-----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, AzMxWpXqPXIUl6qyG5+WaA+hS9XTiyArsxTxYIkUNb+X+f/AywdsAhCt7RBeHtJb yQ9/0LHy0N7M+J7L7X5ZYw== 0000832091-01-000001.txt : 20010409 0000832091-01-000001.hdr.sgml : 20010409 ACCESSION NUMBER: 0000832091-01-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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: SEC FILE NUMBER: 000-17691 FILM NUMBER: 1589216 BUSINESS ADDRESS: STREET 1: ONE BEACON ST CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6175230066 MAIL ADDRESS: STREET 1: ONE BEACON ST CITY: BOSTON STATE: MA ZIP: 02108 10-K 1 0001.txt KRUPP INSURED PLUS III LIMITED PARTNERSHIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 2000 -------------------------------- 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 Identification No.) incorporation or organization) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 523-0066 ----------------- 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 9-11. PART I This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. ITEM 1. BUSINESS - ------ Krupp Insured Plus-III Limited Partnership (the "Partnership") is a Massachusetts limited partnership which was formed on March 21, 1988. The Partnership raised approximately $255 million through a public offering of limited partner interests evidenced by units of depositary receipts ("Units") and used the net proceeds primarily to acquire participating insured mortgages ("PIMs") and mortgage-backed securities ("MBS"). The Partnership considers itself to be engaged in only one industry segment, investment in mortgages. The Partnership's investments in PIMs on multi-family residential properties consist of a MBS (the "insured mortgage") guaranteed as to principal and basic interest and a participation feature that is not insured nor guaranteed. The insured mortgages were issued or originated under or in connection with the housing programs of the Government National Mortgage Association ("GNMA") or Fannie Mae. PIMs provide the Partnership with monthly payments of principal and interest on the insured mortgage and also provide for Partnership participation in the current revenue stream and in residual value, if any, as a result of a sale or other realization of the underlying property from the participation feature. The borrower conveys the participation rights to the Partnership through a subordinated promissory note and mortgage. The Partnership also acquired MBS collateralized by single-family or multi-family mortgage loans issued or originated by Fannie Mae, the Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal Housing Administration ("FHA"). Fannie Mae and FHLMC guarantee the principal and basic interest of the Fannie Mae and FHLMC MBS, respectively. The Department of Housing and Urban Development ("HUD") insures the FHA mortgage loan. The Partnership must distribute proceeds received from prepayments or other realization of the mortgages to the investors through quarterly or possibly special distributions. Although the Partnership will terminate no later than December 31, 2028 it is expected that the value of the PIMs generally will be realized by the Partnership through repayment or sale as early as ten years from the dates of the closings of the permanent loans and that the Partnership may realize the value of all of its other investments within that time frame thereby resulting in a dissolution of the Partnership significantly prior to December 31, 2028. The Partnership's investments are not expected to be subject to seasonal fluctuations. However, the future performance of the Partnership will depend upon certain factors which cannot be predicted. Such factors include interest rate fluctuations and the credit worthiness of Fannie Mae, GNMA, 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, 2000, 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, 2000 was approximately 10,200. One of the objectives of the Partnership is to provide quarterly distributions of cash flow generated by its investments in mortgages. The Partnership anticipates that future operations will continue to generate cash available for distributions. During January 2000, the Partnership made a special distribution of $1.17 per Limited Partner interest from the principal proceeds from the Marina Shores PIM. During 1999, the Partnership made special distributions of $1.68 per Limited Partners interest from the principal proceeds, prepayment premiums and Shared Appreciation Interest from the Windsor Court and Mill Ponds PIM prepayments. The Partnership may make special distributions in the future if PIMs prepay or a sufficient amount of cash is available from MBS and PIM principal collections. The Partnership made the following distributions, in quarterly installments, and special distributions, to its Partners during the two years ended December 31, 2000 and 1999:
2000 1999 Average Average Amount Per Unit Amount Per Unit -------------- ---------- ---------- ----------- Quarterly Distributions Limited Partners $ 6,895,888 $ .54 $ 9,705,323 $ .76 General Partners 108,116 177,147 ------------- ------------ 7,004,004 9,882,470 ------------ ------------ Special Distributions Limited Partners 14,941,091 $ 1.17 21,453,869 $ 1.68 ------------- ------------ Total Distributions $ 21,945,095 $ 31,336,339 ============= =============
ITEM 6. SELECTED FINANCIAL DATA - ------- The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements which are included in Item 7 and Item 8, (Appendix A) of this report, respectively.
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Total revenues $ 3,998,335 $ 6,770,135 $ 10,782,454 $ 18,896,423 $ 15,578,710 Net income 2,993,654 4,930,576 7,713,323 14,893,523 12,021,035 Net income allocated to: Limited Partners 2,903,844 4,782,659 7,481,923 14,446,717 11,660,404 Average per Unit .23 .37 .59 1.13 .91 General Partners 89,810 147,917 231,400 446,806 360,631 Total assets at December 31 49,584,641 68,426,507 95,300,681 173,645,460 184,485,334 Distributions to: Limited Partners 6,895,888 9,705,323 11,110,042 15,324,194 15,324,193 Average per Unit .54 .76 .87 1.20 1.20 Special 14,941,091 21,453,869 73,811,533 11,237,742 12,387,057 Average per Unit 1.17 1.68 5.78 .88 .97 General Partners 108,116 177,147 310,551 373,032 410,687
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------ Liquidity and Capital Resources The most significant demands on the Partnership's liquidity are the regular quarterly distributions paid to investors, which are approximately $1.0 million each quarter. Funds for the investor distributions come from the monthly principal and basic interest payments received on the PIMs and MBS, the principal prepayments of the PIMs and MBS, and interest earned on the Partnership's cash and cash equivalents. In general, the General Partners try to set a distribution rate that provides for level quarterly distributions of cash available for distribution. To the extent that quarterly distributions do not fully utilize the cash available for distributions and cash balances increase, the General Partners may adjust the distribution rate or distribute such funds through a special distribution. The portion of distributions attributable to the principal collections reduces the capital resources of the Partnership. As the capital resources decrease, the total cash flows to the Partnership also will decrease and over time will result in periodic adjustments to the distributions paid to investors. At this time the General Partners have determined that the Partnership can maintain its current distribution rate of $.08 per Limited Partner interest per quarter. In addition to providing insured or guaranteed monthly principal and basic interest payments, the Partnership's PIM investments also may provide additional income through its participation feature in the underlying properties if they operate successfully. The Partnership may receive a share in any operating cash flow that exceeds debt service obligations and capital needs or a share in any appreciation in value when the properties are sold or refinanced. However, this participation is neither guaranteed nor insured, and it is dependent upon whether property operations or its terminal value meet certain criteria. On January 11, 2000, the Partnership paid a special distribution of $1.17 per Limited Partner interest from the principal proceeds and Shared Appreciation Interest in the amounts of $14,491,746 and $426,321, respectively from the Marina Shores Apartments PIM payoff in December of 1999. The Partnership made two special distributions during 1999 as a result of the following PIM prepayments: In February 1999, an $.88 per Limited Partner interest special distribution was made with the prepayment proceeds in the amount of $10,876,051 and Shared Appreciation Interest and prepayment premium of $243,620 from the Windsor Court PIM that was received in January 1999. In September 1999, an $.80 per Limited Partner interest special distribution was made with the prepayment proceeds in the amount of $9,751,550 and Shared Appreciation Interest of $402,508 from the Mill Ponds PIM that was received during the third quarter of 1999. During 1999, the Partnership received approximately $172,000 in participation interest from operating cash flow from the Mill Ponds PIM investment. During 1998, the Partnership received approximately $832,000 in participation interest from operating cash flow from six of its PIM investments: Marina Shores, Mill Ponds, Rosewood, Ironwood, Woodbine and Windsor Court. The Partnership made six special distributions during 1998 as a result of the following PIM prepayments. In January 1998, a $2.30 per Limited Partner interest special distribution was made with the prepayment proceeds of the three Paddock Club PIMs that were received during the fourth quarter 1997. In February 1998, a $1.01 per Limited Partner interest special distribution was made with the prepayment proceeds of Fourth Ward Square and Meredith Square PIMs that were received during January 1998. In April 1998, a $.42 per Limited Partner interest special distribution was made with the prepayment proceeds of the Rosewood PIM that was received during the first quarter of 1998. During July 1998, a $1.28 per Limited Partner interest special distribution was made with the prepayment proceeds of the Sundance PIM and the Regency and Brookside MBS. In December, 1998, two special distributions totaling $.77 per Limited Partner interest were made with the prepayment proceeds of the Ironwood and Woodbine PIMs. The Partnership's only remaining PIM investments are the MBS backed by the first mortgage loans on Casa Marina, Harbor Club and Royal Palm Place. Presently, the General Partners do not expect any of these properties to pay the Partnership any participation interest or to be sold or refinanced during 2001. Casa Marina, located in North Miami, is a forty-year old property where the costs of maintenance, repairs and replacements have escalated as the property has aged. Occupancy generally hovers in the 90% range, and the property generates sufficient cash flow for adequate maintenance but not enough to provide for major capital improvements or any participation interest. The Borrower informed the Partnership that the property was marketed for sale during 2000 without success. Harbor Club operates successfully in Ann Arbor, Michigan, which is a very competitive market with many newer apartment properties. Although Harbor Club has maintained occupancy rates in the mid 90% range for the past two years, most cash flow generated by the property is used for capital replacements and improvements that help it maintain its strong market position. Royal Palm Place operates under a long term restructure program. As an on going result of the Partnership's 1995 agreement to modify the payment terms of the Royal Palm Place PIM, the Partnership will receive basic interest only payments on the Fannie Mae MBS at the rate of 8.375% per annum during 2001. Thereafter, the interest rate will range from 8.375% to 8.775% per annum through the maturity of the first mortgage in 2006. The Partnership also received its pro rata share of the January 2000, $250,000 principal payment. During the first five years, borrowers are prohibited from prepaying the mortgage loans underlying the PIMs. During the second five years, borrowers may prepay the loans by incurring a prepayment premium. The Partnership has the option to call certain PIMs by accelerating their maturity if they are not prepaid by the tenth year after permanent funding. The Partnership will determine the merits of exercising the call option for each PIM as economic conditions warrant. Such factors as the condition of the asset, local market conditions, the interest rate environment and availability of financing will affect those decisions. Assessment of Credit Risk The Partnership's investments in mortgages are guaranteed or insured by GNMA, Fannie Mae, FHLMC or HUD and therefore the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities. Fannie Mae is a federally chartered private corporation that guarantees obligations originated under its programs. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs and is wholly-owned by the twelve Federal Home Loan Banks. 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. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. Obligations insured by HUD, an agency of the U.S. Government, are backed by the full faith and credit of the U.S. Government. At December 31, 2000, the Partnership includes in cash and cash equivalents approximately $1.5 million of commercial paper, which is issued by entities with a credit rating equal to one of the top two rating categories of a nationally recognized statistical rating organization. Interest Rate Risk The Partnership's primary market risk exposure is to interest rate risk, which can be defined as the exposure of the Partnership's net income, comprehensive income or financial condition to adverse movements in interest rates. At December 31, 2000, the Partnerships PIMs, and MBS comprise the majority of the Partnership's assets. As such decreases in interest rates may accelerate the prepayment of the Partnership's investments. The Partnership does not utilize any derivatives or other instruments to manage this risk as the Partnership plans to hold all of its investments to expected maturity. The Partnership monitors prepayments and considers prepayment trends, as well as distribution requirements of the Partnership, when setting regular distribution policy. For MBS, the Partnership forecasts prepayments based on trends in similar securities as reported by statistical reporting entities such as Bloomberg. For PIMs, the Partnership incorporates prepayment assumptions into planning as individual properties notify the Partnership of the intent to prepay or as they mature. The table below provides information about the Partnership's financial instruments that are sensitive to changes in interest rates. For mortgage investments, the table presents principal cash flows and related weighted average interest rates ("WAIR") by expected maturity dates. The expected maturity date is contractual maturity adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands) 2001 2002 2003 2004 2005 Thereafter Total Fair Face Value Value Interest-sensitive assets: MBS $ 491 $ 451 $ 416 $ 385 $ 358 $ 10,264 $ 12,365 $ 12,533 WAIR 7.52% 7.52% 7.52% 7.52% 7.52% 7.52% PIMs 150 163 177 192 209 33,717 34,608 34,769 WAIR 8.16% 8.33% 8.34% 8.34% 8.23% 8.23% --------- -------- -------- --------- -------- ----------- ---------- ---------- Total Interest- sensitive assets $ 641 $ 614 $ 593 $ 577 $ 567 $ 43,981 $ 46,973 $ 47,302 ========= ======== ======== ========= ======== ============ ========== ===========
Results of Operations The following discussion relates to the operation of the Partnership during the years ended December 31, 2000, 1999 and 1998.
(Amounts in Thousands) 2000 1999 1998 ---- ---- ---- Interest income on PIMs: Basic interest $ 2,755 $ 4,210 $ 6,195 Participation interest - 1,001 2,093 Interest income on MBS 965 1,071 1,695 Other interest income 278 488 800 Partnership expenses (624) (732) (1,005) Amortization of prepaid fees and expenses (380) (1,107) (2,065) ------- -------- -------- Net income $ 2,994 $ 4,931 $ 7,713 ======= ======== ========
Net income decreased during 2000 as compared to 1999 due primarily to lower basic and participation interest on PIMs and lower MBS and other interest income net of lower amortization expense. Basic interest on PIMs decreased due to the payoffs of the Windsor Court, Mill Ponds Apartments and Marina Shores PIMs in 1999. Participation income decreased in 2000 as a result of the PIM prepayments mentioned above. MBS income decreased due to the principal collections made on MBS investments. The decrease in other interest income is primarily due to the Partnership having lower average short-term investment balances during the twelve months ended December 31, 2000 when compared to the corresponding period in 1999. Amortization expense decreased due to the Partnership fully amortizing the costs associated with the PIMs that were prepaid in 1999. Net income decreased during 1999 as compared to the same period in 1998 due primarily to lower basic interest on PIMs, lower participation interest, lower interest income on MBS and lower other interest income. This was partially offset by a decrease in partnership expenses and amortization. The significant decrease in basic interest on PIMs was caused by the prepayments of the Windsor Court and Mill Ponds Apartment PIMs in 1999 and the prepayments of the Sundance, Rosewood, Woodbine and Ironwood Apartment PIMs in 1998. The decrease in participation interest was primarily a result of the Partnership receiving a lower level of participation interest from PIM prepayments occurring during the twelve month period ending December 31, 1999 as compared to the same period in 1998. The decrease in MBS interest income was primarily due to the prepayment of the Brookside and Regency Park MBS in 1998. The decrease in other interest income was due to the Partnership having lower average short-term investment balances during the twelve months ended December 31, 1999 when compared to the corresponding period in 1998. The decrease in partnership expenses was primarily due to lower asset management fees which were a result of the reduction in the asset base occurring from the prepayments mentioned above. The decrease in amortization for 1999 as compared to the same period in 1998 was a result of the Partnership fully amortizing the costs associated with the PIMs that were prepaid in 1998 exceeding the amount that was fully amortized associated with the PIMs that were prepaid in 1999. 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:
Name and Age Position with Krupp Plus Corporation Douglas Krupp (54) President, Co-Chairman of the Board and Director George Krupp (56) Co-Chairman of the Board and Director Peter F. Donovan (47) Senior Vice President Ronald Halpern (59) Senior Vice President Carol J. C. Mills (51) Vice President Robert A. Barrows (43) Vice President and Treasurer
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, investment sponsorship, venture capital investing, mortgage banking and financial management, and ownership of three operating companies through private equity investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969 and he has served as the Chief Executive Officer since 1992. He is a graduate of Bryant College where he received an honorary Doctor of Science in Business Administration in 1989. George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, investment sponsorship, venture capital investing, mortgage banking and financial management, and ownership of three operating companies through private equity investments. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish High School in Waltham, Massachusetts since September of 1997. Mr. Krupp attended the University of Pennsylvania and Harvard University and holds a Master's Degree in History from Brown University. Douglas and George Krupp are brothers. Peter F. Donovan is Chief Executive Officer of Berkshire Mortgage Finance which position he has held since January of 1998 and in this capacity, he oversees the strategic growth plans of this mortgage banking firm. Berkshire Mortgage Finance is the 11th largest servicer of commercial mortgage loans in the United States with a servicing and asset management portfolio of $11.5 billion. Previously he served as President of Berkshire Mortgage Finance from January of 1993 to January of 1998 and in that capacity he directed the production, underwriting, servicing and asset management activities of the firm. Prior to that, he was Senior Vice President of Berkshire Mortgage Finance and was responsible for all participating mortgage originations. Before joining the firm in 1984, he was Second Vice President, Real Estate Finance for Continental Illinois National Bank & Trust, where he managed a $300 million construction loan portfolio of commercial properties. Mr. Donovan received a B.A. from Trinity College and an M.B.A. degree from Northwestern University. Mr. Donovan is currently a member of the Advisory Council for Fannie Mae. Ronald Halpern is President and COO of Berkshire Mortgage Finance. He has served in these positions since January of 1998 and in this capacity, he is responsible for the overall operations of the Company. Prior to January of 1998, he was Executive Vice President, managing the underwriting, closing, portfolio management and servicing departments for Berkshire Mortgage Finance. Before joining the firm in 1987, he held senior management positions with the Department of Housing and Urban Development in Washington D.C. and several HUD regional offices. Mr. Halpern has over 30 years of experience in real estate finance which includes his experience as prior Chairman of the MBA Multifamily Housing Committee. He holds a B.A. degree from the University of the City of New York and J.D. degree from Brooklyn Law School. Robert A. Barrows is Senior Vice President and Chief Financial Officer of Berkshire Mortgage Finance. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting, financial reporting, treasury and management information systems for Berkshire Mortgage Finance. Prior to joining The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College and is a Certified Public Accountant. Carol J.C. Mills is Senior Vice President for Loan Management of Berkshire Mortgage Finance and in this capacity, she is responsible for the Loan Servicing and Asset Management functions of Berkshire Mortgage Finance. She manages the estimated $11.5 billion portfolio of loans. Ms. Mills joined Berkshire in December 1997 as Vice President and was promoted to Senior Vice President in January 1999. From January 1989 through November 1997, Ms. Mills was Vice President of First Winthrop Corporation and Winthrop Financial Associates, in Cambridge, MA. Ms. Mills earned a B.A. degree from Mount Holyoke College and a Master of Architecture degree from Harvard University. Ms. Mills is a member of the Real Estate Finance Association, New England Women in Real Estate and the Mortgage Bankers Association. ITEM 11. EXECUTIVE COMPENSATION - ------- The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------- As of December 31, 2000, no person owned of record or was known by the General Partners to own beneficially more than 5% of the Partnership's 12,770,261 outstanding Limited Partner interests. The only interests held by management or its affiliates consist of its General Partner and Corporate Limited Partner interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- Information required under this Item is contained in Note F to the Partnership's Financial Statements presented in Appendix A to this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------- (a) 1. Financial Statements - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 of this report. 2. Financial Statement Schedules - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page F-2 of this report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Financial Statements or the Notes thereto. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable Exhibits required under Item 601 of Regulation S-K: (4) Instruments defining the rights of security holders including indentures: ------------------------------------------------------------------------ (4.1)Agreement of Limited Partnership dated as of June 22, 1988 [Exhibit A included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)].* (4.2)Subscription Agreement whereby a subscriber agrees to purchase Units and adopts the provisions of the Agreement of Limited Partnership [Exhibit D included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)].* (4.3)Copy of First Amended and Restated Certificate of Limited Partnership filed with the Massachusetts Secretary of State on June 22, 1988. [Exhibit 4.4 to Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)].* (10) Material Contracts: ------------------ (10.1) Revised form of Escrow Agreement [Exhibit 10.1 to Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated June 22, 1988 (File No. 33-21200)] * (10.2) Form of agreement between the Partnership and Krupp Mortgage Corporation [Exhibit 10.2 to Registrant's Registration Statement on Form S-11 dated April 20, 1988 (File No. 33-21200)].* Casa Marina Apartments (10.3) Prospectus for GNMA Pool No. 279699 (CS) and 279700 (PL) [Exhibit 19.11 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.4) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated June 29, 1989 between Beaux Gardens Associates, LTD., a Florida limited partnership and Krupp Insured Plus-II Limited Partnership. [Exhibit 19.12 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* (10.5) Participation Agreement dated July 31, 1989 between Krupp Insured Plus-II Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.13 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-17691)].* Harbor Club Apartments (10.6) Prospectus for GNMA Pool No. 259237(CS) and 259238(PN). [Exhibit 19.3 to Registrant's Report on Form 10-Q for the quarter ended March 31,1990 (File No. 0-17691)].* (10.7) Subordinated Multifamily Mortgage (including Subordinated Promissory Note) dated January 30, 1990 between Ann Arbor Harbor Club, a Texas limited partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.4 to Registrant's Report on Form 10-Q for the quarter ended March 31,1990 (File No. 0-17691)].* Royal Palm Place (10.8) Prospectus for FNMA Pool No. MB-109057. [Exhibit 10.45 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (File No. 0-17691)].* (10.9) Subordinated Multifamily Mortgage dated March 20, 1991 between Royal Palm Place, Ltd., a Florida Limited Partnership and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.2 to Registrant's Report on Form 10-Q for the quarter ended June 30, 1991 (File No. 0-17691)].* (10.10) Modification Agreement dated March 20, 1991, between Royal Palm Place, Ltd., and Krupp Insured Plus-III Limited Partnership. [Exhibit 19.3 to Registrant's Report on Form 10-Q for the quarter ended June 30, 1991 (File No. 0-17691)].* (10.11) Participation Agreement dated March 20, 1991 by and between Krupp Insured Plus-III Limited Partnership and Krupp Insured Plus Limited Partnership. [Exhibit 19.1 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1991 (File No. 0-17691)].* (10.12) Amended and Restated Subordinated Promissory Note by and between Royal Palm, Ltd. and Krupp Insured Plus-III Limited Partnership.[Exhibit 10.49 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (File No. 0-17691)].* * Incorporated by reference (c) Reports on Form 8-K During the last quarter of the year ended December 31, 2000, the Partnership did not file any reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 9th day of March, 2001 KRUPP INSURED PLUS-III LIMITED PARTNERSHIP By: Krupp Plus Corporation, a General Partner By: /s/ Douglas Krupp - ------------------------------------------- Douglas Krupp, President, Co-Chairman (Principal Executive Officer) and Director of Krupp Plus Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 9th day of March, 2001.
Signatures Title(s) ---------- -------- /s/ Douglas Krupp President, Co-Chairman (Principal Executive Officer), and Director of - ----------------------------- Douglas Krupp Krupp Plus Corporation, a General Partner /s/ George Krupp Co-Chairman (Principal Executive Officer) and Director of Krupp Plus - ----------------------------- George Krupp Corporation, a General Partner. /s/ Peter F. Donovan Senior Vice President of Krupp Plus Corporation, a General Partner - ----------------------------- Peter F. Donovan /s/ Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Plus Corporation, - ------------------------------ Robert A. Barrows 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, 2000 KRUPP INSURED PLUS-III LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Accountants F-3 Balance Sheets at December 31, 2000 and 1999 F-4 Statements of Income and Comprehensive Income for the Years Ended December 31, 2000, 1999 and 1998 F-5 Statements of Changes in Partners' Equity for the Years Ended December 31, 2000, 1999 and 1998 F-6 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 F-7 Notes to Financial Statements F-8 - F-15
All schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Insured Plus-III Limited Partnership: In our opinion, the financial statements listed in the accompanying index, present fairly, in all material respects, the financial position of Krupp Insured Plus-III Limited Partnership (the "Partnership") at December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts March 23, 2001 KRUPP INSURED PLUS-III LIMITED PARTNERSHIP BALANCE SHEETS December 31, 2000 and 1999 ASSETS
2000 1999 ------------- -------------- Participating Insured Mortgages ("PIMs") (Notes B, C, and H) $ 34,608,223 $ 34,929,389 Mortgage-Backed Securities and insured mortgage ("MBS")(Notes B, D and H) 12,453,025 12,948,849 ------------- -------------- Total mortgage investments 47,061,248 47,878,238 Cash and cash equivalents (Notes B, C and H) 1,910,212 19,237,377 Interest receivable and other assets 328,054 645,696 Prepaid acquisition fees and expenses, net of accumulated amortization of $2,201,139 and $2,431,337, respectively (Note B) 200,938 490,134 Prepaid participation servicing fees, net of accumulated amortization of $803,998 and $713,125, respectively (Note B) 84,189 175,062 ------------- ------------------ Total assets $ 49,584,641 $ 68,426,507 ============= ============== LIABILITIES AND PARTNERS' EQUITY Liabilities $ 17,650 $ 19,548 ------------- -------------- Partners' equity (deficit) (Notes A, C and E): Limited Partners 49,660,074 68,593,209 (12,770,261 Limited Partner interests outstanding) General Partners (205,525) (187,219) Accumulated Comprehensive Income (Note B) 112,442 969 ------------- -------------- Total Partners' equity 49,566,991 68,406,959 ------------- -------------- Total liabilities and Partners' equity $ 49,584,641 $ 68,426,507 ============= ===============
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ------------ ------------ ------------- Revenues:(Notes B, C and D) Interest income - PIMs: Basic interest $ 2,755,352 $ 4,209,758 $ 6,194,599 Participation interest - 1,000,885 2,092,572 Interest income - MBS 964,919 1,071,160 1,694,779 Other interest income 278,064 488,332 800,504 ------------ ------------ ------------ Total revenues 3,998,335 6,770,135 10,782,454 ------------ ------------ ------------ Expenses: Asset management fee to an affiliate (Note F) 354,888 508,943 753,279 Expense reimbursements to affiliates (Note F) 97,729 74,461 44,473 Amortization of prepaid fees and expenses (Note B) 380,069 1,106,566 2,064,507 General and administrative 171,995 149,589 206,872 ------------ ------------ ------------ Total expenses 1,004,681 1,839,559 3,069,131 ------------ ------------ ------------ Net income (Notes E and G) 2,993,654 4,930,576 7,713,323 Other comprehensive income: Net change in unrealized gain on MBS 111,473 (326,520) (816,847) ------------ ------------ ------------ Total comprehensive income $ 3,105,127 $ 4,604,056 $ 6,896,476 ============ ============ ============ Allocation of net income (Notes E and G): Limited Partners $ 2,903,844 $ 4,782,659 $ 7,481,923 ============ ============ ============ Average net income per Limited Partner interest (12,770,261 Limited Partner interests outstanding) $ .23 $ .37 $ .59 ============ ============ ============ General Partners $ 89,810 $ 147,917 $ 231,400 ============ ============ ============
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, 2000, 1999 and 1998
Accumulated Total Limited General Comprehensive Partners' Partners Partners Income Equity ----------------- -------------- --------------- -------------------- Balance at December 31, 1997 $ 172,409,394 $ (78,838) $ 1,144,336 $ 173,474,892 Net income 7,481,923 231,400 - 7,713,323 Quarterly distributions (11,110,042) (310,551) - (11,420,593) Special distributions (73,811,533) - - (73,811,533) Change in unrealized gain on MBS - - (816,847) (816,847) ------------ ------------- ------------ -------------- Balance at December 31, 1998 94,969,742 (157,989) 327,489 95,139,242 Net income 4,782,659 147,917 - 4,930,576 Quarterly distributions (9,705,323) (177,147) - (9,882,470) Special distributions (21,453,869) - - (21,453,869) Change in unrealized gain on MBS - - (326,520) (326,520) ------------- ------------ ------------ -------------- Balance at December 31, 1999 68,593,209 (187,219) 969 68,406,959 Net income 2,903,844 89,810 - 2,993,654 Quarterly distributions (6,895,888) (108,116) - (7,004,004) Special distributions (14,941,091) - - (14,941,091) Change in unrealized gain on MBS - - 111,473 111,473 ------------- ----------- ------------ -------------- Balance at December 31, 2000 $ 49,660,074 $ (205,525) $ 112,442 $ 49,566,991 ============= =========== ============ ==============
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, 2000, 1999 and 1998
2000 1999 1998 ----------- ------------ ------------------- Operating activities: Net income $ 2,993,654 $ 4,930,576 $ 7,713,323 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of prepaid fees and expenses 380,069 1,106,566 2,064,507 Shared Appreciation Interest and prepayment premium - (828,829) (1,260,785) Changes in assets and liabilities: Decrease (increase) in interest receivable and other assets 317,642 (57,677) 361,599 Decrease in liabilities (1,898) (141,891) (9,129) ----------- ------------ ------------ - Net cash provided by operating activities 3,689,467 5,008,745 8,869,515 ----------- ------------ ------------ Investing activities: Principal collections on PIMs including Shared Appreciation Interest and prepayment premium of $828,829 in 1999 and $1,249,085 in 1998, respectively 321,166 36,396,881 34,917,539 Principal collections on MBS including a prepayment premium of $11,700 in 1998 607,297 2,322,861 12,817,080 ------------ ------------ ------------ Net cash provided by investing activities 928,463 38,719,742 47,734,619 ------------ ------------ ------------ Financing activities: Special distributions (14,941,091) (21,453,869) (73,811,533) Quarterly distributions (7,004,004) (9,882,470) (11,420,593) ------------ ------------ ------------ Net cash used for financing activities (21,945,095) (31,336,339) (85,232,126) ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents (17,327,165) 12,392,148 (28,627,992) Cash and cash equivalents, beginning of period 19,237,377 6,845,229 35,473,221 ------------ ------------ ------------ Cash and cash equivalents, end of period $ 1,910,212 $ 19,237,377 $ 6,845,229 ============ ============ ============ Non cash activities: Increase (decrease) in Fair Value of MBS $ 111,473 $ (326,520) $ (816,847) ============ ============ ============
The accompanying notes are an integral part of the financial statements. KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS A. Organization Krupp Insured Plus-III Limited Partnership (the "Partnership") was formed on March 21, 1988 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Partnership was organized for the purpose of investing in multi-family loans and mortgage backed securities. The Partnership issued all of the General Partner Interests to Krupp Plus Corporation and Mortgage Services Partners Limited Partnership in exchange for capital contributions aggregating $3,000. The Partnership terminates on December 31, 2028, unless terminated earlier upon the occurrence of certain events as set forth in the Partnership Agreement. The Partnership commenced the public offering of Limited Partner interests on June 24, 1988 and completed its public offering having sold 12,770,161 Limited Partner interests for $254,686,736 net of purchase volume discounts of $716,484 as of June 22, 1990. In addition, Krupp Depository Corporation owns one hundred Limited Partner interests. B. Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes, which differ in certain respects from those used for federal income tax purposes (Note G): Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. MBS The Partnership, in accordance with Financial Accounting Standards Board's Statement 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"), classifies its MBS portfolio as available-for-sale. As such the Partnership carries its MBS at fair market value and reflects any unrealized gains (losses) as a separate component of Partners' Equity. The Partnership amortizes purchase premiums or discounts over the life of the underlying mortgages using the effective interest method. The Federal Housing Administration ("FHA") insured mortgage is carried at amortized cost. The Partnership holds this loan at amortized cost since it is fully insured by the FHA. PIMs The Partnership accounts for its MBS portion of a PIM in accordance with FAS 115 under the classification of held to maturity. The Partnership carries the Government National Mortgage Association ("GNMA") or Fannie Mae MBS at amortized cost. Basic interest on PIMs is recognized based on the stated coupon rate of the GNMA or Fannie Mae MBS. Participation interest is recognized as earned and when deemed collectible by the Partnership Cash and Cash Equivalents The Partnership includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. The Partnership invests its cash primarily in commercial paper and money market funds with a commercial bank and has not experienced any loss to date on its invested cash. Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued B. Significant Accounting Policies, Continued Prepaid Fees and Expenses Prepaid fees and expenses consist of prepaid acquisition fees and expenses and prepaid participation servicing fees paid for the acquisition and servicing of PIMs. The Partnership amortizes the prepaid acquisition fees and expenses using a method that approximates the effective interest method over a period of ten to twelve years, which represents the actual maturity or anticipated payoff of the underlying mortgage. The Partnership amortizes prepaid participation servicing fees using a method that approximates the effective interest method over a ten year period beginning at final endorsement of the GNMA loan and at closing if a Fannie Mae loan. Upon the repayment of a PIM, any unamortized acquisition fees and expenses and unamortized participation servicing fees related to such loan are expensed. Income Taxes The Partnership is not liable for federal or state income taxes as Partnership income is allocated to the partners for income tax purposes. If the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in Partnership taxable income, such change will be reported to the partners. Estimates and Assumptions The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the period. Actual results could differ from those estimates. C. PIMs At December 31, 2000 and 1999, the Partnership had investments in three PIMs. The Partnership's PIMs consist of a GNMA or Fannie Mae MBS representing the securitized first mortgage loan on the underlying property and a participation interest in the revenue stream and appreciation of the underlying property above specified base levels. The borrower conveys this participation feature to the Partnership generally through a subordinated multifamily mortgage (the "Agreement"). The Partnership receives guaranteed monthly payments of principal and interest on the GNMA and Fannie Mae MBS and HUD insures the first mortgage loan underlying the GNMA MBS. The borrower usually can not prepay the first mortgage loan during the first five years and may prepay the first mortgage loan thereafter subject to a 9% prepayment premium in years six through nine, a 1% prepayment premium in year ten and no prepayment premium thereafter. The Partnership may receive interest related to its participation interest in the underlying property, however, this amount is neither insured nor guaranteed. Generally, the participation features consist of the following: (i) "Minimum Additional Interest" rates ranging from .5% to .75% per annum calculated on the unpaid principal balance of the first mortgage on the underlying property, (ii) "Shared Income Interest" ranging from 25% to 30% of the monthly gross rental income generated by the underlying property in excess of a specified base, but only to the extent that it exceeds the amount of Minimum Additional Interest received during such month and (iii) "Shared Appreciation Interest" ranging from 30% to 35% of any increase in the value of the underlying property in excess of a specified base. Payment of Minimum Additional Interest and Shared Income Interest from the operations of the property is limited to 50% of net revenue or Surplus Cash as defined by Fannie Mae or HUD, respectively. Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued C. PIMs, Continued The total amount of Minimum Additional Interest, Shared Income Interest and Shared Appreciation Interest payable on the maturity date by the underlying borrower usually can not exceed 50% of any increase in value of the property. However, generally any net proceeds from a sale or refinancing will be available to satisfy any accrued but unpaid Shared Income or Minimum Additional Interest. Shared Appreciation Interest is payable when one of the following occurs: (1) the sale of the underlying property to an unrelated third party on a date which is later than five years from the date of the Agreement, (2) the maturity date or accelerated maturity date of the Agreement, or (3) prepayment of amounts due under the Agreement and the insured mortgage. Under the Agreement, the Partnership, upon giving twelve months written notice, can accelerate the maturity date of the Agreement and insured mortgage to a date not earlier than ten years from the date of the Agreement for (a) the payment of all participation interest due under the Agreement as of the accelerated maturity date, or (b) the payment of all participation interest due under the Agreement plus all amounts due on the first mortgage note on the property. On January 11, 2000, the Partnership paid a special distribution of $1.17 per Limited Partner interest from the principal proceeds and Shared Appreciation Interest in the amounts of $14,491,746 and $426,321, respectively received from the Marina Shores Apartments PIM payoff in December of 1999. In August 1999, the Partnership received a prepayment of the Mill Ponds Apartments PIM in the amount of $9,751,550 representing the outstanding principal balance. In addition to the prepayment, the Partnership received $402,508 of Shared Appreciation Interest and $172,464 of Minimum Additional Interest and Shared Income Interest in July, 1999. The Partnership distributed the capital transaction proceeds from this prepayment to the Limited Partners through a special distribution on September 9, 1999 in the amount of $.80 per Limited Partner interest. In January 1999, the Partnership received a prepayment of the Windsor Court Apartments PIM in the amount of $10,876,051 representing the outstanding principal balance. In addition to the prepayment, the Partnership received $243,620 of Shared Appreciation Interest and prepayment premiums and $196,828 of Minimum Additional Interest and Shared Income Interest during December 1998. The Partnership distributed the capital transaction proceeds from this prepayment to the Limited Partners through a special distribution on February 26, 1999 in the amount of $.88 per Limited Partner interest. On October 15, 1998, the Partnership received a prepayment of the Ironwood Apartments PIM in the amount of $4,844,256 plus a prepayment premium of $325,000 and Shared Income Interest of $226,507, which was received in September 1998. The Partnership made a special distribution of $.41 per Limited Partner interest from this prepayment on December 2, 1998. On September 23, 1998, the Partnership received a prepayment of the Woodbine Apartments PIM in the amount of $4,180,266, plus a prepayment premium of $376,224 and Shared Income Interest of $109,939. The Partnership made a special distribution of $.36 per Limited Partner interest from this prepayment on December 4, 1998. On June 15, 1998, the Partnership received a prepayment of the Sundance Apartments PIM in the amount of $7,187,778. The property had been operating under a modification agreement with the Partnership; consequently no prepayment premium or participation interest was due at the time of the prepayment. The Partnership made a special distribution of $.56 per Limited Partner interest from this prepayment on July 24, 1998. Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued C. PIMs, continued On February 17, 1998, the Partnership received a prepayment of the Rosewood Apartments PIM in the amount of $5,047,132. In addition, during January 1998 the Partnership received Minimum Additional Interest and Shared Income Interest of $151,263 and a prepayment premium of $304,241. The Partnership made a special distribution of $.42 per Limited Partner interest from this prepayment on April 13, 1998. In January 1998, the Partnership received proceeds from the Fourth Ward Square and Meredith Square Apartment PIM prepayments in the amounts of $7,067,690 and $4,688,895 respectively. In addition, during December 1997 the Partnership received $397,462 of Minimum Additional Interest and Shared Income Interest earned on property operations for these properties, a $422,001 prepayment premium on Meredith Square and Shared Appreciation Interest of $697,500 on Fourth Ward Square. The Partnership made a special distribution of $1.01 per Limited Partner interest from these prepayments on February 27, 1998. At December 31, 2000 and 1999 there were no loans within the Partnership's portfolio that were delinquent as to principal or interest. The Partnership's PIMs consist of the following at December 31, 2000 and 1999:
Approximate Original Maturity Monthly Face Interest Dates Payment Investment Basis at PIMs Amount Rate (a) (h) (i) December 31, ---- ------ ----------- ---------- ------------ ---------------------------------- 2000 1999 GNMA Casa Marina Apts. Miami, FL $ 7,099,700 8.00% 12/15/30 $ 49,000 $ 6,748,832 $ 6,798,238 (c) (e) (f) Harbor Club - Apts. Ann Arbor, MI 13,562,000 8.00% 10/15/31 95,000 13,095,330 13,184,302 ------------- (c) (d) -------------- ------------- (g) 20,661,700 19,844,162 19,982,540 ------------- -------------- ------------- Fannie Mae Royal Palm Pl. Apts Kendall, FL 15,978,742 7.875% 4/1/06 97,000 14,764,061 14,946,849 ------------- (b) (j) (k) -------------- ------------- Total $ 36,640,442 $ 34,608,223 $ 34,929,389 ============= ============== =============
(a) Represents the permanent interest rate of the GNMA or Fannie Mae MBS. The Partnership may also receive additional interest, consisting of (i) Minimum Additional Interest (ii) Shared Income Interest and (iii) Shared Appreciation Interest (b) Minimum Additional Interest is at a rate of .5% per annum calculated on the unpaid principal balance of the first mortgage note. (c) Minimum Additional Interest is at a rate of .75% per annum calculated on the unpaid principal balance of the first mortgage note. Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued C PIMs, Continued (d) Shared Income Interest is based on 25% of monthly gross rental income over a specified base amount. (e) Shared Income Interest is based on 30% of monthly gross rental income over a specified base amount. (f) Shared Appreciation Interest is based on 30% of any increase in the value of the project over the specified base value. (g) Shared Appreciation Interest is based on 35% of any increase in the value of the project over the specified base value. (h) The Partnership's GNMA MBS have call provisions, which allow the Partnership to accelerate their respective maturity date. (i) The normal monthly payment consisting of principal and interest is payable monthly at level amounts over the term of the GNMA MBS. The normal monthly payment consists of interest only for the Fannie Mae MBS. The GNMA MBS and Fannie Mae MBS may not be prepaid during the first five years and may generally be prepaid subject to a 9% prepayment premium in years six through nine, a 1% prepayment premium in year ten and no prepayment premium after year ten. (j) During December 1995, the Partnership agreed to a modification of the Royal Palm PIM. The Partnership received a reissued Fannie Mae MBS and increased its participation percentage in income and appreciation from 25% to 30%. The Partnership will receive interest only payments on the Fannie Mae MBS at interest rates ranging from 8.375% to 8.775% per annum through maturity. The total PIM on the underlying property was $22,000,000 of which 27% or $6,021,258 is held by Krupp Insured Plus Limited Partnership, an affiliate of the Partnership. (k) The principal balance due at maturity for the Royal Palm PIM is $14,764,061. (l) The aggregate cost of PIMs for federal income tax purposes is $34,608,223. A reconciliation of the carrying value of PIMs for each of the three years in the period ended December 31, 2000 is as follows:
2000 1999 1998 --------------- -------------- --------------- Balance at beginning of period $ 34,929,389 $ 70,497,441 $ 104,165,895 Deductions during period: Principal collections (321,166) (35,568,052) (33,668,454) --------------- ------------- --------------- - Balance at end of period $ 34,608,223 $ 34,929,389 $ 70,497,441 =============== ============= ===============
The underlying mortgages of the PIMs are collateralized by multi-family apartment complexes located in two states. The apartment complexes range in size from 162 to 377 units. D. MBS --- On June 19, 1998, the Partnership received a prepayment of the Brookside MBS in the amount of $2,944,531, representing the outstanding principal balance and a prepayment premium of $11,700. On April 24, 1998, the Partnership received a prepayment of the Regency Park MBS in the amount of $6,232,557, representing the outstanding principal balance. The Partnership made Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued D. MBS, continued --- a special distribution of $.72 per Limited Partner interest from these prepayments on July 24, 1998. At December 31, 2000, the Partnership's MBS portfolio had an amortized cost of $4,356,235 and unrealized gains and losses of $113,260 and $818, respectively. At December 31, 2000, the Partnership's insured mortgage loan had an amortized cost of $7,984,348 and an unrealized gain of $79,844. At December 31, 1999, the Partnership's MBS portfolio had an amortized cost of $4,915,630 and unrealized gains and losses of $89,974 and $89,005, respectively. At December 31, 1999, the Partnership's insured mortgage loan had an amortized cost of $8,032,250 and an unrealized loss of $124,018. The portfolio has maturity dates ranging from 2016 to 2035.
Unrealized Maturity Date Fair Value Gain/(Loss) --------------- ------------ ---------- 2001 - 2005 $ - $ - 2006 - 2010 - - 2011 - 2035 12,532,869 192,286 ------------ ----------- Total $ 12,532,869 $ 192,286 ============ ===========
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, 2000, the following cumulative partner contributions and allocations have been made since inception of the Partnership:
Corporate Accumulated Total Limited General Comprehensive Partners' Unitholders Partner Partners Income Equity ----------- --------- ---------------- --------------- --------------- Capital contributions $ 254,686,736 $ 2,000 $ 3,000 $ - $ 254,691,736 Syndication costs (15,834,700) - - - (15,834,700) Quarterly distributions (189,287,686) (1,593) (4,350,586) - (193,639,865) Special distributions (133,830,244) (1,048) - - (133,831,292) Net income 133,925,491 1,118 4,142,061 - 138,068,670 Unrealized gains on MBS - - - 112,442 112,442 --------------- --------- ------------ ----------- ---------------- Total at December 31, 2000 $ 49,659,597 $ 477 $ (205,525) $ 112,442 $ 49,566,991 =============== ========= ============ =========== ================
Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued F. Related Party Transactions Under the terms of the Partnership Agreement, the General Partners or their affiliates are paid an Asset Management Fee equal to .75% per annum of the remaining face value of the Partnership's mortgage assets, payable quarterly. The General Partners may also receive an incentive management fee in the amount equal to .3% per annum on the Partnership's total invested assets provided the Unitholders have received their specified non-cumulative return on their Invested Capital. Total Asset Management Fees and Incentive Management Fees payable to the General Partners or their affiliates shall not exceed 10% of Distributable Cash Flow over the life of the Partnership. Additionally, the Partnership reimburses affiliates of the General Partners for certain expenses incurred in connection with maintaining the books and records of the Partnership, the preparation and mailing of financial reports, tax information and other communications to the investors and legal fees and expenses. G. Federal Income Taxes The reconciliation of the net income reported in the accompanying statement of income with the net income reported in the Partnership's 2000 federal income tax return is as follows:
Net income per statement of income $ 2,993,654 Add: Book to tax difference for amortization of prepaid fees and expenses 173,634 ------------- Net income for federal income tax purposes $ 3,167,288 ============ The allocation of the net income for federal income tax purposes for 2000 is as follows: Portfolio Income Unitholders $ 3,072,246 Corporate Limited Partner 24 General Partners 95,018 ------------ $ 3,167,288
During the years ended December 31, 2000, 1999 and 1998 the average per unit net income to the Unitholders for federal income tax purposes was $.24, $.34 and $.57, respectively. The basis of the Partnership's assets for financial reporting purposes is less than its tax basis by approximately $1,191,000 and $1,129,000 at December 31, 2000 and 1999, respectively. The basis of the Partnership's liabilities for financial reporting purposes are the same as its tax basis at December 31, 2000 and 1999, respectively. H. Fair Value Disclosures of Financial Instruments The Partnership uses the following methods and assumptions to estimate the fair value of each class of financial instrument: Cash and cash equivalents The carrying amount approximates the fair value because of the short maturity of those instruments. Continued KRUPP INSURED PLUS-III LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued H. Fair Value Disclosures of Financial Instruments, Continued ----------------------------------------------- MBS The Partnership estimates the fair value of MBS based on quoted market prices while it estimates the fair value of insured mortgages based on quoted prices of MBS with similar interest rates. Based on the estimated fair value determined using these methods and assumptions, the Partnership's investments in MBS and insured mortgages had gross unrealized gains and losses of approximately $193,000 and $1,000 at December 31, 2000 and $90,000 and $213,000 at December 31, 1999. PIMs As there is no active trading market for these investments, Management estimates the fair value of the PIMs using quoted market prices of MBS having a similar interest rate. Management does not include any participation interest in the Partnership's estimated fair value arising from the properties, as Management does not believe it can predict the time of realization of the feature with any certainty. Based on the estimated fair value determined using these methods and assumptions, the Partnership's investments in PIMs had gross unrealized gains of approximately $161,000 and $176,000 at December 31, 2000 and December 31, 1999, respectively. At December 31, 2000 and 1999, the Partnership estimates the fair values of its financial instruments as follows (amounts rounded to nearest thousand):
2000 1999 ------------------------- ----------------------- Fair Carrying Fair Carrying Value Value Value Value Cash and cash equivalents $ 1,910 $ 1,910 $ 19,237 $ 19,237 MBS and insured mortgage 12,533 12,453 12,825 12,949 PIMs 34,769 34,608 35,105 34,929 --------- -------- ---------- ---------- $ 49,212 $ 48,971 $ 67,167 $ 67,115 ========= ======== ========== ==========
Unaudited Distributable Cash Flow and Net Cash Proceeds from Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions as defined in Section 17 of the Partnership Agreement and the source of cash distributions for the year ended December 31, 2000 and the period from inception through December 31, 2000. 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.
Inception Year Ended Through 12/31/00 12/31/00 --------- -------------- (Amounts in thousands, except per Unit amounts) Distributable Cash Flow: ----------------------- Income for tax purposes $ 3,166 $ 139,372 Items not requiring or (not providing) the use of operating funds: Amortization of prepaid expenses, fees and organization costs 206 14,879 MBS premium amortization - 92 Acquisition expenses paid from offering proceeds charged to operations - 184 Shared Appreciation Interest/prepayment premiums - (8,363) Gain on sale of MBS - (253) -------- ----------- Total Distributable Cash Flow ("DCF") $ 3,372 $ 145,911 ======== ============ Limited Partners Share of DCF $ 3,271 $ 141,534 ======== ============ Limited Partners Share of DCF per Unit $ 0.25 $ 11.08(c) ======== ============= General Partners Share of DCF $ 101 $ 4,377 ======== ============ Net Proceeds from Capital Transactions: -------------------------------------- Principal collections and prepayments (including Shared Appreciation Interest and prepayment premiums) on PIMs $ 321 $ 142,247 Principal collections and sales proceeds on MBS (including prepayment premiums and gain on sale) 607 83,544 Reinvestment of MBS and PIM principal collections - (41,960) ------- ----------- - Total Net Proceeds from Capital Transactions $ 928 $ 183,831 ======== ============ Cash available for distribution (DCF plus proceeds from Capital Transactions) $ 4,300 $ 329,742 ======== ============ Distributions: ------------- Limited Partners $ 5,491 (a) $ 324,142 (b) ======== =========== Limited Partners Average per Unit $ 0.43 (a) $ 25.38 (b)(c) ======== ========== General Partners $ 101 (a) $ 4,377 (b) ======== =========== Total Distributions $ 5,592 (a) $ 328,519 (b) ======== ===========
(a) Represents all distributions paid in 2000 except the January 2000 special distribution and the February 2000 quarterly distribution and includes an estimate of the distribution to be paid in February 2001. (b) Includes an estimate of the quarterly distribution to be paid in February 2001. (c) Limited Partners average per Unit return of capital as of February 2001 is $14.30 [$25.38 - $11.08]. 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. -----END PRIVACY-ENHANCED MESSAGE-----