principal Executive Officer)
- ------------------------ and Director of Krupp Plus Corporation, a
George Krupp General Partner

/s/ Alan Reese Treasurer and Chief Accounting Officer of
- ------------------------ Krupp Plus Corporation, a General Partner
Alan Reese

/s/ Douglas Krupp President, Co-Chairman (Principal
- ------------------------ Executive Officer) and Director of Krupp
Douglas Krupp Plus Corporation, a General Partner

-14-

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, 2003

F-1

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

----------------------

Report of Independent Auditors F-3

Balance Sheets at December 31, 2003 and 2002 F-4

Statements of Income and Comprehensive Income for the Years
Ended December 31, 2003, 2002 and 2001 F-5

Statements of Changes in Partners' Equity for the Years Ended
December 31, 2003, 2002 and 2001 F-6

Statements of Cash Flows for the Years Ended December 31, 2003,
2002 and 2001 F-7

Notes to Financial Statements F-8 - F-15

All 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 AUDITORS

----------------------

To the Partners of
Krupp Insured Plus-III Limited Partnership:

In our opinion, the financial statements listed in the accompanying index,
present fairly, in all material respects, the financial position of Krupp
Insured Plus-III Limited Partnership (the "Partnership") at December 31, 2003
and 2002 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 18, 2004

F-3

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

BALANCE SHEETS

December 31, 2003 and 2002

----------------------

ASSETS

2003 2002
------------ ------------

Participating Insured Mortgage ("PIMs")
(Notes B, C and H) $ 12,779,997 $ 12,893,859
Mortgage-Backed Securities and insured
mortgage ("MBS")(Notes B, D and H) 1,216,717 10,157,171
------------ ------------

Total mortgage investments 13,996,714 23,051,030

Cash and cash equivalents (Notes B and H) 1,412,465 1,209,070
Interest receivable and other assets 98,711 156,686
------------ ------------

Total assets $ 15,507,890 $ 24,416,786
============ ============

LIABILITIES AND PARTNERS' EQUITY

Liabilities $ 99,330 $ 40,505
------------ ------------

Partners' equity (deficit) (Notes A and E):

Limited Partners 15,528,672 24,429,938
(12,770,261 Limited Partner interests outstanding)

General Partners (199,025) (196,121)

Accumulated comprehensive income (Note B) 78,913 142,464
------------ ------------

Total Partners' equity 15,408,560 24,376,281
------------ ------------

Total liabilities and Partners' equity $ 15,507,890 $ 24,416,786
============ ============

The accompanying notes are an integral
part of the financial statements.

F-4

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Years Ended December 31, 2003, 2002 and 2001

----------------------

2003 2002 2001
----------- ---------- ----------

Revenues (Notes B, C and D):
Interest income - PIMs:
Basic interest $ 1,026,637 $1,138,451 $2,510,661
Participation interest -- 1,339,172 25,000
Interest income - MBS 507,066 799,498 894,099
Other interest income 33,993 188,284 101,289
----------- ---------- ----------

Total revenues 1,567,696 3,465,405 3,531,049
----------- ---------- ----------

Expenses:
Asset management fee to an affiliate (Note F) 122,563 186,139 318,136
Expense reimbursements to affiliates (Note F) 205,441 99,709 96,318
Amortization of prepaid fees and expenses (Note B) -- 71,115 214,012
General and administrative 147,464 154,507 139,043
----------- ---------- ----------

Total expenses 475,468 511,470 767,509
----------- ---------- ----------

Net income (Notes E and G) 1,092,228 2,953,935 2,763,540

Other comprehensive income:

Net increase (decrease) in unrealized gain on MBS (63,551) 11,349 18,673
----------- ---------- ----------

Total comprehensive income $ 1,028,677 $2,965,284 $2,782,213
=========== ========== ==========

Allocation of net income (Notes E and G):

Limited Partners $ 1,059,461 $2,865,317 $2,680,634
=========== ========== ==========

Average net income per Limited Partner
interest (12,770,261 Limited Partner
interests outstanding) $ 0.08 $ 0.22 $ 0.21
=========== ========== ==========

General Partners $ 32,767 $ 88,618 $ 82,906
=========== ========== ==========

The accompanying notes are an integral
part of the financial statements.

F-5

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' EQUITY

For the Years Ended December 31, 2003, 2002 and 2001

----------------------

Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
------------ --------- --------- ------------

Balance at December 31, 2000 $ 49,660,074 $(205,525) $ 112,442 $ 49,566,991

Net income 2,680,634 82,906 -- 2,763,540

Quarterly distributions (4,086,451) (95,244) -- (4,181,695)

Special distributions (6,768,186) -- -- (6,768,186)

Change in unrealized gain on MBS -- -- 18,673 18,673
------------ --------- --------- ------------

Balance at December 31, 2001 41,486,071 (217,863) 131,115 41,399,323

Net income 2,865,317 88,618 -- 2,953,935

Quarterly distributions (4,086,450) (66,876) -- (4,153,326)

Special distributions (15,835,000) -- -- (15,835,000)

Change in unrealized gain on MBS -- -- 11,349 11,349
------------ --------- --------- ------------

Balance at December 31, 2002 24,429,938 (196,121) 142,464 24,376,281

Net income 1,059,461 32,767 -- 1,092,228

Quarterly distributions (1,787,824) (35,671) -- (1,823,495)

Special distributions (8,172,903) -- -- (8,172,903)

Change in unrealized gain on MBS -- -- (63,551) (63,551)
------------ --------- --------- ------------

Balance at December 31, 2003 $ 15,528,672 $(199,025) $ 78,913 $ 15,408,560
============ ========= ========= ============

The accompanying notes are an integral
part of the financial statements.

F-6

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2003, 2002 and 2001

----------------------

2003 2002 2001
----------- ------------ ------------

Operating activities:
Net income $ 1,092,228 $ 2,953,935 $ 2,763,540
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses -- 71,115 214,012
Shared Appreciation Interest -- (1,004,379) (15,000)
Prepayment premium (235,918) -- --
Changes in assets and liabilities:
Decrease in interest receivable and other assets 57,975 118,408 52,960
Increase in liabilities 58,825 22,628 227
----------- ------------ ------------

Net cash provided by operating activities 973,110 2,161,707 3,015,739
----------- ------------ ------------

Investing activities:
Principal collections on PIMs including Shared Appreciation
Interest of $1,004,379 in 2002 113,862 15,873,315 6,860,428
Principal collections on MBS including a prepayment
premium of $235,918 in 2003 9,112,821 1,261,630 1,064,246
----------- ------------ ------------

Net cash provided by investing activities 9,226,683 17,134,945 7,924,674
----------- ------------ ------------

Financing activities:
Special distributions (8,172,903) (15,835,000) (6,768,186)
Quarterly distributions (1,823,495) (4,153,326) (4,181,695)
----------- ------------ ------------

Net cash used for financing activities (9,996,398) (19,988,326) (10,949,881)
----------- ------------ ------------

Net increase (decrease) in cash and cash equivalents 203,395 (691,674) (9,468)

Cash and cash equivalents, beginning of period 1,209,070 1,900,744 1,910,212
----------- ------------ ------------

Cash and cash equivalents, end of period $ 1,412,465 $ 1,209,070 $ 1,900,744
=========== ============ ============

Non cash activities:
Increase (decrease) in unrealized gain on MBS $ (63,551) $ 11,349 $ 18,673
=========== ============ ============

The accompanying notes are an integral
part of the financial statements.

F-7

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

----------------------

A. Organization

Krupp Insured Plus-III Limited Partnership (the "Partnership") was formed
on March 21, 1988 by filing a Certificate of Limited Partnership in The
Commonwealth of Massachusetts. The Partnership was organized for the
purpose of investing in multi-family loans and mortgage backed securities.
The Partnership issued all of the General Partner Interests to Krupp Plus
Corporation and Mortgage Services Partners Limited Partnership in exchange
for capital contributions aggregating $3,000. The Partnership terminates
on December 31, 2028, unless terminated earlier upon the occurrence of
certain events as set forth in the Partnership Agreement.

The Partnership commenced the public offering of Limited Partner interests
on June 24, 1988 and completed its public offering having sold 12,770,161
Limited Partner interests for $254,686,736 net of purchase volume
discounts of $716,484 as of June 22, 1990. In addition, Krupp Depositary
Corporation owns one hundred Limited Partner interests.

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):

Basis of Presentation

The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with accounting principles generally
accepted in the United States of America ("GAAP").

MBS

The Partnership, in accordance with Financial Accounting Standards Board's
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"), classifies its MBS portfolio as
available-for-sale. The Partnership classifies its MBS portfolio as
available-for-sale as a portion of the MBS portfolio may remain after all
of the PIMs pay off and that it will be necessary to then sell the
remaining MBS portfolio at that time in order to close out the
Partnership. In addition, other situations such as liquidity needs could
arise which would necessitate the sale of a portion of the MBS portfolio.
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.

The Partnership also held a Federal Housing Administration ("FHA") insured
mortgage which was classified as an MBS. The Partnership held this loan at
amortized cost and did not establish loan loss reserves on this investment
as it was fully insured by the FHA.

PIMs

The Partnership accounts for its MBS portion of its PIM investment in
accordance with FAS 115, under the classification of held to maturity as
this investment has a participation feature. As a result, the Partnership
would not sell or otherwise dispose of the MBS. Accordingly, the
Partnership has both the intention and ability to hold this investment to
expected maturity. The Partnership carries this MBS at amortized cost.

Basic interest on the PIM is recognized based on the stated coupon rate of
the Government National Mortgage Association ("GNMA") MBS. The Partnership
recognizes interest related to the participation features when the amount
becomes fixed and the transaction that gives rise to such amount is
finalized, cash is received and all contingencies are resolved. This could
be the sale or refinancing of the underlying real estate, which results in
a cash payment to the Partnership or a cash payment made to the
Partnership from surplus cash relative to the participation feature.

Continued

F-8

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS, 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 majority of the Partnership's cash and cash equivalents
are at major commercial banks which may at times exceed the Federal
Deposit Insurance Corporation limit of $100,000. The Partnership has not
experienced any loses to date on its invested cash.

Prepaid Fees and Expenses

Prepaid fees and expenses consisted of prepaid acquisition fees and
expenses and prepaid participation servicing fees paid for the acquisition
and servicing of PIMs. The Partnership amortized the prepaid acquisition
fees and expenses using a method that approximated the effective interest
method over a period of ten to twelve years, which represented the
estimated life of the underlying mortgage.

The Partnership amortized prepaid participation servicing fees using a
method that approximated the effective interest method over a ten year
period beginning at final endorsement of the GNMA loan and at closing if a
Fannie Mae loan.

Upon the repayment of a PIM, any unamortized acquisition fees and expenses
and unamortized participation servicing fees related to such loan were
expensed.

Income Taxes

The Partnership is not liable for federal or state income taxes as
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 GAAP 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. Significant estimates include the
unrealized gain on MBS investments. Actual results could differ from those
estimates.

C. PIMs

At December 31, 2003 and 2002, the Partnership had an investment in one
PIM. The Partnership's remaining PIM consists of a GNMA MBS representing
the securitized first mortgage loan on the underlying property and a
participation interest in the revenue stream and appreciation of the
underlying property above specified base levels. The borrower conveys this
participation feature to the Partnership through a subordinated
multifamily mortgage (the "Agreement").

The Partnership receives guaranteed monthly payments of principal and
interest on the GNMA MBS and HUD insures the first mortgage loan
underlying the GNMA MBS. There are no contractual obligations remaining on
the remaining PIM that would prevent a prepayment of the first mortgage
loan. The Partnership may receive interest related to its participation
interest in the underlying property, however, this amount is neither
insured nor guaranteed.

The participation feature consists of the following: (i) "Minimum
Additional Interest" of 0.75% per annum calculated on the unpaid principal
balance of the first mortgage on the underlying property, (ii) "Shared
Income Interest" of 25% 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 and (iii) "Shared Appreciation Interest" of 35% of any
increase in the value of the underlying property in excess of a specified
base. Payment of Minimum Additional Interest and Shared Income Interest
from the operations of the property is limited to 50% of Surplus Cash as
defined by HUD.

Continued

F-9

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS, Continued

----------------------

C. PIMs, continued

The total amount of Minimum Additional Interest, Shared Income Interest
and Shared Appreciation Interest payable on the maturity date by the
underlying borrower usually cannot exceed 50% of any increase in value of
the property. However, generally any net proceeds from a sale or
refinancing will be available to satisfy any accrued but unpaid Shared
Income or Minimum Additional Interest. Shared Appreciation Interest is
payable when one of the following occurs: (1) the sale of the underlying
property to an unrelated third party on a date which is later than five
years from the date of the Agreement, (2) the maturity date or accelerated
maturity date of the Agreement, or (3) prepayment of amounts due under the
Agreement and the insured mortgage.

Under the Agreement, the Partnership, upon giving twelve months written
notice, can accelerate the maturity date of the Agreement and insured
mortgage to a date not earlier than ten years from the date of the
Agreement for (a) the payment of all participation interest due under the
Agreement as of the accelerated maturity date, or (b) the payment of all
participation interest due under the Agreement plus all amounts due on the
first mortgage note on the property.

During 2002, the Partnership received a prepayment of the Royal Palm Place
PIM. On January 2, 2002, the Partnership received $1,004,379 of Shared
Appreciation Interest and $334,793 of Minimum Additional Interest. On
February 25, 2002, the Partnership received $14,764,062 representing the
principal proceeds on the first mortgage. On March 19, 2002, the
Partnership paid a special distribution of $1.24 per Limited Partner
interest from the principal proceeds and Shared Appreciation Interest
received.

During June 2001, the Partnership received a payoff of the Casa Marina PIM
in the amount of $6,727,016. In addition, the Partnership received $15,000
of Shared Appreciation Interest and $10,000 of Minimum Additional Interest
upon the payoff of the underlying mortgage. On July 18, 2001, the
Partnership paid a special distribution of $.53 per Limited Partner
interest from the principal proceeds and Shared Appreciation received from
Casa Marina.

At December 31, 2003 and 2002 there were no loans within the Partnership's
portfolio that were delinquent as to principal or interest.

The Partnership's remaining PIM investment consisted of the following at
December 31, 2003 and 2002:

Approximate
Maturity Monthly
Original Interest Date Payment Investment Basis at
Face Amount Rate (a) (e) (f) December 31,
----------- -------- -------- ----------- ------------------------------
2003 2002
----------- -----------

GNMA

Harbor Club Apts
Ann Arbor, MI $13,562,000 8.00% 10/15/31 $95,000 $12,779,997 $12,893,859
=========== =========== ===========
(b)(c) (g)
(d)

Continued

F-10

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS, Continued

----------------------

C. PIMs, continued

(a) Represents the basic interest rate of the GNMA MBS. The Partnership
may also receive additional interest, consisting of (i) Minimum
Additional Interest (ii) Shared Income Interest and (iii) Shared
Appreciation Interest

(b) Minimum Additional Interest is at a rate of 0.75% per annum
calculated on the unpaid principal balance of the first mortgage
note.

(c) Shared Income Interest is based on 25% of monthly gross rental
income over a specified base amount.

(d) Shared Appreciation Interest is based on 35% of any increase in the
value of the project over the specified base value.

(e) The Partnership can accelerate the maturity date of the GNMA MBS at
any time if it deems it appropriate.

(f) The normal monthly payment consists of principal and interest is
payable monthly at level amounts over the term of the GNMA MBS. The
GNMA MBS can be prepaid at any time without a prepayment premium.

(g) The aggregate cost of PIMs for federal income tax purposes is
$12,779,997.

A reconciliation of the carrying value of PIMs for each of the three years
in the period ended December 31, 2003 is as follows:

2003 2002 2001
------------ ------------ ------------

Balance at beginning of period $ 12,893,859 $ 27,762,795 $ 34,608,223

Deductions during period:
Principal collections (113,862) (14,868,936) (6,845,428)
------------ ------------ ------------

Balance at end of period $ 12,779,997 $ 12,893,859 $ 27,762,795
============ ============ ============

The underlying mortgage of the Harbor Club PIM is collateralized by a
multi-family apartment complex located in Ann Arbor, MI. The apartment
complex has 208 units.

D. MBS

At December 31, 2003, the Partnership's MBS portfolio had an amortized
cost of $1,137,804 and gross unrealized gains of $78,913. At December 31,
2002, the Partnership's MBS portfolio had an amortized cost of $2,136,726
and gross unrealized gains of $142,464. At December 31, 2002, the
Partnership's insured mortgage loan had an amortized cost of $7,877,981
and gross unrealized gains of $492,374. The portfolio has maturity dates
ranging from 2016 to 2024.

On April 10, 2003, the Partnership received a prepayment of the Signature
Point insured mortgage for $7,863,532. The Partnership also received a
prepayment premium of $235,918 from this payoff. On May 5, 2003, the
Partnership paid a special distribution of $0.64 per Limited Partner
interest from the proceeds received.

The Partnership's MBS portfolio has the following contractual maturities
as of December 31, 2003:

Unrealized
Maturity Date Fair Value Gain
------------- ---------- ----------
2004 - 2008 $ -- $ --
2009 - 2013 -- --
2014 - 2024 1,216,717 78,913
---------- -------

Total $1,216,717 $78,913
========== =======

Continued

F-11

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS, Continued

----------------------

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 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.

Upon the occurrence of a Terminating Capital Transaction, as defined in
the Partnership Agreement profits from the Terminating Capital Transaction
shall be allocated first to the Limited Partners and General Partners to
the extent of any then existing negative account balances or if in an
amount insufficient to reduce those negative capital account balances to
zero, then in proportion to any negative account balances, second, to the
Limited Partners until their Capital Account is equal to their Invested
Capital, third, to the General Partners until their Capital Account is
equal to their Invested Capital, fourth, 99% to the Limited Partners and
1% to the General Partners until the Limited Partners have been allocated
profits equal to the Cumulative Return on Invested Capital less the sum of
all amounts of cash distributed to the Limited Partners from Distributable
Cash Flow and from Capital Transaction Proceeds, fifth, to the General
Partners until they have received profits whenever allocated pursuant to
Section 8.1(b) Third and Fourth and Section 8.1(c) Fourth equals 4% of all
amounts distributed of the Net Cash Proceeds of the Terminating Capital
Transaction and all other Capital Transactions whenever occurring, and
sixth, any remaining profits shall be allocated 96% to the Limited
Partners and 4% to the General Partners.

Losses from a Terminating Capital Transaction shall be allocated to the
Limited Partners and the General Partners to the extent of, and any excess
in proportion to, the positive balances in their Capital Accounts. The net
cash proceeds of a Terminating Capital Transaction will be allocated among
the Partners first, to each class of Partners in the amount equal to, or
if less than, in proportion to, the positive balance in the Partner's
capital accounts, second, to the Limited Partners until they have received
a return of their total Invested Capital, third, to the General Partners
until they have received a return of their total Invested Capital, fourth,
99% to the Limited Partners and 1% to the General Partners until the
Limited Partners have received any deficiency in the 11% cumulative return
on their Invested Capital that exists through fiscal years prior to the
date of the Terminating Capital Transaction, fifth, to the General
Partners until they have received an amount equal to 4% of all amounts of
cash distributed under all capital transactions and sixth, 96% to the
Limited Partners and 4% to the General Partners.

Upon the dissolution and termination of the Partnership, the General
Partners will contribute to the Partnership an amount equal to the lesser
of the deficit balances in their capital accounts or the excess of 1.01%
of the total Capital Contributions of the Limited Partners over the amount
of capital previously contributed by the General Partners.

During 2003, 2002 and 2001, the Partnership made quarterly distributions
totaling $0.14, $0.32 and $0.32 per Limited Partner interest respectively.
The Partnership made special distributions of $0.64, $1.24 and $0.53 per
Limited Partner interest in 2003, 2002, and 2001, respectively.

Continued

F-12

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS, Continued

----------------------

E. Partners' Equity, continued

As of December 31, 2003, the following cumulative partner contributions
and allocations have been made since inception of the Partnership:

Corporate Accumulated Total
Limited General Comprehensive Partners'
Unitholders Partner Partners Income Equity
------------- --------- ----------- ------------- -------------

Capital contributions $ 254,686,736 $ 2,000 $ 3,000 $ -- $ 254,691,736

Syndication costs (15,834,700) -- -- -- (15,834,700)

Quarterly distributions (199,248,333) (1,671) (4,548,377) -- (203,798,381)

Special distributions (164,606,092) (1,289) -- -- (164,607,381)

Net income 140,530,852 1,169 4,346,352 -- 144,878,373

Unrealized gains on MBS -- -- -- 78,913 78,913
------------- ------- ----------- ------- -------------

Total at December 31, 2003 $ 15,528,463 $ 209 $ (199,025) $78,913 $ 15,408,560
============= ======= =========== ======= =============

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 0.75% per annum
of the remaining face value of the Partnership's mortgage assets, payable
quarterly. The General Partners may also receive an incentive management
fee in the amount equal to 0.3% 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, the preparation and mailing of
financial reports, tax information and other communications to the
investors and legal fees and expenses.

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 2003
federal income tax return is as follows:

Net income per statement of income $ 1,092,228

Less: Book to tax difference related to amortization
of prepaid fees and expenses (33,708)
-----------

Net income for federal income tax purposes $ 1,058,520
===========

Continued

F-13

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS, Continued

----------------------

G. Federal Income Taxes, continued

The allocation of the net income for federal income tax purposes for 2003
is as follows:

Net
Income
----------

Unitholders $1,026,756
Corporate Limited Partner 8
General Partners 31,756
----------
$1,058,520
==========

During the years ended December 31, 2003, 2002 and 2001 the average per
unit net income to the Unitholders for federal income tax purposes was
$0.08, $0.23 and $0.18 respectively.

The basis of the Partnership's assets for financial reporting purposes was
less than its tax basis by approximately $853,000 and $823,000 at December
31, 2003 and 2002, respectively. At December 31, 2003 and 2002, the basis
of the Partnership's liabilities for financial reporting purposes was the
same as its tax basis.

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 while it estimated the fair value of insured mortgages based on
quoted prices of MBS with similar interest rates. Based on the estimated
fair value determined using these methods and assumptions, the
Partnership's investments in MBS had gross unrealized gains of
approximately $79,000 at December 31, 2003 and the Partnership's
investment in MBS and insured mortgages had gross unrealized gains of
approximately $635,000 at December 31, 2002.

PIMs

As there is no active trading market for these investments, Management
estimates the fair value of the PIMs using quoted market prices of MBS
having a similar interest rate and similar expected maturity date.
Management does not include any participation interest in the
Partnership's estimated fair value arising from the properties, as
Management does not believe it can predict the amount or timing of
realization of any such feature with any certainty. Based on the estimated
fair value determined using these methods and assumptions, the
Partnership's investments in PIMs had gross unrealized gains of
approximately $0 and $1,027,000 at December 31, 2003 and December 31,
2002, respectively.

Continued

F-14

KRUPP INSURED PLUS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS, Continued

----------------------

H. Fair Value Disclosures of Financial Instruments, continued

At December 31, 2003 and 2002, the Partnership estimates the fair values
of its financial instruments as follows (amounts rounded to nearest
thousand):

2003 2002
-------------------- --------------------
Fair Carrying Fair Carrying
Value Value Value Value

Cash and cash equivalents $ 1,412 $ 1,412 $ 1,209 $ 1,209

MBS and insured mortgage 1,217 1,217 10,650 10,157

PIMs 12,780 12,780 13,921 12,894
------- ------- ------- -------

$15,409 $15,409 $25,780 $24,260
======= ======= ======= =======

F-15