-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ArI+JVf9tknuX/MZS/kvPJcC8T9f8D44K7DHwW/WggcDAMkMDXv94mkKcTYf5IHo AvLfHpoOHOrBJPS5AplGag== 0000832091-96-000002.txt : 19960329 0000832091-96-000002.hdr.sgml : 19960329 ACCESSION NUMBER: 0000832091-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP INSURED PLUS III LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000832091 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 043007489 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17691 FILM NUMBER: 96539908 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESx EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-17691 Krupp Insured Plus-III Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-3007489 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 423-2233 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Depositary Receipts representing Units of Limited Partner Interests Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of voting securities held by non-affiliates: Not applicable. Documents incorporated by reference: see Part IV, Item 14 The exhibit index is located on pages 8-14. PART I ITEM 1. BUSINESS Krupp Insured Plus-III Limited Partnership (the "Partnership") is a Massachusetts limited partnership which was formed on March 21, 1988. The Partnership raised approximately $255 million through a public offering of limited partner interests evidenced by units of depositary receipts ("Units") and used the net proceeds primarily to acquire participating insured mortgages ("PIMs") and mortgage-backed securities ("MBS"). The Partnership considers itself to be engaged in only one industry segment, investment in mortgages. The Partnership's investments in PIMs on multi-family residential properties consist of a MBS or an insured mortgage loan (collectively, the "insured mortgage") guaranteed or insured as to principal and basic interest and a participation feature that is not insured or guaranteed. The insured mortgages were issued or originated under or in connection with the housing programs of the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Housing Administration ("FHA") under the authority of the Department of Housing and Urban Development ("HUD"). PIMs provide the Partnership with monthly payments of principal and interest on the insured mortgage and also provide for Partnership participation in the current revenue stream and in residual value, if any, as a result of a sale or other realization of the underlying property from the participation feature. The borrower conveys the participation rights to the Partnership through a subordinated promissory note and mortgage. The Partnership also acquired MBS collateralized by single-family or multi-family mortgage loans issued or originated by GNMA, FNMA, the Federal Home Loan Mortgage Corporation ("FHLMC") or the FHA. FNMA, FHLMC and GNMA guarantee the principal and basic interest of the FNMA, FHLMC and GNMA MBS, respectively. HUD insures the pooled mortgage loans underlying the GNMA MBS and FHA mortgage loans. Prior to June 22, 1995 the Partnership could reinvest or commit for reinvestment principal proceeds or other realization of the mortgages in new mortgages, but following that date, the Partnership must distribute to the investors through quarterly, or possibly special distributions, proceeds received from prepayments or other realizations of mortgage assets. Although the Partnership will terminate no later than December 31, 2028 it is expected that the value of the PIMs generally will be realized by the Partnership through repayment or sale as early as ten years from the dates of the closings of the permanent loans and that the Partnership will realize the value of all of its other investments within that time frame thereby resulting in a dissolution of the Partnership significantly prior to December 31, 2028. The Partnership's investments are not expected to be subject to seasonal fluctuations. However, the future performance of the Partnership will depend upon certain factors which can not be predicted. Such factors include interest rate fluctuation and the credit worthiness of GNMA, FNMA, HUD and FHLMC. Any ultimate realization of the participation features on PIMs is subject to similar risks associated with equity real estate investments, including: reliance on the owner's operating skills, ability to maintain occupancy levels, control operating expenses, maintain the property and obtain adequate insurance coverage; adverse changes in government regulations, real estate zoning laws, or tax laws; and other circumstances over which the Partnership may have little or no control. The requirements for compliance with federal, state and local regulations to date have not had an adverse effect on the Partnership's operations, and no adverse effect therefrom is now anticipated in the future. As of December 31, 1995, there were no personnel directly employed by the Partnership. ITEM 2. PROPERTIES None. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or to which any of its investments is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There currently is no established trading market for the Units. The number of investors holding Units as of December 31, 1995 was approximately 12,000. One of the objectives of the Partnership is to provide quarterly distributions of cash flow generated by its investments in mortgages. The Partnership anticipates that future operations will continue to generate cash available for distributions. The Partnership made the following distributions, in quarterly installments, to its Partners during the two years ended December 31, 1995 and 1994:
1995 1994 Average Average Amount Per Unit Amount Per Unit Limited Partners $15,324,192 $1.20 $21,242,039 $1.66 General Partners 421,051 400,197 $15,745,243 $21,642,236
ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Financial Statement Schedule, which are included in Item 7 and Item 8, (Appendix A) of this report, respectively.
1995 1994 1993 1992 1991 Total revenues $ 15,728,883 $ 15,725,544 $ 16,164,307 $ 17,217,037 $ 18,110,154 Net income 12,335,057 12,197,925 12,647,339 13,486,347 14,497,525 Net income allocated to: Limited Partners 11,965,005 11,831,987 12,267,919 13,081,757 14,062,599 Average per Unit .94 .93 .96 1.02 1.10 General Partners 370,052 365,938 379,420 404,590 434,926 Total assets at December 31 201,760,285 203,907,975 213,344,580 222,293,447 230,468,829 Distributions to: Limited Partners 15,324,192 21,242,039 21,183,876 21,213,068 21,198,422 Average per Unit 1.20 1.66 1.66 1.66 1.66 General Partners 421,051 400,197 411,646 453,383 485,305
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The most significant demand on the Partnership's liquidity are quarterly distributions paid to investors of approximately $3.8 million in 1995. Funds used for investor distributions come from interest received on the PIMs, MBS, cash and cash equivalents net of operating expenses, and certain principal collections received on the PIMs and MBS. The cash generated by these items totaled approximately $16.8 million in 1995. The Partnership funds a portion of the distributions from principal collections, as a result, the capital resources of the Partnership will continually decrease. As the capital resources decrease, the total cash inflows to the Partnership will also decrease which will result in periodic adjustments to the quarterly distributions paid to investors. The General Partners periodically review the distribution rate to determine whether an adjustment to the distribution rate is necessary based on projected future cash flows. In general, the General Partners try to set a distribution rate that provides for level quarterly distributions of cash available for distribution. To the extent quarterly distributions do not fully utilize the cash available for distribution and cash balances increase, the General Partners may adjust the distribution rate or distribute such funds through a special distribution. During December 1995 the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Federal National Mortgage Association ("FNMA") mortgage-backed security ("MBS") and increased its participation percentage in income and appreciation from 25% to 30%. During December 1995, the Partnership received its pro-rata share of a $90,644 principal payment and will receive interest only payments on the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum through maturity in 2006. Also, the Partnership will receive its pro-rata share of the $250,000 principal payments due on December 1 of each of the next four years. As a result of the modification, the Royal Palm PIM will continue to provide the Partnership with a competitive yield, potential participation in future income and appreciation, and principal and interest from the FNMA MBS will continue to be guaranteed by FNMA. For the first five years of the PIMs the borrowers are prohibited from repaying. For the second five years, the borrower can repay the loans incurring a prepayment penalty. The Partnership has the option to call certain PIMs by accelerating their maturity if the loans are not prepaid by the tenth year after permanent funding. The Partnership will determine the merits of exercising the call option for each PIM as economic conditions warrant. Such factors as the condition of the asset, local market conditions, interest rates and available financing will have an impact on this decision. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by FNMA, FHLMC, GNMA and HUD and therefore the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities. FNMA is a federally chartered private corporation that guarantees obligations originated under its programs. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs and is wholly-owned by the twelve Federal Home Loan Banks. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA guarantees the full and timely payment of principal and basic interest on the securities it issues, which represent interests in pooled mortgages insured by HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by the full faith and credit of the U.S. Government. Distributable Cash Flow and Net Cash Proceeds from Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions as defined in Section 17 of the Partnership Agreement and the source of cash distributions for the year ended December 31, 1995 and the period from inception through December 31, 1995. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. (Amounts in thousands, except per Unit amounts)
Inception Year Ended Through 12/31/95 12/31/95 Distributable Cash Flow: Income for tax purposes $13,070 $ 97,095 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid expenses, fees and organization costs 888 6,069 Acquisition expenses paid from offering proceeds charged to operations - 184 Shared appreciation income - (800) Gain on sale of MBS - (253) Total Distributable Cash Flow ("DCF") $13,958 $102,295 Limited Partners Share of DCF $13,539 $ 99,226 Limited Partners Share of DCF per Unit $ 1.06 $ 7.77 (c) General Partners Share of DCF $ 419 $ 3,069 Net Proceeds from Capital Transactions: Principal collections and prepayments (including Shared appreciation income) on PIMs $ 972 $ 17,838 Principal collections and sales proceeds on MBS (including gain on sale) 1,866 60,544 Reinvestment of MBS and PIM principal collections (1,028) (41,960) MBS and PIM principal collections or prepayment (reserved for reinvestment) released from reserve 1,030 - Total Net Proceeds from Capital Transactions $ 2,840 $ 36,422 Cash available for distribution (DCF plus proceeds from Capital transactions) $16,798 $138,717 Distributions: Limited Partners $15,324 (a) $134,760 (b) Limited Partners Average per Unit $ 1.20 (a) $ 10.55 (b)(c) General Partners $ 419 (a) $ 3,069 (b) Total Distributions $15,743 (a) $137,829 (b)
(a) Represents all distributions paid in 1995 except the February 1995 distri-bution and includes an estimate of the distribution to be paid in February 1996. (b) Includes distribution to be paid in February 1996. (c) Limited Partners average per Unit return of capital as of February 1996 is $2.78 [$10.55 - $7.77]. Return of capital represents that portion of distributions which is not funded from DCF such as proceeds from the sale of assets and substantially all of the principal collections received from MBS and PIMs. Operations The following discussion relates to the operation of the Partnership during the years ended December 31, 1995, 1994 and 1993.
(Amounts in Thousands) 1995 1994 1993 Interest income on PIMs: Base interest $12,078 $11,985 $12,024 Participation interest received 544 302 208 Interest income on MBS 2,913 2,665 2,827 Interest income - other 195 449 576Partnership expenses (1,772) (1,964) (1,995) Distributable Cash Flow $13,958 $13,437 $13,640 Gain on sale of MBS - - 247 Accrued Participation income - 324 281 Amortization of prepaid expenses and fees (1,623) (1,563) (1,521) Net income $12,335 $12,198 $12,647
Net income did not change materially during any of the three years in the periods ended December 31, 1995, primarily because the Partnership's investments in PIMs remained stable during these periods. Overall, the change in total interest income was not significant during the three years ended December 31, 1995. Participation interest received increased $242,000 or 80.1% during 1995 as compared to 1994 due to the Partnership receiving participation from 11 of the PIMs as compared to 8 PIMs in 1994. Interest income on MBS increased $248,000 in 1995 as compared to 1994 due primarily to the Partnership reinvesting approximately $12 million of principal collections in additional MBS to obtain the higher yields as compared to the available yields on short-term investments. These MBS acquisitions reduced cash available for short-term investment which resulted in a decline in interest income - other in 1995 as compared to 1994. Interest income on MBS decreased $162,000 or 6% during 1994 as compared to 1993 primarily as a result of significant prepayments caused by refinancings of the underlying mortgages during 1993 and the first half of 1994. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of Krupp Plus Corporation which is a General Partner of the Partnership and is the general partner of Mortgage Services Partners Limited Partnership, which is the other General Partner of the Partnership, is as follows: Position with Name and Age Krupp Plus Corporation Douglas Krupp (49) Co-Chairman of the Board George Krupp (51) Co-Chairman of the Board Laurence Gerber (39) President Peter F. Donovan (42) Senior Vice President Robert A. Barrows (38) Treasurer and Chief Accounting Officer Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for the more than $3 billion under management for institutional and individual clients. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp serves as Chairman of the Board and a Director of Berkshire Realty Company, Inc.(NYSE-BRI). George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of 3,400 are responsible for more than $3 billion under management for institutional and individual clients. Mr. Krupp attended the University of Pennsylvania and Harvard University. Mr. Krupp serves as Chairman of the Board and Trustee of Krupp Government Income Trust and Krupp Government Income Trust II. Laurence Gerber is the President and Chief Executive Officer of The Berkshire Group. Prior to becoming President and Chief Executive Officer in 1991, Mr. Gerber held various positions with The Berkshire Group which included overall responsibility at various times for: strategic planning and product development, real estate acquisitions, corporate finance, mortgage banking, syndication and marketing. Before joining The Berkshire Group in 1984, he was a management consultant with Bain & Company, a national consulting firm headquartered in Boston. Prior to that, he was a senior tax accountant with Arthur Andersen & Co., an international accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics from the University of Pennsylvania, Wharton School and an M.B.A. degree with high distinction from Harvard Business School. He is a Certified Public Accountant. Mr. Gerber also serves as President and a Director of Berkshire Realty Company, Inc. (NYSE-BRI) and President and Trustee of Krupp Government Income Trust and Krupp Government Income Trust II. Peter F. Donovan is President of Berkshire Mortgage Finance and directs the underwriting, servicing and asset management of a $2.5 billion multi- family loan portfolio. Previously, he was Senior Vice President of Berkshire Mortgage Finance and was responsible for all mortgage originations. Before joining the firm in 1984, he was Second Vice President, Real Estate Finance for Continental Illinois National Bank & Trust, where he managed a $300 million construction loan portfolio of commercial properties. Mr. Donovan received a B.A. from Trinity College and an M.B.A. degree from Northwestern University. Robert A. Barrows is Senior Vice President and Chief Financial Officer of Berkshire Mortgage Finance and Corporate Controller of The Berkshire Group. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting and financial reporting, treasury, tax, payroll and office administrative activities. Prior to joining The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1995, no person owned of record or was known by the General Partners to own beneficially more than 5% of the Partnership's 12,770,161 outstanding Units. The only interests held by management or its affiliates consist of its General Partner and Corporate Limited Partner interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is contained in Note F to the Partnership's Financial Statements presented in Appendix A to this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 of this report. 2. Financial Statement Schedules - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 of this report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Financial Statements or the Notes thereto. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable Exhibits required under Item 601 of Regulation S-K: (4) Instruments defining the rights of security holders including indentures: (4.1) Agreement of Limited Partnership dated as of June 22, 1988 [Exhibit A included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)].* (4.2) Subscription Agreement whereby a subscriber agrees to purchase Units and adopts the provisions of the Agreement of Limited Partnership [Exhibit D included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)].* (4.3) Copy of First Amended and Restated Certificate of Limited Partnership filed with the Massachusetts Secretary of State on June 22, 1988. [Exhibit 4.4 to Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)].* (10) Material Contracts: (10.1) Revised form of Escrow Agreement [Exhibit 10.1 to Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)] * (10.2) Form of agreement between the Partnership and Krupp Mortgage Corporation [Exhibit 10.2 to Registrant's Registration Statement on Form S-11 dated April 20, 1988 (File No. 33-21200)].* Sundance Apartments (10.3) Prospectus for GNMA Pools No. 276431 (CS) and 276432 (PL) [Exhibit 19.1 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.4) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated July 26, 1989 between Sundance Associates II, Ltd. and Krupp Insured Plus-III Limited Partnership [Exhibit 19.2 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* Woodbine Apartments (10.5) Subordinated Multifamily Deed of Trust (including Subordinated Promissory Note) dated August 23, 1989 between Woodbine II Investors Limited Partnership and Krupp Insured Plus-III Limited Partnership [Exhibit 19.3 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0- 17691)].* (10.6) Participation Agreement dated August 23, 1989 between The Krupp Mortgage Corporation ("Mortgagee") and Krupp Insured Plus-III Limited Partnership (the "Participant") [Exhibit 19.4 to Registrant Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.7) Mortgage Note dated August 23, 1989 between Woodbine II Investors Limited Partnership and Krupp Mortgage Corporation. [Exhibit 19.5 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.8) Deed of Trust dated August 23, 1989 between Woodbine II Investors Limited Partnership and Krupp Mortgage Corporation. [Exhibit 19.6 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* Ironwood Apartments (10.9) Prospectus for GNMA Pool No. 272542(CS) and 272543(PN). [Exhibit 19.7 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.10) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated July 18, 1989 between Ironwood Associates Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.8 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0- 17691)].* (10.11) Mortgage Note dated July 18, 1989 between Ironwood Associates Limited Partnership and Krupp Mortgage Corporation. [Exhibit 19.9 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.12) Mortgage dated July 18, 1989 between Ironwood Associates Limited Partnership and Krupp Mortgage Corporation. [Exhibit 19.10 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* Casa Marina Apartments (10.13) Prospectus for GNMA Pool No. 279699 (CS) and 279700 (PL) [Exhibit 19.11 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.14) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated June 29, 1989 between Beaux Gardens Associates, LTD., a Florida limited partnership and Krupp Insured Plus-II Limited Partnership. [Exhibit 19.12 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.15) Participation Agreement dated July 31, 1989 between Krupp Insured Plus-II Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.13 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* Rosewood Apartments (10.16) Prospectus for GNMA Pool No. 280647(CS) and 280648(PL) [Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (File No. 0-17691).* (10.17) Security Deed Note, dated September 28, 1989 between Knight Davidson Rosewood I, a Georgia general partnership and Krupp Mortgage Corporation. [Exhibit 19.14 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0- 17691)].* (10.18) Security Deed dated September 28, 1989 between Knight Davidson Rosewood I, a Georgia general partnership and Krupp Mortgage Corporation. [Exhibit 19.15 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0- 17691)].* (10.19) Subordinated Multifamily Deed to Secure Debt (including Subordinated Promissory Note) dated September 28, 1989 between Knight Davidson RosewoodI, a Georgia general partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.16 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* Windsor Court (10.20) Supplement to Prospectus for FNMA Pool No. MX-073006 [Exhibit 10.23 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (File No. 0-17691).* (10.21) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated September 26, 1989 between Sexton 1986 Windsor-V, an Indiana limited partnership and Krupp Insured Plus-III Limited Partnership [Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (File No. 0-17691).* Paddock Park II Apartments (10.22) Prospectus for FNMA Pool No. MX-073010 [Exhibit 19.1 to Registrants's Report on Form 10-Q for the quarter ended March 31, 1990 (File No. 0-17691)].* (10.23) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated February 21, 1990 between Paddock Park Ocala II, a Georgia limited partnership and Krupp Insured Plus-III Limited Partnership [Exhibit 19.2 to Registrants's Report on Form 10-Q for the quarter ended March 31,1990 (File No. 0-17691)].* Harbor Club Apartments (10.24) Prospectus for GNMA Pool No. 259237(CS) and 259238(PN). [Exhibit 19.3 to Registrants's Report on Form 10-Q for the quarter ended March 31,1990 (File No. 0-17691)].* (10.25) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated January 30, 1990 between Ann Arbor Harbor Club, a Texas limited partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.4 to Registrants's Report on Form 10-Q for the quarter ended March 31,1990 (File No. 0-17691)].* Mill Ponds Apartments (10.26) Prospectus for FNMA Pool No. MX-073012. [Exhibit 19.1 to Regi-strant's Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 0-17691)].* (10.27) Multifamily Mortgage (including Subordinated Promissory Note) dated May 17, 1990 between State Bank of Countryside, Illinois and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.2 to Registrants's Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 0-17691)].* Friendly Hills Apartments (10.28) Multifamily Deed of Trust (including Subordinated Promissory Note) dated June 27, 1990 between Friendly Hills Apartments, Ltd., a New Jersey Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.3 to Registrants's Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 0-17691)].* (10.29) Deed of Trust Note dated June 27, 1990 between Friendly Hills Apartments, Ltd., a New Jersey Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.4 to Regi-strant's Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 0-17691)].* Paces Arbor (10.30) Prospectus for FNMA Pool No. MX-073015. [Exhibit 19.1 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0- 17691)].* (10.31) Subordinated Multifamily Deed of Trust (including Subordinated Promissory Note) dated June 7, 1990 between Paces Arbor Apartments, Ltd., a North Carolina limited partnership and Krupp Insured Plus- III Limited Partnership. [Exhibit 19.2 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0-17691)].* Paces Forest (10.32) Prospectus for FNMA Pool No. MX-073016. [Exhibit 19.3 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0- 17691)].* (10.33) Subordinated Multifamily Deed of Trust (including Subordinated Promissory Note dated June 7, 1990 between Paces Forest Apartments Limited Partnership, a North Carolina limited partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.4 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0-17691)].* Fourth Ward (10.34) Prospectus for GNMA Pool No. 280969(CS) and 280970(PL). [Exhibit 19.5 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0-17691)].* (10.35) Subordinated Multifamily Deed of Trust (including Subordinated Promissory Note) dated June 27, 1990 between The Fourth Ward Square Associates Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.6 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0-17691)].* Paddock Club (10.36) Prospectus for GNMA Pool No. 280973(CS) and 280974(PL). [Exhibit 19.7 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0-17691)].* (10.37) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated August 2, 1990 between Paddock Club Tallahassee, A Limited Partnership, and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.8 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 0-17691)].* Meridith Square (10.38) Prospectus for FNMA Pool No. MX-073019. [Exhibit 10.41 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 0- 17691)].* (10.39) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated September 17, 1990 between BAND/Carolina Associates Limited Partnership, a Virginia limited partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 0- 17691)].* Paddock Club Jacksonville (10.40) Prospectus for FNMA Pool No. MX-073020. [Exhibit 19.01 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1991 (File No. 0-17691)].* (10.41) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated December 20, 1991 between Paddock Club Jacksonville, a Georgia limited partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.02 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1991 (File No. 0-17691)].* Marina Shores Apartments (10.42) Prospectus for GNMA Pool No. 280971(CS) and 280972(PL). [Exhibit 19.03 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1991 (File No. 0-17691)].* (10.43) Subordinated Multifamily Deed of Trust (including Subordinated Promissory Note) dated June 27, 1990 between Marina Shores Associates One, a Virginia limited partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.04 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1991 (File No. 0-17691)].* (10.44) Participation Agreement dated June 29, 1990 by and between Krupp Insured Plus-III Limited Partnership and Krupp Insured Mortgage Limited Partnership. [Exhibit 19.05 to Registrant's Report on Form 10-Q for the quarter ended March 31, 1991 (File No. 0- 17691)].* Royal Palm Place (10.45) Prospectus for FNMA Pool No. MB-109057.+ (10.46) Subordinated Multifamily Mortgage dated March 20, 1991 between Royal Palm Place, Ltd., a Florida Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.2 to Registrant's Report on Form 10-Q for the quarter ended June 30, 1991 (File No. 0-17691)].* (10.47) Modification Agreement dated March 20, 1991, between Royal Palm Place, Ltd., and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.3 to Registrant's Report on Form 10-Q for the quarter ended June 30, 1991 (File No. 0-17691)].* (10.48) Participation Agreement dated March 20, 1991 by and between Krupp Insured Plus-III Limited Partnership and Krupp Insured Plus Limited Partnership. [Exhibit 19.1 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1991 (File No. 0- 17691)].* (10.49) Amended and Restated Subordinated Promissory Note by and between Royal Palm, Ltd. and Krupp Insured Plus- III Limited Partnership.+ * Incorporated by reference + Filed herein (c) Reports on Form 8-K During the last quarter of the year ended December 31, 1995, the Partnership did not file any reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26th day of February, 1996. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP By: Krupp Plus Corporation, a General Partner By: /s/George Krupp George Krupp, Co-Chairman (Principal Executive Officer) and Director of Krupp Plus Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 26th day of February, 1996. Signatures Title(s) /s/Douglas Krupp Co-Chairman (Principal Executive Officer) Douglas Krupp and Director of Krupp Plus Corporation, a General Partner. /s/ George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of Krupp Plus Corporation, a General Partner. /s/ Laurence Gerber President of Krupp Plus Corporation, a Laurence Gerber General Partner. /s/ Peter F. Donovan Senior Vice President of Krupp Plus Peter F. Donovan Corporation, a General Partner. /s/ Robert A. Barrows Treasurer and Chief Accounting Officer Robert A. Barrows of Krupp Plus Corporation, a General Partner. APPENDIX A KRUPP INSURED PLUS-III LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 of FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1995 KRUPP INSURED PLUS-III LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Balance Sheets at December 31, 1995 and 1994 F-4 Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 F-5 Statements of Changes in Partners' Equity for the Years Ended December 31, 1995, 1994 and 1993 F-6 Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-7 Notes to Financial Statements F-8 - F-14 Schedule IV - Mortgage Loans on Real Estate F-15 - F-18 All other schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Insured Plus-III Limited Partnership: We have audited the financial statements and the financial statement schedule of Krupp Insured Plus-III Limited Partnership (the "Partnership") listed in the index on page F-2 of this Form 10-K. The financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Krupp Insured Plus-III Limited Partnership as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Boston, Massachusetts January 27, 1996 KRUPP INSURED PLUS-III LIMITED PARTNERSHIP BALANCE SHEETS December 31, 1995 and 1994 ASSETS
1995 1994 Participating Insured Mortgages ("PIMs") (Notes B, C and H) $151,465,652 $152,438,036 Mortgage-Backed Securities and insured mortgages ("MBS")(Notes B, D and H) 36,693,963 36,259,855 Total mortgage investments 188,159,615 188,697,891 Cash and cash equivalents (Notes B and H) 3,433,885 3,257,180 Interest receivable and other assets 1,924,402 2,088,083 Prepaid acquisition expenses, net of accumulated amortization of $6,091,012 and $4,926,364, respectively (Note B) 6,240,051 7,404,699 Prepaid participation servicing fees, net of accumulated amortization of $2,084,200 and $1,626,410, respectively (Note B) 2,002,332 2,460,122 Total assets $201,760,285 $203,907,975 LIABILITIES AND PARTNERS' EQUITY Liabilities $ 14,756 $ 24,886 Partners' equity (deficit) (Notes A and E): Limited Partners 200,575,459 203,934,646 (12,770,261 Units outstanding) General Partners (102,556) (51,557) Unrealized gain on MBS (Note B) 1,272,626 - Total Partners' equity 201,745,529 203,883,089 Total liabilities and Partners' equity $201,760,285 $203,907,975
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF INCOME For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 Revenues: Interest income - PIMs: Base interest $12,078,125 $11,985,295 $12,024,070 Participation interest 543,613 625,632 489,642 Interest income - MBS (Notes B and D) 2,912,632 2,665,309 2,826,975 Interest income - other 194,513 449,308 576,391 Gain on sale of MBS - - 247,229 Total revenues 15,728,883 15,725,544 16,164,307 Expenses: Asset management fee to an affiliate (Note F) 1,412,787 1,415,178 1,411,451 Expense reimbursements to affiliates (Note F) 181,503 382,735 426,271 Amortization of prepaid fees and expenses (Note B) 1,622,438 1,562,511 1,521,228 General and administrative 177,098 167,195 158,018 Total expenses 3,393,826 3,527,619 3,516,968 Net income (Notes E and G) $12,335,057 $12,197,925 $12,647,339 Allocation of net income (Notes E and G): Limited Partners $11,965,005 $11,831,987 $12,267,919 Average net income per Limited Partnerinterest (12,770,261 Limited Partner interests outstanding) $ .94 $ .93 $ .96 General Partners $ 370,052 $ 365,938 $ 379,420
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the Years Ended December 31, 1995, 1994 and 1993
Total Limited General Unrealized Partners' Partners Partners Gain Equity Balance at December 31, 1992 $222,260,655 $ 14,928 $ - $222,275,583 Net income 12,267,919 379,420 - 12,647,339 Distributions (21,183,876) (411,646) - (21,595,522) Balance at December 31, 1993 213,344,698 (17,298) - 213,327,400 Net income 11,831,987 365,938 - 12,197,925 Distributions (21,242,039) (400,197) - (21,642,236) Balance at December 31, 1994 $203,934,646 $ (51,557) - $203,883,089 Net income 11,965,005 370,052 - 12,335,057 Distributions (15,324,192) (421,051) - (15,745,243) Unrealized gain on MBS - - 1,272,626 1,272,626 Balance at December 31, 1995 $200,575,459 $(102,556) $1,272,626 $201,745,529
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 Operating activities: Net income $12,335,057 $12,197,925 $12,647,339 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 1,622,438 1,562,511 1,521,228 Gain on sale of MBS - - (247,229) Shared appreciation income - - (25,000) Changes in assets and liabilities: Decrease (increase) in interest receivable and other assets 163,681 (416,775) 19,277 Increase (decrease) in liabilities (10,130) 7,706 (684) Net cash provided by operating activities 14,111,046 13,351,367 13,914,931 Investing activities: Principal collections on PIMs 972,384 811,733 711,385 Investment in PIMs - - (2,646,017) Investment in MBS (1,027,567) (11,278,411) (11,596,373) Principal collections on MBS 1,866,085 5,161,680 11,869,304 Proceeds from sale of MBS - - 8,371,529 Decrease (increase) in other investment - - 2,440,344 Shared appreciation income - - 25,000 Net cash provided by (used for) investing activities 1,810,902 (5,304,998) 9,175,172 Financing activity: Distributions (15,745,243) (21,642,236) (21,595,522) Net increase (decrease)in cash and cash equivalents 176,705 (13,595,867) 1,494,581 Cash and cash equivalents, beginning of period 3,257,180 16,853,047 15,358,466 Cash and cash equivalents, end of period $ 3,433,885 $ 3,257,180 $16,853,047
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS A. Organization Krupp Insured Plus-III Limited Partnership (the "Partnership") was formed on March 21, 1988 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Partnership issued all of the General Partner Interests to Krupp Plus Corporation and Mortgage Services Partners Limited Partnership in exchange for capital contributions aggregating $3,000. The Partnership terminates on December 31, 2028, unless terminated earlier upon the occurrence of certain events as set forth in the Partnership Agreement. The Partnership commenced the public offering of Units on June 24, 1988 and completed its public offering having sold 12,770,161 Units for $254,686,736 net of purchase volume discounts of $716,484 as of June 22, 1990. B. Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes, which differ in certain respects from those used for federal income tax purposes (Note G): PIMs The Partnership carries its investments in PIMs at amortized cost as it has the ability and intention to hold these investments. Basic interest is recognized based on the stated rate of the Federal Housing Administration ("FHA") mortgage loan (less the servicer's fee) or the stated coupon rate of the Government National Mortgage Association ("GNMA") or Federal National Mortgage Association ("FNMA") MBS. Participation interest is recognized as earned and when deemed collectible by the Partnership. MBS At December 31, 1995, the Partnership in accordance with the Financial Accounting Standards Board's Special Report on Statement 115, "Accounting for Certain Investments in Debt and Equity Securities", reclassified its MBS portfolio from held-to-maturity to available-for-sale. The Partnership carries its MBS at fair market value and reflects any unrealized gains (losses) as a separate component of Partners' Equity. Prior to December 31, 1995, the Partnership carried its MBS portfolio at amortized cost. The Partnership amortizes purchase premiums or discounts over the life of the underlying mortgages using the effective interest method. Cash Equivalents The Partnership includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. The Partnership invests its cash primarily in deposits and money market funds with a commercial bank and has not experienced any loss to date on its invested cash. Prepaid Expenses and Fees Prepaid expenses and fees consist of prepaid acquisition fees and expenses and prepaid participation servicing fees paid for the acquisition and servicing of PIMs. The Partnership amortizes the prepaid acquisition fees and expenses using a method that approximates the effective interest method over a period of ten to twelve years, which represents the actual maturity or anticipated call date of the underlying mortgage. Acquisition expenses incurred on potential acquisitions which were not consummated were charged to operations. The Partnership amortizes prepaid participation servicing fees using a method that approximates the effective interest method over a ten year period beginning at final endorsement of the loan if a Department of Housing and Urban Development ("HUD") insured loan and at closing if a FNMA loan. Income Taxes The Partnership is not liable for federal or state income taxes because Partnership income is allocated to the partners for income tax purposes. If the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in Partnership taxable income, such change will be reported to the partners. Estimates and Assumptions The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results could differ from those estimates. C. PIMs The Partnership has investments in eighteen PIMs. The Partnership's PIMs consist of a GNMA or FNMA MBS representing the securitized first mortgage loan on the underlying property or a sole participation interest in a first mortgage loan originated under the FHA lending program on the underlying property (collectively the "insured mortgages"), and participation interests in the revenue stream and appreciation of the underlying property above specified base levels. The borrower conveys these participation features to the Partnership generally through a subordinated mortgage (the "Agreement"). The Partnership receives guaranteed monthly payments of principal and interest on the GNMA and FNMA MBS and HUD insures the first mortgage loan underlying the GNMA MBS and the FHA mortgage loan. The borrower usually can not prepay the first mortgage loan during the first five years and usually may prepay the first mortgage loan thereafter subject to a 9% prepayment penalty in years six through nine, a 1% prepayment penalty in year ten and no prepayment penalty thereafter. The Partnership may receive interest related to its participation interests in the underlying property, however, these amounts are neither insured nor guaranteed. Generally, the participation features consist of the following: (i) "Minimum Additional Interest" at a stated rate ranging from .5% to .75% per annum calculated on the unpaid principal balance of the first mortgage on the underlying property , (ii) "Shared Income Interest" ranging from 25% to 30% of the monthly gross rental income generated by the underlying property in excess of a specified base, but only to the extent that it exceeds the amount of Minimum Additional Interest received during such month, (iii) "Shared Appreciation Interest" ranging from 25% to 30% of any increase in Value of the underlying property in excess of a specified base. Payment of participation interest from the operations of the property is limited to 50% of net revenue or surplus cash as defined by FNMA or HUD, respectively. The aggregate amount of Minimum Additional Interest, Shared Income Interest and Shared Appreciation Interest payable on the maturity date by the underlying borrower generally cannot exceed 50% of any increase in value of the property. However, generally any net proceeds from the sale or refinancing of the underlying property will be available to satisfy any accrued but unpaid Shared Income or Minimum Additional interest. Shared Appreciation Interest is payable when one of the following occurs: (1) the sale of the underlying property to an unrelated third party on a date which is later than five years from the date of the Agreement, (2) the maturity date or accelerated maturity date of the Agreement, or (3) prepayment of amounts due under the Agreement and the insured mortgage. Under the Agreement, the Partnership, upon giving twelve months written notice, can accelerate the maturity date of the Agreement and insured mortgage to a date not earlier than ten years from the date of the Agreement for (a) the payment of all participation interest due under the Agreement as of the accelerated maturity date, or (b) the payment of all participation interest due under the Agreement plus all amounts due on the first mortgage note on the property. Listed in the chart is a summary of the Partnership's PIM investments at December 31, 1995 and 1994:
Issuer Aggregate Permanent Aggregate Outstanding Original Number Interest Maturity Principal Balance at Principal of PIMs Rate Range Date Range December 31, 1995 1994 FNMA $ 70,168,742 (a) 8 6.25%-8% (a) 10/99 - 4/06 (a) $ 67,790,969 $ 68,362,445 GNMA 69,099,733 (b) 8 8%-8.50% 8/30 - 5/32 68,129,224 68,424,113 FHA 16,012,300 2 8.625%-8.675% 7/25 - 1/31 15,545,459 15,651,478 $155,280,775 18 $151,465,652 $152,438,036
(a) Includes the Partnership's share of the Royal Palm Place PIM, in which the Partnership holds 73% of the $22,000,000 total PIM and an affiliate of the Partnership holds the remaining 27%. During December 1995 the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued FNMA MBS with revised terms that included extending the maturity from 2001 to 2006. During December 1995, the Partnership received its pro-rata share of a $90,644 principal payment related to the modification. The FNMA MBS will provide the Partnership with monthly interest payments at interest rates ranging from 6.25% to 8.775% per annum through maturity, and the Partnership will receives its pro- rata share of $250,000 principal payments on December 1 of the following four years. In addition, the modification changed the maturity of the subordinated promissory note to 2006, and increased the Shared Income and Appreciation Interest percentages from 25% to 30%. (b) Includes the Partnership's share of the Marina Shores PIM in which the Partnership holds 71% of the $21,200,000 total PIM and an affiliate of the Partnership holds the remaining 29%. The underlying mortgages of the PIMs are collateralized by multi- family apartment complexes located in 9 states, primarily Florida and North Carolina. The apartment complexes range in size from 96 to 503 units. D. MBS At December 31, 1995, the Partnership's MBS portfolio has an amortized cost of approximately $35,421,000 and unrealized gains and losses of approximately $1,278,000 and $6,000, respectively. At December 31, 1994, the Partnership's MBS portfolio had a market value of approximately $35,503,000 and unrealized gains and losses of $296,000 and $1,053,000, respectively. The MBS portfolio has a maturity dates ranging from 2010 to 2035. During the third quarter of 1994, the Partnership acquired $4,929,288 face value of Federal Home Loan Mortgage Corporation ("FHLMC") MBS for $4,872,241 having coupon rates of 8% per annum and maturities ranging from 2017 to 2024. On August 14, 1995, the Partnership's construction-phase MBS achieved final endorsement and the Partnership funded its remaining commitment on this $8,209,800 face value MBS. During the construction-phase the MBS provided the Partnership with interest only payments at an interest rate of 8.125% per annum. The permanent MBS will provide the Partnership with monthly payments of principal and interest at an interest rate of 7.375% per annum. E. Partners' Equity Under the terms of the Partnership Agreement, profits from Partnership operations and Distributable Cash Flow are allocated 97% to the Unitholders and Corporate Limited Partner (the "Limited Partners") and 3% to the General Partners. Upon the occurrence of a capital transaction, as defined in the Partnership Agreement, net cash proceeds and profits from the capital transaction will be distributed first, to the Limited Partners until they have received a return of their total invested capital, second, to the General Partners until they have received a return of their total invested capital, third, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to any deficiency in the 11% cumulative return on their invested capital that exists through fiscal years prior to the date of the capital transaction, fourth, to the class of General Partners until they have received an amount equal to 4% of all amounts of cash distributed under all capital transactions and fifth, 96% to the Limited Partners and 4% to the General Partners. Losses from a capital transaction will be allocated 97% to the Limited Partners and 3% to the General Partners. As of December 31, 1995, the following cumulative partner contributions and allocations have been made since inception of the Partnership:
Corporate Total Limited General Partners' Unitholders Partner Partners Equity Capital contributions $254,686,736 $ 2,000 $ 3,000 $254,691,736 Syndication costs (15,834,700) - - (15,834,700) Distributions (130,928,487) (1,152) (2,971,053) (133,900,692) Net income 92,650,267 795 2,865,497 95,516,559 Unrealized gain on MBS - - - 1,272,626 Total at December 31, 1995 $200,573,816 $ 1,643 $ (102,556) $201,745,529
F. Related Party Transactions Under the terms of the Partnership Agreement, the General Partners or their affiliates are paid an Asset Management Fee equal to .75% per annum of the value of the Partnership's actual and committed mortgage assets, payable quarterly. The General Partners may also receive an incentive management fee in the amount equal to .3% per annum on the Partnership's total invested assets provided the Unitholders have received their specified non-cumulative return on their Invested Capital. Total Asset Management Fees and Incentive Management Fees payable to the General Partners or their affiliates shall not exceed 10% of Distributable Cash Flow over the life of the Partnership. Additionally, the Partnership reimburses affiliates of the General Partners for certain expenses incurred in connection with maintaining the books and records of the Partnership and the preparation and mailing of financial reports, tax information and other communications to the investors. G. Federal Income Taxes The reconciliation of the net income reported in the accompanying statement of income with the net income reported in the Partnership's 1995 federal income tax return is as follows: Net income per statement of income $12,335,057 Add: Book to tax difference for amortization of prepaid expenses and fees 734,458 Net income for federal income tax purposes $13,069,515 The allocation of the net income for federal income tax purposes for 1995 is as follows: Portfolio Income Unitholders $12,677,331 Corporate Limited Partner 99 General Partners 392,085 $13,069,515 During the years ended December 31, 1995, 1994 and 1993 the average per Unit net income to the Unitholders for federal income tax purposes was $.99, $.95 and $.97, respectively. H. Fair Value Disclosures of Financial Instruments The Partnership uses the following methods and assumptions to estimate the fair value of each class of financial instrument: Cash and cash equivalents The carrying amount approximates the fair value because of the short maturity of those instruments. MBS The Partnership estimates the fair value of MBS based on quoted market prices. PIMs There is no established trading market for these investments. Management estimates the fair value of the PIMs using quoted market prices of MBS having the same stated coupon rate as the insured mortgages and the estimated value of the participation features. Management estimates the fair value of the participation features using the estimated fair value of the underlying properties. Management does not include in the estimated fair value of the participation features any fair value estimate arising from appreciation of the properties, because Management does not believe it can predict the time of realization of the appreciation feature with any certainty. Based on the estimated fair value determined using these methods and assumptions, the Partnership's investments in PIMs had gross unrealized gains and losses of $5,051,000 and $395,000 at December 31, 1995, respectively, and a gross unrealized loss of $7,769,000 at December 31, 1994. Commitments to Fund Construction Loans and Insured Mortgages At December 31, 1994, the Partnership approximated the fair value of commitments to fund its construction-phase insured mortgage to be equal to the commitment amount of $1,029,667. At December 31, 1995 and 1994, the Partnership estimates the fair values of its financial instruments as follows:
(rounded to thousands) 1995 1994 Cash and cash equivalents $ 3,434 $ 3,257 MBS 36,694 35,503 PIMs 156,122 144,669 $196,250 $183,429
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE December 31, 1995 __________
Approx. Normal Maturity Monthly Original Current Carrying PIMs (a) Interest Date Payment Face Face Amount at Rate (b) (j) (k) Amount Amount 12/31/95(o) GNMA Casa Marina Apts. Miami, FL 8.00% (d)(f)(h) 12/15/30 $ 49,000 $ 7,099,700 $ 6,959,826 $ 6,959,826 Fourth Ward Sq. Apts. Charlotte, NC 8.00% (c)(f)(h) 11/15/31 50,000 7,250,000 7,139,886 7,139,886 Harbor Club Apts. Ann Arbor, MI 8.00% (c)(e) (i)(l) 10/15/31 97,000 13,562,000 13,475,296 13,475,296 Ironwood Place Apts. Ann Arbor, MI 8.50% (c)(f)(h) 8/15/30 37,000 4,997,603 4,912,372 4,912,372 Marina Shores Apts. VA Beach, VA 8.00% (c)(f)(h) 5/15/32 104,000 15,000,000 14,787,937 14,787,937 Paddock Club Apts. Tallahassee, FL 8.00% (c)(f)(h) 3/15/32 60,000 8,600,000 8,479,661 8,479,661 Rosewood Apts. Cartersville,GA 8.00% (c)(f)(h) 2/15/31 36,000 5,197,314 5,101,801 5,101,801 Sundance Apts. Miami, FL 8.50% (c)(e)(g) 12/15/30 54,000 7,393,116 7,272,445 7,272,445 69,099,733 68,129,224 68,129,224 FNMA Meridith Square Apts. Columbia, SC 8.00% (c)(e)(g) 10/1/00 35,000 (n) 4,900,000 4,761,595 4,761,595 Mill Ponds Apts.Naperville, IL7.50% (c)(f)(g) 6/1/00 70,000 (n) 10,450,000 10,087,068 10,087,068 Paces Arbor Apts. Raleigh, NC 7.50% (c)(e)(g) 7/1/00 24,000 (n) 3,545,000 3,426,418 3,426,418 Paces Forest Apts. Raleigh, NC 7.50% (c)(e)(g) 7/1/00 29,000 (n) 4,345,000 4,199,657 4,199,657 Paddock Club Apts. Jacksonville,FL 8.00% (c)(e)(g) 1/1/01 60,000 (n) 8,500,000 8,264,838 8,264,838 Paddock Park II Apts. Ocala, FL 7.50% (d)(e)(h) 3/1/00 $72,000 (n) 10,750,000 10,345,706 10,345,706 Royal Palm Pl. Apts. Kendall, FL 7.75% (c)(f) (h)(m) 4/1/06 111,000 (n) 15,978,742 15,491,579 15,491,579 Windsor Court Apts. Indianapolis,IN 7.25% (c)(e)(g) 10/1/99 77,000 (n) 11,700,000 11,214,108 11,214,108 70,168,742 67,790,969 67,790,969 HUD Friendly Hills Apts. Greensboro, NC 8.625% (c)(e)(g) 7/1/25 88,000 11,684,500 11,310,588 11,310,588 Woodbine Apts. Boise, ID 8.68% (c)(e)(g) 1/1/31 32,000 4,327,800 4,234,871 4,234,871 16,012,300 15,545,459 15,545,459 Total $155,280,775 $151,465,652 $151,465,652
(a) The Participating Insured Mortgages ("PIMs") consist of either a mortgage-backed security ("MBS") issued and guaranteed by the Federal National Mortgage Association ("FNMA"), an MBS issued or guaranteed by the Government National Mortgage Association ("GNMA") or a sole participation interest in a first mortgage insured by the United States Department of Housing and Urban Development ("HUD") and a subordinated promissory note and mortgage or shared income and appreciation agreement with the underlying Borrower that conveys participation interests in the revenue stream and appreciation of the underlying property above certain specified base levels. (b) Represents the permanent interest rate of the GNMA or FNMA MBS or the HUD-insured first mortgage less servicers fee. The Partnership may also receive additional interest, consisting of (i) Minimum Additional Interest based on a percentage of the unpaid principal balance of the first mortgage on the property, (ii) Shared Income Interest based on a percentage of monthly gross income generated by the underlying property in excess of a specified base amount (but only to the extent it exceeds the amount of Minimum Additional Interest received during such month), (iii) Shared Appreciation Interest based on a percentage of any increase in the value of the underlying property in excess of a specified base value. (c) Minimum additional interest is at a rate of .5% per annum calculated on the unpaid principal balance of the first mortgage note. (d) Minimum additional interest is at a rate of .75% per annum calculated on the unpaid principal balance of the first mortgage note. (e) Shared income interest is based on 25% of monthly gross rental income over a specified base amount. (f) Shared income interest is based on 30% of monthly gross rental income over a specified base amount. (g) Shared appreciation interest is based on 25% of any increase in the value of the project over the specified base value. (h) Shared appreciation interest is based on 30% of any increase in the value of the project over the specified base value. (i) Shared appreciation interest is based on 35% of any increase in the value of the project over the specified base value. (j) The Partnership's GNMA MBS and HUD mortgage loans have call provisions, which allow the Partnership to accelerate their respective maturity date. (k) The normal monthly payment consisting of principal and interest is payable monthly at level amounts over the term of the GNMA MBS and the HUD direct mortgages. The normal monthly payment consisting of principal and interest for FNMA MBS is payable at level amounts based on a 35 year amortization and all remaining unpaid principal and accrued interest is due at the end of year ten. The GNMA MBS, FNMA MBS and HUD-insured first mortgage loans may not be prepaid during the first five years and may generally be prepaid subject to a 9% prepayment penalty in years six through nine, a 1% prepayment penalty in year ten and no prepayment penalty after year ten. (l) On April 7, 1992, the Partnership entered into an agreement which provided for a one-year reduction in the interest rate on the Harbor Club-Ann Arbor PIM from 8% to 6% for one year retroactive to February 1, 1992 and to 7% for the following year. In exchange for the reduction, the Minimum Additional Interest increased from .50% to .75% and the Shared Appreciation Interest Base decreased from $14,570,000 to $13,562,000. (m) During December 1995 the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued FNMA MBS with revised terms that include extending the maturity from 2001 to 2006. During December 1995, the Partnership received its pro-rata share of a $90,644 principal payment. The FNMA MBS will provide the Partnership with monthly interest payments at interest rates ranging from 6.25% to 8.775% per annum through maturity, and the Partnership will receive its pro-rata share of $250,000 principal payments on December 1 of the following four years. In addition, the modification changed the maturity of the subordinated promissory note to 2006, and increased the Shared Income and Appreciation Interest percentages from 25% to 30%. (n) The approximate principal balance due at maturity for each PIM, listed below, is as follows: PIM Amount Meridith Square Apartments $ 4,562,000 Mill Ponds Apartments $ 9,655,000 Paces Arbor Apartments $ 3,275,000 Paces Forest Apartments $ 4,015,000 Paddock Club Apartments $ 7,913,000 Paddock Park II Apartments $ 9,932,000 Royal Palm Place Apartments $14,766,010 Windsor Court Apartments $10,767,000 (o) The aggregate cost of PIMs for federal income tax purposes is $151,465,652. A reconciliation of the carrying value of PIMs for each of the three years in the period ended December 31, 1995 is as follows:
1995 1994 1993 Balance at beginning of period $152,438,036 $153,249,769 $151,315,137 Additions during period: Investments - - 2,646,017 Deductions during period: Principal collections (972,384) (811,733) (711,385) Balance at end of period $151,465,652 $152,438,036 $153,249,769
EX-27 2
5 The schedule contains summary financial information extracted from the Balance Sheet and Statement of Income and is qualified in its entirety by reference to such financial statements 0000832091 KRUPP INSURED PLUS III LIMITED PARTNERSHIP 12-MOS DEC-31-1995 DEC-31-1995 3,433,885 188,159,615 1,924,402 0 0 8,242,383 0 0 201,760,285 14,756 0 200,472,903 0 0 1,272,626 201,760,285 0 15,728,883 0 0 3,393,826 0 0 12,335,057 0 12,335,057 0 0 0 12,335,057 0 0 Includes the following investments: Participating Insured Mortgages ("PIMs") $151,465,652 & Mortgage-Backed Securities ("MBS") $36,693,963 Includes the following prepaid acquisition fees & expenses of $6,240,051 net of accumulated amortization of $6,091,012 and prepaid participating servicing of $2,002,332 net of accumulated amortization of $2,084,200 Represents total equity of General partners & Limited Partners of $(102,556) and $200,575,459 Represents interest income on investments in mortgages & cash Includes $1,622,438 of amortization related to prepaid fees & expenses Net income allocated $370,052 to the General Partners & $11,965,005 to the Limited Partners. Average net income per unit of Limited Partners interest is $.94 on 12,770,261 units outstanding.
EX-10 3 altman development corporation VIA FACSIMILE-& FEDERAL EXPRESS December 14, 1995 Krupp Insured Plus - III Limited Partnership c/o Krupp Mortgage Corporation Harbor Plaza 470 Atlantic Avenue Boston, Mass. 02210 Attention: Ms. Peggy DeMuth Re: Royal Palm Place, Ltd. Dear Peggy: Attached is a signed executed copy of the Amended and Restated Subordinated Promissory Note with Exhibits A and B for Royal Palm Place dated December 1, 1995. If you have any questions, please call me at your earliest convenience. Sincerely, ROYAL PALM PLACE, LTD. By: ALTMAN DEVELOPMENT CORPORATION General Partner By: Joel L. Altman, President cc to Jeffrey Deutch cc to George L. Dave Attachments 2201 corporate blvd., n.w., suite 200, boca raton, florida 33431 (407) 997-8661 AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE FOR VALUE RECEIVED, ROYAL PALM PLACE, LTD., a Florida limited partnership, having an address at c/o Altman Development Corporation, 2201 Corporate Blvd., Suite 200, Boca Raton, Florida 33431 (hereinafter referred to as the "Maker" or the "Mortgagor") has made and executed this Amended and Restated Subordinated Promissory Note (the "Amended and Restated Subordinated Note") payable to KRUPP INSURED PLUS - III LIMITED PARTNERSHIP, or order, with offices c/o Berkshire Mortgage Finance Corporation, Harbor Plaza, 470 Atlantic Avenue, Boston, Massachusetts 02110 (hereinafter, together with its and their successors and assigns, referred to as the "Holder"). RECITALS A. The Maker previously executed a Subordinated Promissory Note dated March 20, 1991, made payable to Holder which Subordinated Promissory Note was modified by a Modification Agreement dated March 20, 1991 (hereinafter, collectively referred to as the "Original Subordinate Note".) This Amended and Restated Subordinate Note amends and restates the Original Subordinate Note. All accrued but unpaid interest under the Original Subordinate Note shall be payable as provided herein. B. The Maker has obtained from First Interstate Commercial Mortgage Company, a Delaware corporation (hereinafter, together with its successors and assigns, referred to as the "First Mortgagee") a loan in the original principal amount of Twenty-Two Million and No/100 Dollars ($22,000,000) (the "First Mortgage Loan") which First Mortgage Loan was assigned to the Federal National Mortgage Association with respect to Royal Palm Place Apartments, a 377-unit housing project (the "Project") located in the City of Kendall, Florida, upon certain real property more particularly described in Exhibit "A" to the Subordinated Mortgage (hereinafter defined) securing this Amended and Restated Subordinated Note. C. The First Mortgage Loan is evidenced by a certain Multifamily Note (the "First Mortgage Note") from the Maker to the First Mortgagee, which First Mortgage Note was modified on December 1, 1995, and is secured by a certain mortgage (the "First Mortgage"). D. The First Mortgage Loan was funded through the sale to the Holder of a mortgage backed security (the "Project MBS"). The interest rate on the First Mortgage Loan and the Project MBS were below prevailing interest rates for comparable loans and securities and the lower interest rates inured to the benefit of the Maker. The Holder was unwilling to acquire the Project MBS unless the Maker agreed to enter into the Original Subordinated Note. E. The Holder has entered into a Participation Agreement with Krupp Insured Plus - I Limited Partnership whereby the Holder transferred, assigned and conveyed a 27.3693546% interest in the Project MBS and the Original Subordinated Note. NOW, THEREFORE, in consideration of the foregoing and one dollar and other good and valuable consideration in hand paid, the receipt and sufficiency of which-is hereby acknowledged, subject to the requirements specified in Paragraph 3 hereof, the Maker promises to pay to Holder or order on April 1, 2006 (the "Maturity Date"), if not sooner paid, as provided below, all those sums as more particularly described herein. 1. Payment of Additional Interest. The Maker covenants and agrees to pay the Holder from the date hereof "Additional Interest" which shall mean and include the greater of "Minimum Additional Interest" or "Shared Income Interest" as defined below in subparagraphs A and B, and in addition, "Shared Appreciation Interest" as defined in Subparagraph C. A. Minimum Additional Interest. "Minimum Additional Interest" shall mean and include interest from April 1, 1993, at the rate of one-half percent (.5%) per annum calculated on the unpaid principal balance of the First Mortgage Note. Minimum Additional Interest shall be deemed earned beginning April 1, 1993 and on the first day of each month thereafter, and shall accrue and be payable in cash annually commencing on the first day of January 1996, and on the first day of each succeeding January of each calendar year thereafter ("Annual Payment Date") until the entire balance of the First Mortgage Note has been paid subject to the provisions of Paragraph 3.A. and the limitations described below in this Paragraph 1. Any owed but unpaid amounts shall be accrued and paid upon any future annual installment or pursuant to Paragraph 1.F. B. Shared Income Interest. "Shared Income Interest" shall mean and include thirty percent (30%) of "Gross Rental Income", as defined below, actually received by the Maker during the annual period of calculation in excess of $3,275,004 (the "Annual Base Income") during the first calendar year and each-succeeding calendar year thereafter. For purposes of this Amended and Restated Subordinated Note, "Gross Rental Income" shall include all cash, notes or other things of value and any and all other consideration, direct or indirect, laundry income, parking income, and all other income from whatever source received in connection with the ownership and operation of the Project, except for: (a) proceeds of refinancing; (b) casualty insurance, flood insurance, condemnation proceeds; and (c) capital contributions to the Maker. Such Shared Income Interest shall be deemed earned beginning on the first day of the first calendar month-following the execution of this Amended and Restated Subordinated Note and on the first day of each month thereafter, and shall accrue and be payable in arrears in cash annually on each Annual Payment Date thereafter so long as this Amended and Restated Subordinated Note is outstanding, subject to the provisions of Paragraph 3.A. and the limitations described below in this Paragraph 1. Any owed but unpaid amounts shall be accrued and paid upon any future annual installment or pursuant to Paragraph 1.F. Notwithstanding the foregoing obligation of the Maker to pay the greater of Minimum Additional Interest or Shared Income Interest, with respect to the any Annual period, the Maker shall not pay more than the lesser of: (i) Thirty percent (30%) of Gross Rental Income actually received by The Maker with respect to such annual period, less the Annual Base Income in-such annual period; or (ii) Fifty percent (50%) of the Project's net income ("Net Income"). "Net Income" shall mean Gross Rental Income for the applicable period less payments for ordinary and necessary operating expenses, taxes, deposits to a reserve for replacement escrow and debt service applicable to the modified First Mortgage Note as described below. Debt service for the purpose of calculating Net Income shall consist of the following: interest-only payments paid in accordance with the modified First Mortgage Note for such applicable period; and in any applicable period in which a paydown of principal of the First Mortgage Loan occurs in accordance with the terms of the modified First Mortgage Note, an amount equal to the principal amortization for such period that would have been paid under the original terms of the First Mortgage Note had it not been modified. An amortization schedule following the original terms of the First Mortgage Note is attached as Exhibit B. Furthermore, Gross Rental Income shall not be reduced by any payments for expenses, replacement or capital items which are reimbursed through a reserve for replacement escrow held by the First Mortgagee. Any owed but unpaid amounts shall be accrued and paid upon any future annual installment or pursuant to Paragraph 1.F. C. Shared Appreciation Interest. "Shared Appreciation Interest" shall mean and include thirty percent (30%) of the excess of the "Value", as defined below, over the "Base Value", as defined below, of the Project until the first to occur of (i) a "Sale of the Project", as defined below, to an unrelated third party or parties; (ii) the Maturity Date determined in accordance with the terms of this Amended and Restated Subordinated Note; or (iii) prepayment of this Amended and Restated Subordinated Note in accordance with its term. The "Value" of the Project shall equal all consideration paid in connection with the Sale of the Project, including the stated purchase price, cash, notes, any indebtedness assumed and/or to which the Project is then subject, interest on any deferred portion of the purchase price and the value of any and all other consideration, direct or indirect, and whether paid to the Maker or to any other period or party, but excluding to the extent paid by Maker, the following: (i) prorations and reasonable selling expenses, including reasonable independent third party broker's commissions, (ii) title searches, (iii) survey costs, and (iv) recording costs, escrowed charges and transfer taxes. The term "Base Value" shall mean $23,200,000 less all eminent domain or condemnation awards, or damages and casualty insurance proceeds received by the Maker prior to the Maturity Date which are not applied to the restoration of the Project. Base Value may not be less than the original principal balance of the First Mortgage. The term "Sale of the Project" shall mean any sale, transfer, conveyance, assignment, exchange, liquidation or other disposition to an unrelated third party for value of substantially all of the Project or substantially all of the interests in the Mortgagor entity. Unless the Holder hereof gives written approval, any sale to a "Related Party" or "Affiliate" shall not be Sale of the Project. A "Related Party" includes, without limitation, any spouse, brother, sister, parent, child or grandchild of the Maker or principal of the Maker. An "Affiliate" means, as to the Maker, any individual or entity (i) that directly or indirectly controls or is controlled by or is under common control with the Maker, (ii) that is an officer of, partner in or trustee, or with respect to which the Maker serves in a similar capacity, or (iii) that is the beneficial owner, directly or indirectly, of 10% or more of any class of equity securities of the Maker or of which the Maker is an officer, partner or trustee, or with respect to which the Maker serves in a similar capacity, or (iii) that is the beneficial owner, directly or indirectly, of 10% or more of any class of equity securities of the Maker or of which the Maker is directly or indirectly the owner of 10% or more of any class of equity securities. If there has been no Sale of the Project, the Value of the Project shall be determined by an appraisal of the Project, prepared within sixty (60) days prior to the Maturity Date or the date of voluntary prepayment of this Amended and Restated Subordinated Note by the Maker. The appraisal shall be prepared by a qualified M.A.I. appraiser selected by Holder. The determination of appraised value shall be based, in part, upon the assumption that the rental income from or with respect to the Project is based on the then prevailing market rates for comparable rental space in the same vicinity as the Project even if the actual rent then being paid by lessees thereon is less. The appraisal shall specify the Value of the Project assuming that the said First Mortgage Loan may not be assumed; The purpose of appraisal of the Project shall be to estimate the market value of the fee simple interest, as- unencumbered of the Project at current occupancy as of the date of the appraisal. The definition of market value is the highest price in terms of money which a property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. The determination of market value shall be based, in part, upon the assumption that the rental income from or with respect to the Project is based on the then prevailing market rates, for comparable rental space in the same vicinity as the Project, even if the actual rent then being paid by lessees thereon is less. The determination of market value shall be based, in part, upon a determination by the appraiser of the Project's highest and best use, which may include the value of the Project assuming conversion to condominium or cooperative ownership, provided, however, that it can be proven that there exists a viable market for condominium or cooperative conversions in the area where the Project is located and taking into account an allowance for reasonable costs incurred in connection with such conversion. In the event the Maker does not agree with the appraisal, the Maker must notify the Holder within three business days after receipt thereof, and it may arrange for another appraisal of the project by a qualified MAI appraiser, which appraisal must be completed within sixty (60) days of receipt of the first appraisal. In the event the Holder does not agree with the appraisal which is obtained by the Maker, and the Holder and the Maker is unable to agree upon the Value, the Holder must notify the Maker within three (3) business days after the receipt thereof, and the Holder may arrange for another appraisal of the Project by a qualified MAI appraiser to be selected jointly by the two appraisers who made the prior appraisals, which appraisal must be completed within thirty (30) days. The Value established pursuant to this third appraisal shall be binding upon the Maker and the Holder The cost of the first appraisal shall be borne by the Maker. The cost of all subsequent appraisals shall be shared equally by Holder and the Maker. D. Shared Appreciation Interest under subparagraph C shall be deemed earned and shall be payable (i) on the date of Sale of the Project; (ii) on the Maturity Date; or (iii) upon a prepayment of this Amended and Restated Subordinated Note, whichever first occurs, and further, such Shared Appreciation Interest is payable only to the extent that it exceeds any prepayment premium paid under Paragraph 4. E. Notwithstanding the foregoing, in the event of default by Maker under this Amended and Restated Subordinated Note or the Subordinated Mortgage securing this Amended and Restated Subordinated Note, and upon Holder's election, in its sole discretion, to accelerate all amounts due hereunder-and under the Subordinated-Mortgage, Holder shall obtain-the appraisal, described in Subparagraph C, within one hundred twenty (120) days after Holder's election so to accelerate, and the Shared Appreciation Interest, if any, due Holder as a result of such appraisal shall be due and payable within ten (10) days after a copy of the completed appraisal is delivered to Maker F. Notwithstanding the provisions contained in Paragraph l(c) above providing for the payments of Additional Interest, upon the earliest to occur of (i) the date of Sale of the Project; (ii) the prepayment of this Amended and Restated Subordinated Note; or (iii) the Maturity Date, Maker expressly understands and agrees to pay to the Holder the aggregate amount of all accrued and unpaid Additional Interest payable hereunder, provided that the aggregate amount of Additional Interest shall not exceed fifty percent (50%) of any difference between the Value and the Base Value of the Project (the Value and the Base Value of the Project to be calculated for purposes of this Paragraph 1.F. in the same manner as provided in Paragraph 1 .C.). 2. Payment of First Mortgage Loan. The Maker covenants and agrees to pay all sums due or required to be paid under the terms of the First Mortgage Note and the First Mortgage prior to making any payments due hereunder. 3. Additional Requirements. A. So long as the First Mortgage Note is held in trust in connection with the Project MBS, the Maker shall have no right or obligation to make any payments or prepayments hereunder from the income from the Project unless at the time of such payment or prepayment, the income generated by the Project is sufficient to pay in a timely manner the Project's necessary and reasonable expenses, reserves for replacement and all other amounts due and payable under the First Mortgage Note and the First Mortgage. Nothing contained herein is intended to relieve or modify the obligations of Maker to pay any and all sums due on or under the terms of the First Mortgage Note and the First Mortgage. Any Additional Interest or other sums not paid in any year because of the restrictions imposed by this subparagraph A shall continue to accrue without interest thereon and shall be paid in subsequent years as provided above. All such unpaid sums shall be added to the amount of accrued Additional Interest payable under Paragraph 1. B. Nothing in this Amended and Restated Subordinated Note is intended to alter or conflict with the terms, conditions, and provisions of the First Mortgage Note or the First Mortgage. In the event of any conflict or inconsistency between the terms of this Amended and Restated Subordinated Note-or the Subordinated Mortgage-and the terms of the First Mortgage Note or the First Mortgage, the provisions of the First Mortgage Note or the First Mortgage shall control, and the terms of this Amended and Restated Subordinated Note or the Subordinated Mortgage shall be deemed amended so as not to conflict with or alter such First Mortgage Note or First Mortgage, so long as the First Mortgage has not been released. C. In the event of a monetary default or pending default under any of the terms of the First Mortgage Note and/or the First Mortgage, as reasonably determined by the First Mortgagee, no payments will be made or accepted under this Amended and Restated Subordinated Note or under the Subordinated Mortgage without the First Mortgagee's prior written consent D. This Amended and Restated Subordinated Note shall not be modified or amended without the First Mortgagee's prior written consent. E. In the event that the Holder receives any payment or other distribution of any kind from the Maker or from any other source whatsoever with respect to the subordinated debt evidenced hereby, other than as permitted under this Amended and Restated Subordinated Note or under the Subordinated Mortgage, such payment or other distribution shall be received in trust for the First Mortgagee and promptly turned over to the First Mortgagee. F. Any default or breach hereunder also shall constitute a breach and default under the First Mortgage Note and the First Mortgage, and upon the occurrence thereof, the First Mortgagee shall have the right to exercise any of the remedies to which it is entitled under the First Mortgage Note and the First Mortgage. G. This Amended and Restated Subordinated Note shall not be negotiated, assigned or otherwise transferred without the prior written approval of the First Mortgagee. H. The Holder shall not, without the prior written approval of the First Mortgagee, commence or join with any other creditor in commencing any bankruptcy, reorganization or insolvency proceedings with respect to the Maker. I. In the event of a condemnation which results in a payment by the condemning body for any portion of the Project, or in the event any proceeds are received from any casualty loss covered by insurance, such condemnation proceeds or casualty loss proceeds shall be paid only to the First Mortgagee, and only upon the full satisfaction of the First Mortgage Note and the First Mortgage, shall the Holder receive payment from the remainder-of such proceeds. J. In the event of a default hereunder, the Holder agrees that it shall not, without the prior written consent of the First Mortgagee, commence foreclosure proceedings or any other proceedings to enforce collection or-enforce its lien evidenced by the Subordinated-Mortgage. 4. Prepayment. This Amended and Restated Subordinated Note may not be prepaid, in whole or in part, for a term of one (1) year from the date hereof. After one (1) year, the Maker shall have the right to prepay this Amended and Restated Subordinated Note in whole, provided that the First Mortgage Note is also prepaid in whole, as follows: if the Maker prepays this Amended and Restated Subordinated Note during the second through the ninth year, the Maker shall pay to Holder a prepayment penalty equal to nine percent (9%) of the unpaid principal amount of the First Mortgage Note as of the day immediately preceding the prepayment date of the First Mortgage Note; and if the Maker prepays during the tenth year, the Maker shall pay a prepayment penalty equal to one percent (1 %) of the unpaid principal amount of the First Mortgage Note as of the day immediately preceding the prepayment date of the First Mortgage Note. On the date of a prepayment in whole, the Maker shall pay to the Holder all Additional Interest to be paid hereon. Any prepayment shall be made only after not less than ninety (90) days nor more than one hundred eighty (180) days prior written notice from the Maker to the Holder and to the First Mortgagee of Maker's intention to prepay. Notwithstanding anything contained herein to the contrary, in the event that the Maker prepays the First Mortgage Note, the Maker shall be required to also prepay this Amended and Restated Subordinated Note, together with the prepayment penalties set forth herein. Notwithstanding-anything herein contained to the contrary, there shall be no prepayment premium due as a result of the application of (i) insurance proceeds; (ii) condemnation proceeds; (iii) the funds held with regard to the Achievement Escrow, as defined in the First Mortgage loan documents, or any paydowns of the outstanding principal balance of the First Mortgage Loan scheduled under the modified First Mortgage Note. Notwithstanding anything to the contrary regarding the payment of Additional Interest and the 9% penalty upon prepayment of the Amended and Restated Subordinated Note as provided above (the "KIP" Penalty"), the Maker shall pay to Holder as follows: a. For purposes of this Paragraph 4, fifty percent (50%) of the difference between the Value and the Base Value of the Project upon the earliest to occur of (i) the date of Sale of the Project; (ii) the prepayment of the Amended and Restated Subordinated Note; or (iii) the Maturity Date, shall be referred to as the Maximum Additional Interest Payment. b. In the event that the KIP Penalty is equal to or exceeds the Maximum Additional Interest Payment, no accrued and unpaid Additional Interest will be owed to Holder. c. In the event the KIP Penalty is less than the Maximum Additional Interest Payment, the aggregate amount of any accrued and unpaid Additional Interest is payable only to the extent that the sum of such accrued and unpaid Additional Interest and the KIP Penalty does not exceed the Maximum Additional Interest Payment. d. Upon the earliest to occur of (i) the date of Sale of the Project; (ii) the prepayment of the Amended and Restated Subordinated Note; or (iii) the Maturity Date, if prepayment penalty is due from Maker to First Mortgagee Holder under the First Mortgage Loan (the "First Mortgage Penalty"), Holder agrees to pay to First Mortgagee, on behalf of Maker, (i) fifty percent (50%) of the First Mortgage Penalty, and (ii) if any, the amount of which the KIP Penalty received rom Maker by Holder exceeds the Maximum Additional Interest Amount, but not in excess of the First Mortgage Penalty. An example is attached as Exhibit "A". 5. Late Payment. If the Maker fails to make any payment of any amounts payable under this Amended and Restated Subordinated Note or the Subordinated Mortgage on or before the fifteenth (15th) day of the month during which such payment is due, the Holder may, at its option, impose a late charge upon the Maker not to exceed four cents ($0.04) on each dollar so delinquent. 6. General Provisions. A. It is the intention and agreement of the parties that the Additional Interest payable hereunder be an additional charge for the principal sum advanced by the Holder with respect to the First Mortgage Note. Such Additional Interest shall not constitute an additional principal sum due under this Amended and Restated Subordinated Note or the First Mortgage Note. B. Amounts payable under this Amended and Restated Subordinated Note shall be payable at the offices of Holder, or at such other place as the Holder may designate in writing. C. This Amended and Restated Subordinated Note and the indebtedness evidenced hereby is secured by a Subordinated Mortgage or Deed of Trust of even date herewith (the "Subordinated Mortgage") executed by the Maker in favor of the Holder hereof, which covers that certain real property and improvements thereon being more particularly described in the Subordinated Mortgage. The Subordinated Mortgage is subordinate and subject to the First Mortgage. D. It is not intended hereby to charge interest at a rate in excess of the maximum lawful rate of interest permitted to be charged the Maker under the laws of the State in which the Project is located or the laws of any other jurisdiction which may be deemed to govern the terms of this Amended and Restated Subordinated Note. The First Mortgagee has agreed to receive interest with respect to the First Mortgage Loan at a rate which is lower than the prevailing market rate of interest at-the time of such loan. The Holder's agreement to charge and receive such interest with respect to the First Mortgage Loan is in consideration of the Maker's agreement to pay Additional Interest as provided hereinabove. Accordingly, the Additional Interest received hereunder should be deemed to be spread and applied to the outstanding balance of this Amended and Restated Subordinated Note plus the outstanding balance of the First Mortgage Note, from time to time, over the entire term that both notes, or either of them, are outstanding. If, nevertheless, interest in excess of such maximum lawful rate shall be paid hereunder, then the rate imposed hereunder shall be reduced to such maximum lawful rate, and if from the circumstance, the Holder hereof shall ever receive as interest an amount which would exceed the highest lawful rate, such amount as would be deemed excessive interest shall be refunded to the Borrower. E. All financial statements and calculations with respect to the Property as required in this Amended and Restated Subordinated Note and Subordinated Mortgage shall be prepared according to the accrual method of accounting in accordance with generally accepted accounting procedures applied on a consistent basis from year to year. Holder must approve any accruals which are not normal and customary in the rental apartment business. Examples of normal and customary accruals include items such as taxes, insurance, replacement reserves or normal trade payables which relate to a particular period but are not paid in that period. F. It is expressly agreed that if the Maker is in default under this Amended and Restated Subordinated Note in the payment of any sums when due, or if the Maker is in default in the performance of any covenant or condition of the Subordinated Mortgage, or any other agreement evidencing or securing the repayment of the indebtedness, which default is not cured within the applicable grace period, if any, permitted in the Subordinated Mortgage, or such other agreement, then, and in any of such events, the Holder may declare all sums due and payable under this Amended and Restated Subordinated Note, subject to the restrictions of Paragraph 3.J. above. The failure of the Holder to exercise its option for acceleration of maturity, foreclosure, or either, following any default as aforesaid or to exercise any other option granted to it hereunder or under the Subordinated Mortgage or the acceptance by the Holder of partial payments or partial performance, shall not constitute a waiver of any such default or option but such rights of the Holder shall remain continuously in force. Acceleration of maturity or other rights granted to the Holder hereunder, once claimed hereunder by the Holder, may at its option be rescinded or extended by written notice to that effect. The tender and acceptance of partial payment or partial performance alone shall not in any way affect or rescind an acceleration of maturity by the Holder. If any sum payable under this Amended and Restated Subordinated Note is not paid within ten (10) days of the date when due, whether by maturity or acceleration, the Maker agrees to pay all costs of collection, including but not limited to, court costs and reasonable attorney's fees, whether or not suit is filed thereon. G. The Maker, and any endorsers hereof, jointly and severally: (i) waive presentment, protest and demand, notice of protest, notice of dishonor and nonpayment of this Amended and Restated Subordinated Note, and every other notice of any kind respecting this Amended and Restated Subordinated Note except as set forth in this Amended and Restated Subordinated Note and the Subordinated Mortgage; and (ii) to the extent not prohibited by law, waive the benefit of any law or rule of law intended for its advantage or protection which would enable its release or discharge from liability hereon, in whole or in part, for any reason other than full and complete payment of all amounts due hereunder. H. The Maker hereby represents and warrants that: (i) it is a business or commercial organization; (ii) the loan evidenced hereby was made and transacted solely for the purpose of carrying on an investment in real estate; and (iii) the proceeds of the loan are not to be used in whole or in part for personal, family or household purposes. I. In the event that any one or more of the provisions contained herein are, for any reason, held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Amended and Restated Subordinated Note and this Amended and Restated Subordinated Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein J. This Amended and Restated Subordinated Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought and subject to the provisions of Paragraph 3.D. above. K. All notices given pursuant to this Amended and Restated Subordinated Note shall be in writing and shall be hand delivered or mailed, registered U.S. Mail, return receipt requested to the parties at the addresses specified below or to such other addresses as may be specified by a party upon notice in compliance with this paragraph. Maker: Royal Palm Place, Ltd. c/o Altman Development Corporation 2201 Corporate Blvd. Suite 200 Boca Raton, FL 33431 Holder: Krupp Insured Plus - III-Limited-Partnership c/o Krupp Mortgage Corporation Harbor Plaza 470 Atlantic Avenue Boston, Massachusetts 02210 First Federal National Mortgage Association Mortgagee: 950 East Paces Ferry Road Suite 1900 Atlanta, GA 30326-1161 Attn: Vice President Multifamily Activities Servicer: GMAC Mortgage Corporation 101 S. Hanley Road, Suite 1300 St. Louis. MO 63105 L. This Amended and Restated Subordinated Note shall be given effect and construed by application of the laws of the State in which the Project is located. M. It is expressly understood and agreed that neither the Maker nor any partner, officer, director or stockholder of Maker, as the case may be, shall have any personal liability for payment of any sums due hereunder, and the Holder agrees to seek recourse solely against the real estate and other security granted to the Holder under the Subordinated Mortgage and any instrument further securing this Amended and Restated Subordinated Note, including, without limitation, the rents, issues and profits of the Project received by the Maker after default herein or the Subordinated Mortgage or any instrument further securing this Amended and Restated Subordinated Note (subject to the provisions of Paragraph 3 of this Amended and Restated Subordinated Note). N. Notwithstanding the foregoing, the Maker, any partner, officer, director or stockholder of Maker shall be subject to personal liability to the extent of receipt by them of proceeds of insurance on the Project, proceeds on account of condemnation thereof, or rents and issues and profits of the Project (including, without limitation, the proceeds of any sale of the Project) which Maker has not applied to payment of this Amended and Restated Subordinated Note as and when required by the terms of the Amended and Restated Subordinated Note. WITNESS the signature and seal of the Maker hereof this 1st day of December, 1995. WITNESS: MAKER: ROYAL PALM PLACE, LTD., a Florida Limited Partnership By: Altman Development Corporation, a Florida corporation This Amended and Restated Subordinated Note is secured by a Subordinated Mortgage dated March 20, 1991 on the property located in the City of Kendall, County of Dade described therein from the Maker to the Holder. EXHIBIT "A" EXHIBIT FOR PURPOSES OF PARAGRAPH 4d TO THE AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE Value of Project $27,000,000 Base Value of Project $23,200,000 difference $3,800,000 Maximum Additional Interest Payment = 50% of or, $1,900,000 $3,800,000 Outstanding First Mortgage Loan balance $21,400,000 First Mortgage Penalty $415,588 (@ 1.942% in the 7th year of the First Mortgage Loan) KIP Penalty $1,926,000 ( @ 9% in the 7th year of the First Mortgage Loan) So: KIP Penalty $1,926,000 Less Maximum Additional Interest Payment $1,900,000 Excess $26,000 Plus KIP's 50% of First Mortgage Penalty $207,794 Amount paid by KIP to First Mortgage Lender $233,794 Amount paid by Royal Palm Place, Ltd. to $181,794 First Mortgage Lender 1. All capitalized terms used above are as defined in the Amended and Restated Subordinated Promissory Note. 2. Both the Value and the Outstanding First Mortgage Loan balance are assumed. 3. A Sale or prepayment date of May 1, 1997 is assumed. FEDERAL NATIONAL MORTGAGE ASSOCIATION MORTGAGE-BACKED SECURITIES PROGRAM SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 1, 1994 $ 21,329,259.000 ISSUE DATE DECEMBER 1, 1995 SECURITY DESCRIPTION FNAR 06.2500 MB109057 6.2500 PERCENT PASS-THROUGH RATE FANNIE MAE POOL NUMBER MB-109057 CUSIP 313637B25 PRINCIPAL AND INTEREST PAYABLE ON THE 25TH OF EACH MONTH BEGINNING JANUARY 25, l996 POOL STATISTICS (AS OF ISSUE DATE) NUMBER OF MORTGAGE LOANS 1 AVERAGE OUTSTANDING BALANCE 21,329,259.07 MATURITY DATE 04/01/2006 WEIGHTED AVG REMAINING TERM 124 HIGHEST ANNUAL INTEREST RATE 6.5000 LOWEST ANNUAL INTEREST RATE 6.5000 WEIGHTED AVG ANNUAL INT RATE 6.5000 %UPB W/ INTRST ONLY FIRST DISTRIB 0.00 GEOGRAPHIC DISTRIBUTION OF SECURITY PROPERTIES FLORIDA 1 21,329,259.07 THE DATE OF THIS SUPPLEMENT IS DECEMBER l, 1995 SUPPLEMENT TO PROSPECTUS REFERRED TO IN POOL STATISTICS ATTACHED HERETO FEDERAL NATIONAL MORTGAGE ASSOCIATION GUARANTEED MORTGAGE PASS-THROUGH CERTIFICATES (ADJUSTABLE-RATE MULTIFAMILY BALLOON MORTGAGE LOAN) PRINCIPAL AND INTEREST PAYABLE ON THE 25TH DAY OF EACH MONTH BEGINNING IN THE MONTH FOLLOWING THE ISSUE DATE THE CERTIFICATES, TOGETHER WITH INTEREST THEREON, ARE NOT GUARANTEED BY THE UNITED STATES. THE OBLIGATIONS OF THE FEDERAL NATIONAL MORTGAGE ASSOCIATION UNDER ITS GUARANTY OF THE CERTIFICATES ARE OBLIGATIONS SOLELY OF THE CORPORATION AND DO NOT CONSTITUTE AN OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF OTHER THAN THE CORPORATION. THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES" WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934. Each Certificate offered hereby, and by the Prospectus {the "Prospectus"1 to which this is a supplement (which Prospectus is referred to in the Pool Statistics attached hereto), evidences a fractional undivided interest in a pool (the "Pool"1 containing a conventional, adjustable-rate balloon mortgage loan (the "Mortgage Loan"1 formed and held in trust by the Federal National Mortgage Association (the "Corporation"1, a corporation organized and existing under the laws of the United States. The Mortgage Loan was purchased by the Corporation for resale to Certificate holders by issuance of the Certificates, and they and the underlying Mortgage Loan are more particularly described herein. The Certificates are issued pursuant to the terms of the Trust Indenture dated as of July 1, 1984, as amended, executed by the Corporation acting in its corporate capacity and in its capacity as Trustee, as supplemented by an Issue Supplement dated as of the Issue Date set forth in the Pool Statistics attached hereto. The Corporation has certain contractual servicing responsibilities with respect to the Pool. In addition, the Corporation is obligated to distribute scheduled monthly installments of principal and interest (adjusted to the Accrual Rate) as further described herein, to the Certificate holders, whether or not received. The Corporation is also obligated to distribute to Certificate holders the full principal balance of the Mortgage Loan upon foreclosure, whether or not such principal balance is actually recovered. The Pool Statistics attached hereto contain statistical information respecting the Pool, including a prefix to the Pool Number that identifies the specific type of Mortgage Loan in the Pool. The Schedule of Mortgage Loan Information attached hereto contains additional Mortgage Loan information, including the maturity date, amortization term and prepayment characteristics of the Mortgage Loan in the Pool. The Corporation currently intends, but has not committed, to publish certain updated information about the Mortgage Loan periodically with Bloomberg L.P., or another similar information service. Such information is in addition to any information provided in the Bond Buyer. The Schedule of Loan Information sets forth the Debt Service Coverage Ratio as of the Issue Date for the Mortgage Loan. The "Debt Service Coverage Ratio" for the Mortgage Loan is the ratio of (a) the Net Operating Income estimated by the Corporation to be generated by the related Mortgaged Property for the 12-month period following the Issue Date to (b) the product of the amount of the Monthly Payment in effect at the Issue Date, multiplied by 12. "Net Operating Income" is the estimated revenue derived from the use and operation of a Mortgaged Property (consisting primarily of estimated market rental rates and laundry facilities, if any) less the estimated operating expenses (such as utilities, general administrative expenses, management fees, advertising, repairs and maintenance) and less the estimated fixed expenses (such as insurance and real estate taxes), all calculated in accordance with the Corporation's Multifamily Delegated Underwriting and Servicing Guide (the "DUS Guide"). The Schedule of Loan Information also sets forth the Debt Service Coverage Ratio at the maximum interest rate of 9.40% of the Mortgage Loan, which was equal to the ratio of (a) the current Net Operating Income to (b) the Monthly Payment at the projected unpaid principal balance of the Mortgage Loan when the maximum interest rate goes into effect, multiplied by 12. CHARACTERISTICS OF THE MORTGAGE LOAN The Mortgage Loan has been originated by a mortgage lender (the "Lender"). The promissory note that evidences the Mortgage Loan (the "Mortgage Note") is secured by a security instrument (the "Mortgage") on a multifamily residential property consisting of five or more dwelling units (the "Mortgaged Property"). Interest Rate and Payments The Mortgage Loan provides for a monthly payment in an amount sufficient to pay all interest accruing on such Mortgage Loan. The Mortgage Loan also provides that, on December 1, 1996, December 1, 1997, December 1, 1998 and December 1, 1999, the borrower shall make a principal payment of $250,000 in addition to any accrued interest due and payable. Such principal payment shall be distributed to Certificate holders on the next Distribution Date. The interest rate that accrues on the Mortgage Loan prior to December 1, 1996 is 6.50%. Since the Corporation's servicing and guaranty fee prior to December 1, 1996 will be .250%, the Accrual Rate for the Mortgage Loan will be 6.25% for each distribution through December 1996. Thereafter, the rate at which interest will accrue on the Mortgage Loan will not vary in response to a specified index (notwithstanding the terms of the Prospectus), but shall change in accordance with the schedule set forth below. The Corporation's servicing and guaranty fee and the Accrual Rate for the Mortgage Loan will also change as described below. Mortgage Interest Servicing and Rate Change Date Mortgage Interest Rate Guaranty Fee Accrual Rate 12-1-96 7.00% .500% 6.500% 12-1-97 7.50 .500 7.000 12-1-98 8.00 .625 7.375 12-1-99 8.50 .625 7.875 12-1-00 9.00 .625 8.375 12-1-01 9.40 .625 8.775 12-1-04 9.40 .875 8.525 The Mortgage Loan will mature on the maturity date indicated on the Pool Statistics information attached to this Supplement. All unpaid principal will be payable as a balloon payment due on the stated maturity date of the Mortgage Note together with accrued interest. Prepayment The borrower may prepay the Mortgage Loan in whole, but not in part, at any time without penalty. Furthermore, early recovery of Mortgage Loan principal, in whole or in part, could occur- on account of receipt of-casualty insurance proceeds or a condemnation award affecting the Mortgaged Property. Any casualty proceeds will be applied to restoration or repair of the Mortgaged Property and not to reduce Mortgage Loan principal, if there is then no Mortgage Loan default and the Corporation determines that: (i) there are sufficient funds to achieve restoration of the Mortgaged Property to a satisfactory condition, (ii} rental income after restoration will be sufficient to meet all project obligations, and (iii} restoration will be completed prior to the earlier of the maturity date of such Mortgage Loan, or within one year of the event of casualty. Prepayment or early recovery of principal of the Mortgage Loan may affect a Certificate holder's yield on its investment in Certificates. In addition, a partial early recovery of principal may affect the monthly payment amount distributable to Certificate holders. Fannie Mae guarantees the payment of principal and interest when due, but makes no representation or guaranty as to the occurrence or non-occurrence or an early prepayment of principal of a Mortgage Loan Mortgage Loan Documents; Subordinate Financing The Mortgage Note and Mortgage are executed on FNMA/FHLMC Uniform Instruments for multifamily loans made in the state in which the Mortgaged Property is located (as amended by an Addendum and a Rider}. Because the borrower's covenants (breach of which could result in Mortgage Loan default and early distribution of principal to Certificate holders} are the covenants provided for by such standard forms, they are typical of those contained in loans secured by multifamily rental properties. The loan documents also provide that any breach of the terms of any subordinate financing, which remains uncured after any applicable cure period, is a default on the Mortgage Loan pursuant to which the Corporation would have the right, but not the obligation, to declare the entire principal balance of the Mortgage Loan immediately due and payable. The borrower has entered into subordinate financing with Krupp Insured Plus III Limited Partnership, which is secured by a junior lien on the Mortgaged Property. The subordinate note provides that, so long as the Mortgage Loan is in the Pool, the borrower may not make payments on the subordinate note (or prepay the subordinate note) unless income from the Mortgaged Property is then sufficient to pay all amounts due under the Mortgage Loan, to pay the Mortgaged Property's necessary and reasonable expenses, and to fund reserves required by the Mortgage Loan. Certificate holders have no right to any payments due on the subordinate note. The subordinate note has no stated principal amount and its payments are characterized as (i} "Additional Interest" equal to the greater of "Minimum Additional Interest" and "Shared Income Interest," and (iii)} "Shared Appreciation Interest." "Minimum Additional Interest" is interest at the annual rate of .5% (50 basis points) of the outstanding balance of the Mortgage Loan accruing during each calendar year. "Shared Income Interest" per month is 30% of the Mortgaged Property's "Gross Rental Income" for such month(as defined in the subordinate note). Additional Interest is due on January 1 of each year, but the amount payable on each payment date may not exceed the lesser of 30% of the Gross Rental Income actually received in the prior year and 50% of the Mortgaged Properties "Net Income" (as defined in the subordinate note) for such annual period. Any amount due but not payable currently is deferred for payment on a later annual date. If not earlier paid, all deferred Additional Interest is due and payable, together with "Shared Appreciation Interest," when the Mortgaged Property is sold, when the subordinate loan is prepaid, or on the maturity date of the subordinate loan (which is the same as the maturity date of the Mortgage Loan}; provided that the amount then due shall not exceed 50% of the amount by which the value of the Mortgaged Property at the time of such event, determined by sale or appraisal, exceeds such value when the Mortgage Loan was made (as set forth in the subordinate note), with adjustment to such original value for the amount of any insurance proceeds or condemnation award insofar as not applied to restoration of the Mortgaged Property. "Shared Appreciation Interest" is 30% of such excess. The subordinate note may not be prepaid unless the Mortgage Loan is prepaid at the-same time, and the subordinate-note-must-be-prepaid U the Mortgage Loan is prepaid. The subordinate note provides that in the event of any conflicts or inconsistency between the terms of the subordinate financing and the terms of the Mortgage Loan, the terms of the latter shall control. Without consent of the Corporation as holder of the Mortgage Note, li) the subordinate note may not be modified or amended, and may not be negotiated, assigned, or otherwise transferred; (ii} if the Mortgage Loan is in default, no payments may be made on the subordinate note; and (iii) the holder of the subordinate note may not enforce its lien on the Mortgaged Property, commence proceedings to collect sums owed, or commence (or join in commencing} any bankruptcy, reorganization or insolvency proceedings with respect to the borrower. Assumption and Further Encumbrance The Mortgage Loan is assumable by a new mortgagor in the case of certain transfers of the related Mortgaged Property. As to such transfers, and certain sales or transfers of interests in the mortgagor, the Corporation's general policy described in the Prospectus requiring acceleration in the event of certain transfers of the Mortgaged Property is inapplicable. Among the permitted transfers are any for which a 156 transfer fee is paid and for which the transferee executes an assumption agreement, if the transferee meets those standards as to creditworthiness and management ability customarily applied by the Corporation for approval of borrowers for loans secured by similar properties. No portion of any such transfer fee will be distributed to Certificate holders. FEDERAL TAX ASPECTS Certain federal income tax consequences of the ownership of Certificates are described in the Prospectus. The rulings described in the Prospectus under "Certain Federal Income Tax Consequences" and identified as Paragraphs 1, 2 and 3 do not apply to a mortgage loan to the extent that its principal amount exceeds the value of the real property securing it. The definition of "real property" is based on state law for purposes of the rulings described in Paragraphs 1 and 2, and on federal income tax law for purposes of the ruling described in Paragraph 3. Relying on the Lender's representations of its compliance with requirements of the OUS Guide concerning property appraisals and loan-to-value ratios, the Corporation believes that the fair market value of the real property securing the Mortgage Loan exceeds the Issue Date principal balance of such Mortgage Loan. The principal security for the Mortgage Loan is a first lien on real property consisting of a multifamily rental property. However, the Mortgage Loan is also secured by a security interest in related tangible personal property (e 9., equipment and furniture} and-in related intangible personal property such as rents and revenues, insurance proceeds, condemnation awards or settlements, contract rights, deposits, permits, accounts, licenses, and so forth. This Prospectus Supplement does not contain complete information regarding this offering and should be read only in conjunction with the Prospectus that it supplements. The date of this Prospectus Supplement is the Issue Date. -----END PRIVACY-ENHANCED MESSAGE-----