UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
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 0-11210
Krupp Realty Fund, Ltd.-III
(Exact name of registrant as specified in its charter)
Massachusetts 04-2763323
(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)
(617) 523-7722
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Investor
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: Part IV, Item 14.
The exhibit index is located on pages 11-14.
The total number of pages in this document is 32.
<PAGE>
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 Realty Fund, Ltd.-III ("KRF-III") was formed on April 23, 1982 by
filing a Certificate of Limited Partnership in The Commonwealth of
Massachusetts. KRF- III issued all of the General Partner Interest to two
General Partners, The Krupp Company, a Massachusetts limited partnership, and
The Krupp Corporation, a Massachusetts corporation. KRF-III also issued all of
the Original Limited Partner Interests to The Krupp Company. On June 4, 1982,
KRF-III commenced an offering of up to 25,000 units of Investor Limited Partner
Interests (the "Units") for $1,000 per Unit. As of September 29, 1982, KRF-III
received subscriptions for all 25,000 Units and therefore, the public offering
was successfully completed on that date. For details, see Note A to Consolidated
Financial Statements included in Item 8 (Appendix A) of this report.
The primary business of KRF-III is to acquire, operate, and ultimately
dispose of real estate. KRF-III initially acquired five multi-family apartment
complexes (Druid Valley, Willow Lake, Brookeville, Dorsey's Forge/Oakland
Meadows and Hannibal Grove Apartments) and an office building (Woodlake Office
Park). KRF- III considers itself to be engaged in only one industry segment,
investment in real estate.
KRF-III sold Druid Valley and Willow Lake in 1991 and Woodlake Office Park
in 1992. On July, 1, 1993, the General Partners formed Brookeville Apartments
Limited Partnership ("Brookeville L.P.") as a prerequisite for the refinancing
of Brookeville Apartments ("Brookeville") with the Department of Housing and
Urban Development ("HUD"). At the same time, the General Partners transferred
ownership of Brookeville to Brookeville L.P. The General Partner of Brookeville
L.P. is the Westcop Corporation ("Westcop") and KRF-III is the Limited Partner
of Brookeville L.P. Westcop has beneficially assigned its interest in
Brookeville L.P. to KRF-III. KRF-III and Brookeville L.P. are collectively known
as Krupp Realty Fund, Ltd.-III and Subsidiary (the "Partnership").
The Partnership's real estate investments are subject to some seasonal
fluctuations due to changes in utility consumption and seasonal maintenance
expenditures. However, the future performance of the Partnership will depend
upon factors which cannot be predicted. Such factors include general economic
and real estate market conditions, both on a national basis and in those areas
where the Partnership's investments are located, real estate tax rates,
operating expenses, energy costs, government regulations, and federal and state
income tax laws. 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 anticipated in the future.
The Partnership's investments in real estate are also subject to such risks
as (I) competition from existing and future projects held by other owners in the
areas of the Partnership's properties, (ii) possible reduction in rental income
due to an inability to maintain high occupancy levels, (iii) possible adverse
changes in mortgage interest rates, (iv) possible adverse changes in general
economic and local conditions, such as competitive over-building, increased
unemployment or adverse changes in real estate zoning laws, (v) the possible
future adoption of rent control legislation which would not permit the full
amount of increased costs to be passed on to tenants in the form of rent
increases, and (vi) other circumstances over which the Partnership may have
little or no control.
As of December 31, 1999, the Partnership did not employ any personnel.
<PAGE>
Recent Development
On January 28, 2000 KRF3 Acquisition Company, L.L.C. ("KR3"), KRF Company,
L.L.C., and The Krupp Family Limited Partnership - 94, affiliates of the General
Partner, filed a Transaction Statement on Schedule 13E-3 with the Securities and
Exchange Commission (the "SEC") with respect to KR3's proposal to merge KRF-III
with and into KR3. Under the terms of the proposed merger, each unitholder of
KRF-III other than KR3 and certain unitholders that have agreed to reinvest
their units in KR3 will receive $600 in cash for each outstanding investor
limited partnership interest owned by it. KR3 was initially organized for the
purpose of effecting a tender offer for the units of the Partnership, pursuant
to which it acquired 10,304 units, or approximately 41.2% of the outstanding
units, for a price of $550 per unit, in June 1999. KR3 later purchased a total
of 1,637.5 units, for a price of $600 per unit, from various investment
management professionals, increasing its ownership to approximately 47.9% of the
outstanding units. The General Partners of the Partnership have filed definitive
proxy materials with the SEC with respect to the proposed merger, which is
subject to certain conditions, including approval by unitholders of the merger
and related amendments to KRF-III's partnership agreement. On March 24, 2000,
the proxy statement was mailed to the unitholders of KRF-III. KRF-III estimates
that the merger, if approved by unitholders, will be completed in the second
quarter of 2000.
ITEM 2. PROPERTIES
As of December 31, 1999, the Partnership had leveraged investments in three
apartment complexes having an aggregate of 990 units.
A summary of the Partnership's real estate investments is presented below.
Schedule III included in Item 8 (Appendix A) of this report contains additional
detailed information with respect to individual properties.
<TABLE>
<CAPTION>
Average Occupancy
For the Year Ended
December 31,
Year ----------------------------
Description Acquired Total Units 1999 1998 1997 1996 1995
----------- -------- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Brookeville Apartments
Columbus, Ohio 1983 424 Units 96% 99% 98% 95% 94%
Hannibal Grove Apartments
Columbia, Maryland 1983 316 Units 97% 100% 100% 94% 93%
Dorsey's Forge and Oakland
Meadows Apartments
Columbia, Maryland 1983 250 Units 97% 100% 99% 94% 94%
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership is
a party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The transfer of Units of Limited Partner Interest is subject to certain
limitations contained in the Partnership Agreement. There is no public market
for the Units and it is not anticipated that any such public market will
develop.
The number of Investor Limited Partners as of December 31, 1999 was
approximately 585.
One of the objectives of the Partnership is to generate cash available for
distribution, however, there is no assurance that future operations will
generate cash available for distribution. The Partnership discontinued
distributions during 1990 because of insufficient operating cash flow. In 1994,
however, property operations improved and distributions were reinstituted and
paid in August, 1994 at a rate of $3.97 per Unit and increased to annual rates
of $11.90, $15.86 and $23.79 per Unit in 1995, 1996 and 1998, respectively.
Beginning with the distribution payable in February, 1999, the General Partners
increased the annual distribution rate to $31.72 per Unit, as a direct result of
continued successful operations at the Partnership's properties.
The Partnership made the following distributions to its Partners during the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998
------------------ ------------------
Amount Per Unit Amount Per Unit
-------- -------- -------- --------
Limited Partners:
<S> <C> <C> <C> <C>
Investor Limited Partners
(25,000 Units
outstanding) $793,086 $31.72 $594,752 $23.79
Original Limited Partner 33,391 25,045
General Partners 8,348 6,261
-------- --------
$834,825 $626,058
======== ========
</TABLE>
<PAGE>
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 Consolidated Financial Statements
which are included in Items 7 and 8 of this report, respectively.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue $ 7,848,536 $ 7,608,315 $ 7,280,181 $ 6,628,658 $ 6,352,337
Net income (loss) 536,168 536,483 (23,224) (446,360) (547,893)
Net income (loss)
allocated to:
Investor Limited
Partners 509,360 509,659 (22,063) (424,042) (520,498)
Per Unit 20.37 20.39 (.88) (16.96) (20.82)
Original Limited
Partner 21,447 21,459 (929) - -
General
Partners 5,361 5,365 (232) (22,318) (27,395)
Total assets at
December 31 11,216,742 11,982,905 12,354,768 13,224,310 14,384,144
Long-term
obligations
at December 31 8,269,080 18,289,553 18,726,677 19,126,371 19,491,853
Distributions:
Investor Limited
Partners 793,086 594,752 396,500 396,500 297,495
Per Unit 31.72 23.79 15.86 15.86 11.90
Original Limited
Partner 33,391 25,045 16,697 16,697 12,526
General
Partners 8,348 6,261 4,174 4,174 3,132
</TABLE>
The per Unit distributions for the years ended December 31, 1999, 1998,
1997, 1996 and 1995 were $31.72, $23.79, $15.86, $15.86, and $11.90,
respectively, none of which represented a return of capital.
Prior performance of the Partnership is not necessarily indicative of future
operations.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements including those concerning
Management's expectations regarding the future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Liquidity and Capital Resources
The Partnership's ability to generate cash adequate to meet its needs is
dependent primarily upon the operations of its real estate investments. Such
ability is also dependent upon the future availability of bank borrowings and
the potential refinancing and sale of the Partnership's remaining real estate
investments. These sources of liquidity will be used by the Partnership for
payment of expenses related to real estate operations, capital expenditures,
debt service and expenses. Cash Flow, if any, as calculated under Section 8.2(a)
of the Partnership Agreement, will then be available for distribution to the
Partners. In 1994, distributions were reinstituted and paid in August, 1994 at a
rate of $3.97 per Unit and increased to an annual rate of $11.90 and $15.86 per
Unit in 1995 and 1996, respectively. Thereafter, the Partnership continued
semiannual distributions at an annual rate of $15.86 until February, 1998 at
which time the Partnership increased the annual distribution rate to $23.79 per
Unit. Beginning with the distribution paid in February, 1999, the General
Partners increased the annual distribution rate to $31.72 per Unit, as a direct
result of continued successful operations at the Partnership's properties.
The Partnership is planning to spend approximately $1,900,000 for capital
improvements at its properties in 2000. The Partnership believes that the
improvements are necessary to compete in its current markets, produce quality
rental units and absorb excess market supply at the properties' respective
locations and to maintain current occupancy levels. Renovations include
carpeting, appliances, pavement upgrades and both interior and exterior building
improvements. The Partnership expects to fund these improvements from
established reserves and cash generated from property operations to the extent
available. In the event cash flow and reserves are not adequate to fund capital
improvements the general partner may suspend distributions and/or increase
borrowings.
Financial Accounting Standards Board Statement No.137. ("FAS137")
"Accounting for Derivative Instruments and Hedging Activities - deferral of the
Effective Date of the Statement of Financial Accounting Standards No. 133." FAS
137 amended FAS 133 by deferring the effective date to fiscal quarters of all
fiscal years beginning after June 15, 2000. The General Partners believe that
the implementation of FAS 137 will not have a material impact on the
Partnership's financial statements.
Year 2000
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the necessary steps to understand the nature and extent of the work
required to make its systems Year 2000 ready. They have evaluated Year 2000
compliance issues with respect to its non-financial systems and have received
assurances from third-party service providers (including but not limited to its
telecommunications providers and banks) with regard to their Year 2000
readiness.
The General Partners completed the testing and conversion of the
Partnerships financial accounting operating systems in February 1998. As a
result, the General Partners have generated operating efficiencies and believe
their financial accounting operating systems are Year 2000 ready. The General
<PAGE>
Partners incurred hardware costs as well as consulting and other expenses
related to the infrastructure and facilities enhancements necessary to complete
the upgrade and prepare for the Year 2000. There are no other significant
internal systems or software that the Partnership is using at the present time.
To date, the Partnership has not incurred, and does not expect to incur, any
significant cost associated with being Year 2000 compliant.
To date, the Partnership has not had, and does not expect to have, any Year
2000 related problems.
Operations
1999 compared to 1998
Net income remained stable in 1999 when compared to 1998, with increases
in total revenue offset by increases in total expenses.
Total revenue increased in 1999 when compared to 1998, primarily due to
rental rate increases implemented at all of the Partnership's properties.
Total expenses increased in 1999 when compared to 1998, with increases in
operating, maintenance and general and administrative expenses. These
increases were partly offset by decreases in depreciation and interest
expense. Operating expense increased in 1999 as a result of an increase in
workmen's compensation expense over 1998 due to a favorable adjustment in
1998 as a result of favorable claims experience as well as increases in
payroll and utility expenses. Maintenance increased due to increases in snow
removal expenses at all properties during the first quarter, increases in
landscaping expenses at Dorsey's Forge and Brookeville and increases in
plumbing expenses at Dorsey's Forge and Hannibal Grove. General and
administrative expenses increased as a result of increases in legal costs
primarily associated with the Partnership's response to the unsolicited
tender offer made by Madison Liquidity Investors 104, LLC to purchase
Partnership units. Depreciation expense decreased as fixed assets previously
purchased became fully depreciated. Interest expense decreased with the
decrease in mortgage principal balances.
1998 compared to 1997
Net income increased in 1998 when compared to 1997, with an increase in
total revenue and a decrease in total expenses.
Total revenue increased in 1998 when compared to 1997, primarily due to
rental rate increases implemented at all of the Partnership's properties.
Total expenses decreased in 1998 when compared to 1997, with decreases in
operating, general and administrative and depreciation expenses. Operating
expenses decreased due to a reduction in liability and workers compensation
expense at the Partnership properties, due to lower claims experience.
General and administrative expenses decreased as a result of 1997 legal
costs relating to the unsolicited tender offers to purchase Partnership
Units. Depreciation expense decreased as fixed asset additions purchased in
previously years became fully depreciated.
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.
<PAGE>
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 The Krupp Corporation, which is a
General Partner of both the Partnership and The Krupp Company, the other General
Partner of the Partnership, is as follows:
Position with
Name and Age The Krupp Corporation
------------ ---------------------
Douglas Krupp (53) President and Co-Chairman of the Board
George Krupp (55) Co-Chairman of the Board
Wayne H. Zarozny (41) 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, mortgage banking,
property management, investment sponsorship, venture capital investing and
financial management. 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. Mr. Krupp serves as a member of the
Board of Trustees at Brigham & Women's Hospital. He is a graduate of Bryant
College where he received an honorary Doctor of Science in Business
Administration in 1989 and was elected trustee in 1990.
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, mortgage banking, investment sponsorship,
venture capital investing and financial management. 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.
Wayne H. Zarozny is Vice President of The Berkshire Group. Mr. Zarozny has
held several positions within The Berkshire Group since joining the company in
1986 and is currently responsible for asset management, accounting, financial
reporting and treasury activities. Prior to joining The Berkshire Group, he was
an audit supervisor for Pannell Kerr Forster International and on the audit
staff of Deloitte, Haskins and Sells in Boston. He received a B.S. degree from
Bryant College, a Master's degree in Business Administration from Clark
University 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 February 16, 2000, beneficial owners of record owning more than 5% of the
Partnership's 25,000 outstanding Units were as follows:
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percent
of of of of
Class Beneficial Owner Beneficial Ownership Class
- -------- ------------------------- -------------------- -------
<S> <C> <C> <C> <C>
Investor Equity Resource Fund
Limited XIX Limited Partnership
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(2) 6.1%
<PAGE>
Investor Equity Resource Fund
Limited XVI Limited Partnership
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(3) 6.1%
Investor Equity Resource Cambridge
Limited Fund Limited Partnership
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(4) 6.1%
Investor Equity Resource General
Limited Fund Limited Partnership
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(5) 6.1%
Investor Equity Resource Brattle
Limited Fund Limited Partnership
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(6) 6.1%
Investor Equity Resources Bridge
Limited Fund Limited Partnership
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(7) 6.1%
Investor Equity Resources Group,
Limited Incorporated
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(8) 6.1%
Investor Eggert Dagbjartsson
Limited
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(9) 6.1%
Investor Mark S. Thompson
Limited
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(10) 6.1%
Investor James E. Brooks
Limited
Partner 14 Story Street
Units Cambridge, MA 02138 1,524 Units(1)(11) 6.1%
Investor KRF3 Acquisition Company, L.L.C.
Limited
Partner One Beacon Street, Suite 1500
Units Boston, MA 02108 11,475.2 Units(1)(12) 45.9%
Investor KRF Company, L.L.C.
Limited
Partner One Beacon Street, Suite 1500
Units Boston, MA 02108 11,475.2 Units(1)(13) 45.9%
<FN>
(1)According to the statement on Schedule 13D originally filed on September 17,
1996 by Equity Resources Group, Incorporated ("Equity Resources"), Equity
Resources Fund XVI Limited Partnership, Equity Resources Fund XIX Limited
Partnership, Equity Resource General Fund Limited Partnership, Equity Resource
Cambridge Fund Limited Partnership, Equity Resource Bridge Fund Limited
Partnership, Equity Resource Brattle Fund Limited Partnership (collectively,
"Equity"), James E. Brooks, Mark S. Thompson, and Eggert Dagbjartsson, as
amended by Amendment No. 1 thereto dated April 14, 1997, Amendment No. 2
thereto, dated January 6, 2000 - Amendment No. 3 thereto dated January 28, 2000
<PAGE>
and Amendment No. 4 thereto, dated February 16, 2000, (as amended, the
"Equity/Krupp Schedule 13D"), each of Equity Resources, Equity, Mark S.
Thompson, Eggert Dagbjartsson, KRF Company, L.L.C. ("KRF"), KRF3 Acquisition
Company, L.L.C. ("KRF3"), The Krupp Family Limited Partnership - 94 ("Krupp-
94"), Douglas Krupp and George Krupp (Messrs. Krupp, together with KRF, KRF3 and
Krupp-94, the "KRF Affiliates") may be deemed to constitute a "group" within the
meaning of Section 13(d)(3) of the Exchange Act by virtue of the execution of an
Investment Agreement, dated as of January 6, 2000, by and among Equity, KRF and
KRF3 (the "Investment Agreement") and a Voting Agreement dated as of January 6,
2000 by and among Equity, KRF and KRF3 (the "Voting Agreement"). According to
the Equity/Krupp Schedule 13D, Equity, KRF and KRF3 entered into the Investment
Agreement and the Voting Agreement for the purpose of facilitating a merger
proposal (the "Proposal") made by KRF3 to acquire outstanding units for cash.
According to the Equity/Krupp Schedule 13D, completion of the merger is subject
to the satisfaction of a number of conditions, including the approval of the
merger agreement and necessary amendments to the Amended Agreement of Limited
Partnership, dated as of June 1, 1982, of the Partnership (the "Amendments") by
the Holders of a majority of Units of the Partnership. According to the
Equity/Krupp Schedule 13D, under the terms of the Voting Agreement, Equity has
agreed that at any meeting of the partners of the Partnership, however called,
and in any action by consent of the limited partners of the Partnership, Equity
will vote (or cause to be voted) the units held of record or beneficially owned
by it in favor of the Proposal and the Amendments. According to the Equity/Krupp
Schedule 13D, the Voting Agreement shall terminate on August 1, 2000 unless
extended by agreement of each of the parties.
(2) According to the Equity/Krupp Schedule 13D, Equity Resource Fund XIX Limited
Partnership has shared voting power over 1,524 units of the Partnership solely
with respect to the proposed merger. Also, according to the Equity/Krupp
Schedule 13D, Equity Resource Fund XIX Limited Partnership has sole voting and
dispositive power with respect to 413 units of the Partnership.
(3) According to the Equity/Krupp Schedule 13D, Equity Resource Fund XVI Limited
Partnership has shared voting power over 1,524 units of the Partnership solely
with respect to the proposed merger. Also, according to the Equity/Krupp
Schedule 13D, Equity Resource Fund XVI Limited Partnership has sole voting and
dispositive power with respect to 916 units of the Partnership.
(4) According to the Equity/Krupp Schedule 13D, Equity Resource Cambridge Fund
Limited Partnership has shared voting power over 1,524 units of the Partnership
solely with respect to the proposed merger. Also, according to the Equity/Krupp
Schedule 13D, Equity Resource Cambridge Fund Limited Partnership has sole voting
and dispositive power with respect to 95 units of the Partnership.
(5) According to the Equity/Krupp Schedule 13D, Equity Resource General Fund
Limited Partnership has shared voting power over 1,524 units of the Partnership
solely with respect to the proposed merger. Also, according to the Equity/Krupp
Schedule 13D, Equity Resource General Fund Limited Partnership has sole voting
and dispositive power with respect to 40 units of the Partnership.
(6) According to the Equity/Krupp Schedule 13D, Equity Resource Brattle Fund
Limited Partnership has shared voting power over 1,524 units of the Partnership
solely with respect to the proposed merger. Also, according to the Equity/Krupp
Schedule 13D, Equity Resource General Fund Limited Partnership has sole voting
and dispositive power with respect to 30 units of the Partnership.
(7) According to the Equity/Krupp Schedule 13D, Equity Resources Bridge Fund
Limited Partnership has shared voting power over 1,524 units of the Partnership
solely with respect to the proposed merger. Also, according to the Equity/Krupp
Schedule 13D, Equity Resource General Fund Limited Partnership has sole voting
and dispositive power with respect to 30 units of the Partnership.
(8) According to the Equity/Krupp Schedule 13D, Equity Resources Group,
Incorporated has shared voting power over 1,524 units of the Partnership solely
<PAGE>
with respect to the proposed merger. Also, according to the Equity/Krupp
Schedule 13D, Equity Resources Group, Incorporated has shared voting and
dispositive power with respect to 1,494 units of the Partnership. (9) According
to the Equity/Krupp Schedule 13D, Eggert Dagbjartsson has shared voting and
dispositive power over 1,524 units of the Partnership.
(10) According to the Equity/Krupp Schedule 13D, Mark S. Thompson has shared
voting power over 1,524 units of the Partnership solely with respect to the
proposed merger. Also, according to the Equity/Krupp Schedule 13D, Mark S.
Thompson has shared voting and dispositive power with respect to 165 units of
the Partnership.
(11) According to the Equity/Krupp Schedule 13D, James E. Brooks has shared
voting power over 1,524 units of the Partnership solely with respect to the
proposed merger. Also, according to the Equity/Krupp Schedule 13D, James E.
Brooks has shared voting and dispositive power with respect to 1,494 units of
the Partnership.
(12) According to the Equity/Krupp Schedule 13D, KRF3 has shared voting power
over 1,524 units of the Partnership solely with respect to the proposed merger.
According to the Equity/Krupp Schedule 13D, KRF3 has sole voting and dispositive
power with respect to 11,991.5 units of the Partnership. As stated in the
Equity/Krupp Schedule 13D, KRF3 may be deemed to have acquired beneficial
ownership of the 1,524 units reported in the Equity/Krupp Schedule 13D pursuant
to the terms of the Voting Agreement and the Investment Agreement.
(13) According to the Equity/Krupp Schedule 13D, in its capacity as the sole
member of KRF3, KRF has shared voting power over 1,524 units of the Partnership
solely with respect to the proposed merger. According to the Equity/Krupp
Schedule 13D, KRF has sole voting and dispositive power with respect to 11,991.5
units of the Partnership. As stated in the Equity/Krupp Schedule 13D, KRF may be
deemed to have acquired beneficial ownership of the 1,524 units reported in the
Equity/Krupp Schedule 13D pursuant to the terms of the Voting Agreement and the
Investment Agreement. As stated in the Equity/Krupp Schedule 13D, Krupp-94 is
the sole member of KRF, and therefore may also be deemed to (I) have shared
voting power over 1,524 units of the Partnership solely with respect to the
proposed merger and (ii) sole voting and dispositive power with respect to
11,991.5 units of the Partnership. As stated in the Equity/Krupp Schedule 13D,
Douglas Krupp and George Krupp are the general partners of Krupp-94 and in such
capacities may also be deemed to (I) share voting and dispositive power over
13,516.5 units of the Partnership solely with respect to the proposed merger and
(ii) share voting and dispositive power over 11,992.5 units of the Partnership
with respect to all matters other than the proposed merger.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership does not have any directors, executive officers or nominees
for election as director. Please see "Business - Recent Developments" above and
Note G to the Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements - see Index to Consolidated
Financial Statements and Schedule included under Item 8
(AppendixA) on page F-2 of this Report.
2. Consolidated Financial Statement Schedule - see Index to
Consolidated 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 Consolidated Financial
Statements or the Notes thereto.
<PAGE>
(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 April
23, 1982 [Exhibit A to Prospectus included in
Registrant's Registration Statement on Form S-11
(File 2-77155)].*
(4.2) Amended Certificate of Limited Partnership filed with
the Massachusetts Secretary of State on September 29,
1982 [Exhibit 4.2 to Registrant's Report on Form 10-K
dated December 31, 1982 (File No. 2-77155)].*
(10) Material Contracts:
Brookeville Apartments
(10.1) Property Management Agreement dated October 1, 1991
between Brookeville Apartments Limited Partnership,
as Owner, and BRI OP Limited Partnership, formerly
known as Berkshire Property Management, a subsidiary
of Berkshire Realty Company, Inc. [Exhibit 10.6 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 (File No. 0-11210)].*
(10.2) Contract of Limited Partnership and Certificate of
Limited Partnership of Brookeville Apartments Limited
Partnership [Exhibit 10.5 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1993
(File No. 0-11210)].*
(10.3) Agreement to Hold Title dated July 20, 1993 by and
between Brookeville Apartments Limited Partnership
and Krupp Realty Fund, Ltd. - III. [Exhibit 10.6 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 0-11210)].*
(10.4) Quitclaim deed dated July 20, 1993 between Krupp
Realty Fund, Ltd.-III and Brookeville Apartments
Limited Partnership. [Exhibit 10.7 to Registrant's
Report on Form 10-Q for the quarter ended September
30, 1993 (File No. 0-11210)].*
(10.5) Open-End Mortgage Note dated July 20, 1993 by and
between Brookeville Apartments Limited Partnership
and Sussex Mortgage Company. [Exhibit 10.8 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 0-11210)].*
(10.6) Open-End Mortgage Deed dated July 20, 1993 by and
between Brookeville Apartments Limited Partnership
and Sussex Mortgage Company. [Exhibit 10.9 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 0-11210)].*
Dorsey's Forge, Oakland Meadows and Hannibal Grove Apartments
(10.7) Agreements dated as of November 30, 1982, and related
supplemental Agreement dated as of November 30, 1982
<PAGE>
between George Krupp and Douglas Krupp, on behalf of
themselves and others, and Shelter Corporation of
Canada, Limited and Metropolitan Properties Co.
Limited [Exhibit to Registrant's Report on Form 8-K
dated January 10, 1983 (File 2-77155)].*
(10.8) Deed dated April 25, 1983 between Dorsey's
Properties, Ltd. and D.O.H., Inc. relating to
Dorsey's Forge [Exhibit 1 to Registrant's Amendment
No. 1 to Form 8-K dated January 18, 1983 (File No.
2-77155)].*
(10.9) Deed dated April 25, 1983 between D.O.H., Inc. and
Krupp Realty Fund, Ltd.-III relating to Dorsey's
Forge [Exhibit 2 to Registrant's Amendment No. 1 to
Form 8-K dated January 18, 1983 (File No. 2-77155)].*
(10.10) Modification and Restatement of Promissory Note dated
April 28, 1993 by and between Krupp Realty Fund -
III, Ltd. and John Hancock Mutual Life Insurance
Company relating to Dorsey's Forge. [Exhibit 10.1 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1993. (File No. 0-11210)].*
(10.11) Modification and Restatement of Indemnity Deed of
Trust and Security Agreement dated April 28, 1993
between Krupp Realty Fund, Ltd.-III and John Hancock
Mutual Life Insurance Company relating to Dorsey's
Forge [Exhibit 10.2 to Registrant's Report on Form
10- Q dated September 30, 1993. (File No. 0-11210)].*
(10.12) Property Management Agreement dated, December 19,
1986, between Krupp Realty Fund, Ltd.-III (as
"Owner") and BRI OP Limited Partnership, formerly
known as Berkshire Property Management, a subsidiary
of Berkshire Realty Company, Inc., relating to
Dorsey's Forge [Exhibit 10.15 to Registrant's Annual
Report on Form 10-K dated December 31, 1986 (File No.
0- 11210)].*
(10.13) Management Agreement dated December 19, 1986 between
Krupp Realty Fund, Ltd.-III (as "Owner") and BRI OP
Limited Partnership, formerly known as Berkshire
Property Management , a subsidiary of Berkshire
Realty Company, Inc., relating to Oakland Meadows
[Exhibit 10.16 to Registrant's Annual Report on Form
10-K dated December 31, 1986 (File No. 0-11210)].*
(10.14) Deed dated April 25, 1983 between Dorsey Properties
Ltd., and D.O.H., Inc., relating to Oakland Meadows
[Exhibit 4 to Registrant's Amendment No. 1 to Form
8-K dated January 18, 1983 (File No. 2-77155)].*
(10.15) Deed dated April 25, 1983 between D.O.H., Inc., and
Krupp Realty Fund, Ltd.-III relating to Oakland
Meadows [Exhibit 5 to Registrant's Amendment No. 1 to
Form 8-K dated January 18, 1983 (File No. 2-77155)].*
(10.16) Modification and Restatement of Promissory Note dated
April 28, 1993 between Krupp Realty Fund, Ltd.-III
and John Hancock Mutual Life Insurance Company
relating to Hannibal Grove. [Exhibit 10.3 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 0-11210)].*
<PAGE>
(10.17) Modification and Restatement of Indemnity Deed of
Trust and Security Agreement dated April 28, 1993
between Krupp Realty Fund, Ltd.-III and John Hancock
Mutual Life Insurance Company relating to Hannibal
Grove [Exhibit 10.4 to Registrant's Report on Form
10- Q for the quarter ended September 30, 1993. (File
No. 0-11210)].*
(10.18) Management Agreement dated December 19, 1986 between
Krupp Realty Fund, Ltd.-III (as "Owner") and BRI OP
Limited Partnership, formerly known as Berkshire
Property Management, a subsidiary of Berkshire Realty
Company, Inc., relating to Hannibal Grove [Exhibit
10.21 to Registrant's Annual Report on Form 10-K
dated December 31, 1986 (File No. 0-11210)].*
(10.19) Deed dated April 25, 1983 between Dorsey Properties,
Ltd., and D.O.H., Inc., relating to Hannibal Grove
[Exhibit 7 to Registrant's Amendment No. 1 to Form
8-K dated January 18, 1983 (File No. 2-77155)].*
(10.20) Deed dated April 25, 1983 between D.O.H., Inc., and
Krupp Realty Fund, Ltd.-III relating to Hannibal
Grove [Exhibit 8 to Registrant's Amendment No. 1 to
Form 8-K dated January 18, 1983 (File No. 2-77155)].*
* Incorporated by reference.
(C) Reports on Form 8-K
During the quarter ended December 31, 1999, the Partnership did not
file any reports on Form 8-K.
<PAGE>
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 30th day of
March, 2000.
KRUPP REALTY FUND, LTD.-III
By: The Krupp Corporation, a General Partner
By: /s/ Douglas Krupp
Douglas Krupp, President, Co-Chairman
(Principal Executive Officer) and
Director of The Krupp 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 30th day of March, 2000.
Signatures Titles
- ---------- ------
/s/ Douglas Krupp President, Co-Chairman (Principal Executive
Douglas Krupp Officer) and Director of The Krupp
Corporation, a General Partner.
/s/ George Krupp Co-Chairman (Principal Executive Officer) and
George Krupp Director of The Krupp Corporation, a
General Partner.
/s/ Wayne H. Zarozny Treasurer (Principal Financial and Accounting
Wayne H. Zarozny Officer) of the Krupp Corporation, a General
Partner.
<PAGE>
APPENDIX A
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1999
F-1
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Consolidated Balance Sheets for December 31, 1999
and December 31, 1998 F-4
Consolidated Statements of Operations For the Years Ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Changes in Partners' Deficit
For the Years Ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8 - F-15
Schedule III - Real Estate and Accumulated Depreciation F-16- F-17
All other schedules are omitted as they are not applicable or not required, or
the information is provided in the consolidated financial statements or the
notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Krupp Realty Fund, Ltd.-III and Subsidiary:
In our opinion, the consolidated financial statements and the financial
statement schedule listed in the index on page F-2 present fairly, in all
material respects, the financial position of Krupp Realty Fund, Ltd.-III and its
Subsidiary (the "Partnership") at December 31, 1999 and December 31, 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial statement schedule are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, 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 the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 25, 2000
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Multi-family apartment complexes,
net of accumulated depreciation of
$23,674,311 and $21,977,268
respectively (Note D) $ 9,075,632 $ 9,784,836
Cash and cash equivalents (Note C) 722,318 932,065
Replacement reserve escrow (Note D) 231,443 160,954
Cash restricted for tenant
security deposits 235,985 229,416
Prepaid expenses and other assets 736,531 614,911
Deferred expenses, net of accumulated
amortization of $304,751 and $258,861
respectively 214,833 260,723
------------ ------------
Total assets $ 11,216,742 $ 11,982,905
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note D) $ 18,289,553 $ 18,726,677
Accrued expenses and other liabilities
(Note E) 715,397 601,319
Due to affiliates (Note G) 55,040 199,500
------------ ------------
Total liabilities 19,059,990 19,527,496
------------ ------------
Commitment (Note F)
Partners' deficit (Note F):
Investor Limited Partners
(25,000 Units outstanding) (6,589,186) (6,305,460)
Original Limited Partner (921,681) (909,737)
General Partners (332,381) (329,394)
------------ ------------
Total Partners' deficit (7,843,248) (7,544,591)
------------ ------------
Total liabilities and Partners' deficit $ 11,216,742 $ 11,982,905
============ ============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-4
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
Revenue:
<S> <C> <C> <C>
Rental $7,779,790 $7,541,280 $7,224,085
Other income 68,746 67,035 56,096
---------- ---------- ----------
Total revenue 7,848,536 7,608,315 7,280,181
---------- ---------- ----------
Expenses:
Operating (Note G) 2,153,446 2,004,219 2,041,820
Maintenance 666,780 591,235 578,869
Real estate taxes 589,177 559,440 539,978
General and administrative (Note G) 181,608 66,012 101,687
Management fees (Note G) 389,848 376,570 357,766
Depreciation and amortization 1,742,933 1,806,516 1,980,892
Interest (Note D) 1,588,576 1,667,840 1,702,393
---------- ---------- ----------
Total expenses 7,312,368 7,071,832 7,303,405
---------- ---------- ----------
Net income (loss) (Note H) $ 536,168 $ 536,483 $ (23,224)
========== ========== ==========
Allocation of net income (loss) (Note F):
Investor Limited Partners
(25,000 Units outstanding) $ 509,360 $ 509,659 $ (22,063)
========== ========== ==========
Investor Limited Partners
Per Unit $ 20.37 $ 20.39 $ (.88)
========== ========== ==========
Original Limited Partner $ 21,447 $ 21,459 $ (929)
========== ========== ==========
General Partners $ 5,361 $ 5,365 $ (232)
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-5
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
----------- --------- --------- ------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 $(5,801,804) $(888,525) $(324,092) $ (7,014,421)
Net loss (22,063) (929) (232) (23,224)
Distributions (396,500) (16,697) (4,174) (417,371)
----------- --------- --------- -----------
Balance at
December 31, 1997 (6,220,367) (906,151) (328,498) (7,455,016)
Net income 509,659 21,459 5,365 536,483
Distributions (594,752) (25,045) (6,261) (626,058)
----------- --------- -------- -----------
Balance at
December 31, 1998 (6,305,460) (909,737) (329,394) (7,544,591)
Net income (Note F) 509,360 21,447 5,361 536,168
Distributions (Note F) (793,086) (33,391) (8,348) (834,825)
----------- --------- --------- -----------
Balance at
December 31, 1999 $(6,589,186) $(921,681) $(332,381) $(7,843,248)
=========== ========= ========= ===========
</TABLE>
The per Unit distribution for the years ended December 31, 1999, 1998 and 1997
were $31.72, $23.79 and $15.86, respectively, none of which represented a return
of capital.
The accompanying notes are an integral
part of the consolidated financial statements.
F-6
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 536,168 $ 536,483 $ (23,224)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,742,933 1,806,516 1,980,892
Interest earned on replacement reserve
escrow (8,594) (7,392) (4,889)
Changes in assets and liabilities:
Decrease (increase) in cash
restricted for tenant security
deposits (6,569) (26,725) (18,933)
Decrease (increase) in prepaid
expenses and other assets (121,620) (19,215) 7,394
Increase (decrease) in due to
affiliates (144,460) 199,500 -
Increase (decrease) in accrued
expenses and other liabilities 111,791 (82,094) (54,465)
----------- ----------- ------------
Net cash provided by
operating activities 2,109,649 2,407,073 1,886,775
----------- ----------- -----------
Cash flows from investing activities:
Additions to fixed assets (987,839) (1,025,693) (949,541)
Increase (decrease) in accrued expenses
and other liabilities related to
fixed asset additions 2,287 - (9,000)
Withdrawals from replacement reserve
escrow - 86,111 -
Deposits to replacement reserve escrow (61,895) (61,895) (61,895)
----------- ----------- -----------
Net cash used in investing
activities (1,047,447) (1,001,477) (1,020,436)
----------- ----------- ------------
Cash flows from financing activities:
Principal payments on mortgage
notes payable (437,124) (399,694) (365,482)
Distributions (834,825) (626,058) (417,371)
----------- ----------- -----------
Net cash used in
financing activities (1,271,949) (1,025,752) (782,853)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (209,747) 379,844 83,486
Cash and cash equivalents, beginning
of the year 932,065 552,221 468,735
----------- ----------- -----------
Cash and cash equivalents, end of
the year $ 722,318 $ 932,065 $ 552,221
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-7
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization
Krupp Realty Fund, Ltd.-III ("KRF-III") was formed on April 23, 1982 by
filing a Certificate of Limited Partnership in The Commonwealth of
Massachusetts. KRF-III terminates on December 31, 2020, unless earlier
terminated upon the sale of the last of KRF-III's properties or the
occurrence of certain other events as set forth in the Partnership
Agreement.
KRF-III issued all of the General Partner Interests to The Krupp Company, a
Massachusetts limited partnership, and The Krupp Corporation, a
Massachusetts corporation, in exchange for capital contributions
aggregating $1,000. Except under certain limited circumstances upon
termination of KRF-III, the General Partners are not required to make any
additional capital contributions. KRF- III also issued all of the Original
Limited Partner Interests to The Krupp Company in exchange for a capital
contribution of $4,000. The Original Limited Partner is not required to
make any additional capital contributions to KRF-III.
On June 4, 1982, KRF-III commenced an offering of up to 25,000 units of
Investor Limited Partner Interests (the "Units") for $1,000 per Unit. As of
September 29, 1982, KRF-III received subscriptions for all 25,000 Units and
therefore, the public offering was successfully completed on that date.
In 1993, the General Partners formed Brookeville Apartments Limited
Partnership ("Brookeville L.P.") as a prerequisite for the refinancing of
Brookeville Apartments ("Brookeville") with the Department of Housing and
Urban Development ("HUD"). At the same time, the General Partners
transferred ownership of Brookeville to Brookeville L.P. The General
Partner of Brookeville L.P. is the Westcop Corporation ("Westcop") and
KRF-III is the Limited Partner in Brookeville L.P. Westcop has beneficially
assigned its interest in Brookeville L.P. to KRF-III. KRF-III and
Brookeville L.P. are collectively known as Krupp Realty Fund, Ltd.-III and
Subsidiary (the "Partnership").
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those used
for federal income tax purposes (see Note H).
Basis of Presentation
The consolidated financial statements present the consolidated assets,
liabilities and operations of the Partnership. All intercompany
balances and transactions have been eliminated.
Risks and Uncertainties
The Partnership invests its cash primarily in deposits and money market
funds with commercial banks. The Partnership has not experienced any
losses to date on its invested cash.
The preparation of financial statements in conformity 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 reporting period. Actual results could differ from
those estimates.
Continued
F-8
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Cash and Cash Equivalents
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The cash investments are recorded at cost, which
approximates current market values.
Rental Revenues
Leases require the payment of rent monthly in advance. Rental revenues
are recorded on the accrual basis.
Depreciation
Depreciation is provided for by the use of the straight-line method
over estimated useful lives as follows:
Buildings and improvements 5 to 25 years
Appliances, carpeting and equipment 3 to 8 years
Impairment of Long-Lived Assets
Real estate assets and equipment are stated at depreciated cost.
Pursuant to Statement of Financial Accounting Standards Opinion No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", impairment losses are recorded on long-lived
assets used in operations on a property by property basis, when events
and circumstances indicate that the assets might be impaired and the
estimated undiscounted cash flows to be generated by those assets are
less than the carrying amount of those assets. Upon determination that
an impairment has occurred, those assets shall be reduced to fair
value.
Deferred Expenses
Costs of obtaining and recording mortgages are amortized over the life
of the related mortgage notes using the straight-line method which
approximates the effective interest method.
Income Taxes
The Partnership is not liable for federal or state income taxes as
Partnership income or loss is allocated to the Partners for income tax
purposes. In the event the Partnership's tax returns are examined by
the Internal Revenue Service or state taxing authority and the
examination results in a change in Partnership taxable income or loss,
such change will be reported to the Partners.
Continued
F-9
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Descriptive Information About Reportable Segments
The Partnership operates and develops apartment communities which
generate rental and other income through the leasing of apartment
units. The General Partners separately evaluate the performance of each
of the Partnership's apartment communities. However, because each of
the apartment communities have similar economic characteristics,
facilities, services and tenants, the apartment communities have been
aggregated into a single dominant apartment communities segment.
All revenues are from external customers and no revenues are generated
from transactions with other segments. There are no tenants which
contributed 10% or more of the Partnership's total revenue during 1999,
1998 or 1997.
C. Cash and Cash Equivalents
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash and money market accounts $ 373,380 $ 682,656
Commercial paper 348,938 249,409
----------- -----------
$ 722,318 $ 932,065
=========== ===========
</TABLE>
Continued
F-10
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Mortgage Notes Payable
The properties owned by the Partnership are pledged as collateral for
the non- recourse mortgage notes outstanding at December 31, 1999 and
1998. Mortgage notes payable consisted of the following:
<TABLE>
<CAPTION>
Principal Annual
------------------------- Interest
Property 1999 1998 Rate Maturity Date
---------------- ----------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
Brookeville
Apartments $ 8,351,909 $ 8,428,579 7.75% August 1, 2028
Dorsey's Forge
Apartments and
Oakland Meadows
Apartments 4,210,866 4,363,601 9.25% May 3, 2000
Hannibal Grove
Apartments 5,726,778 5,934,497 9.25% May 3, 2000
----------- -----------
Total $18,289,553 $18,726,677
=========== ===========
</TABLE>
Brookeville Apartments
The property is subject to a non-recourse mortgage note in the original
amount of $8,755,000, insured by the Department of Housing and Urban
Development ("HUD"). The mortgage note requires monthly payments of
$60,600 consisting of principal and interest at the rate of 7.75% per
annum. In addition, the Partnership is required to fund a monthly
deposit of $5,158 to an escrow account to be used for future property
replacements and improvements and a mortgage insurance premium deposit
equal to .5% per annum of the outstanding principal balance. The note
matures on August 1, 2028. In accordance with HUD regulations,
distributions are limited to the extent of Surplus Cash, as defined by
the Regulatory Agreement. The mortgage note payable is collateralized
by the property and may be prepaid during the five years beginning
August 1, 1998, subject to an annual declining prepayment penalty of 5%
to 1%, respectively. After August 1, 2003, there is no prepayment
penalty.
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt is approximately $8,010,000 and $9,446,000 at December
31, 1999 and 1998, respectively.
Hannibal Grove Apartments ("Hannibal") and Dorsey's Forge and Oakland
Meadows Apartments ("Dorsey's")
The properties are subject to non-recourse mortgage notes for Hannibal
and Dorsey's in the original amounts of $6,800,000 and $5,000,000,
respectively, payable at a rate of 9.25% per annum. Monthly principal
and interest payments are $62,333 for Hannibal and $45,833 for
Dorsey's. The notes mature on May 3, 2000 at which time all unpaid
principal, $5,653,175 (Hannibal) and $4,156,746 (Dorsey's), and any
accrued interest are due. The mortgage notes payable are collateralized
by the respective properties and may be prepaid subject to a prepayment
penalty. The prepayment penalty will be the greater of 1) the principal
balance multiplied by the difference between 9.4301% and the yield rate
on publicly traded U.S. Treasury Securities having the closest matching
maturity date as reported in the Wall Street Journal, or 2) one percent
of the then outstanding principal.
Continued
F-11
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Mortgage Notes Payable, Continued
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt for Hannibal and Dorsey's is approximately $5,746,000
and $4,225,000 at December 31, 1999 and $6,118,000 and $4,449,000 at
December 31, 1998, respectively.
Due to restrictions on transfers and prepayment, the Partnership may be
unable to refinance certain mortgage notes payable at such calculated fair
value.
The aggregate scheduled principal amounts of long-term borrowings due
during the five years ending December 31, 2004 are $10,020,473, $89,480,
$96,667 $104,430 and $112,818.
During 1999, 1998 and 1997 the Partnership paid $1,588,076, $1,625,506 and
$1,659,719 of interest, respectively, on its mortgage notes.
E. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts payable $ 45,864 $ 1,016
Accrued real estate taxes 185,418 161,258
Other liabilities 206,077 191,934
Tenant security deposits 249,710 219,272
Prepaid rent 28,328 27,839
-------- --------
$715,397 $601,319
======== ========
</TABLE>
F. Partners' Deficit
Under the terms of the Partnership Agreement, profits and losses from
operations are allocated 95% to the Investor Limited Partners, 4% to the
Original Limited Partner and 1% to the General Partners until such time
that the Investor Limited Partners have received a return of their total
invested capital plus a 9% per annum Cumulative Return on Investment
thereon and thereafter, 65% to the Investor Limited Partners, 28% to the
Original Limited Partner and 7% to the General Partners.
Also, under the Partnership Agreement, cash distributions from operations
are generally made on the same basis as the allocations of profits and
losses described above. Net cash proceeds, as determined by the General
Partners, resulting from transactions such as refinancing or sale of a
property, are to be distributed as follows: 1) to the Investor Limited
Partners until they have received a return of their total Invested Capital;
2) to the Investor Limited Partners until they have received an amount
equal to their Cumulative Return on Investment in respect of all fiscal
years of the Partnership; 3) to the Original Limited Partner and General
Partners until they have received a return of their total Invested Capital;
4) to an unaffiliated brokerage firm (the "Sales Agent") to the extent of
any subordinated Financial Consulting Fee then due, and; 5) any remaining
Cash Proceeds shall be distributed 65% to the Investor Limited Partners,
28% to the Original Limited Partner and 7% to the General Partners.
Notwithstanding anything above, the General Partners shall, under all
circumstances, receive at least 1% of all distributions of net cash
proceeds from a capital transaction.
Continued
F-12
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
F. Partners' Deficit, Continued
Per the Partnership Agreement, profits from capital transactions are to be
allocated to the extent of cash distributions described above, first to the
Investor Limited Partners until they have received a return of their total
Invested Capital. Losses from capital transactions are to be allocated to
the extent of cash distributions described above, first to the Investor
Limited Partners until they have received a return of their total Invested
Capital plus their Cumulative Return on Investment. Thereafter, profits and
losses from capital transactions are to be allocated in accordance with the
Partnership Agreement. Notwithstanding anything above, the General Partners
shall be allocated, under all circumstances, at least 1% of all profits and
losses from capital transactions.
For income tax purposes, the allocation of Partnership items is determined
according to the Partnership Agreement, to the extent that each allocation
has "substantial economic effect" pursuant to the Internal Revenue Code,
Section 704. In the event that an allocation does not meet these statutory
requirements, Partnership items will be reallocated according to these
provisions. For 1996, reallocation was necessary. The consolidated
financial statements presented herein reflect the allocation of net loss in
accordance with the rules of the Internal Revenue Code for the year ended
December 31, 1996.
As of December 31, 1999, the following cumulative partner contributions and
allocations have been made since the inception of the Partnership:
<TABLE>
<CAPTION>
Investor Original
Limited Limited General
Partners Partner Partners Total
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Capital contributions $ 25,000,000 $ 4,000 $ 1,000 $ 25,005,000
Syndication costs (3,486,600) - - (3,486,600)
Cash distributions
from operations (11,499,959) (484,204) (121,049) (12,105,212)
Cash distributions from
refinancing proceeds (5,173,000) - (52,252) (5,225,252)
Net loss from operations (20,832,294) (837,378) (259,056) (21,928,728)
Net income from capital
transaction 9,402,667 395,901 98,976 9,897,544
------------ --------- --------- ------------
Balance at
December 31, 1999 $ (6,589,186) $(921,681) $(332,381) $ (7,843,248)
============ ========= ========= ============
</TABLE>
G. Related Party Transactions
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Pursuant to the management
agreements, management fees are payable monthly at a rate of 5% of the
gross receipts from the properties under management. The Partnership also
reimburses affiliates of the General Partners for certain expenses incurred
in connection with the operation of the Partnership and its properties,
including administrative expenses.
Continued
F-13
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
G. Related Party Transactions, Continued
Amounts paid to the General Partners' affiliates during the years ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Property management fees $ 389,848 $ 376,570 $ 357,766
Expense reimbursements 163,898 163,891 179,032
--------- --------- ---------
Charged to operations $ 553,746 $ 540,461 $ 536,798
========= ========= =========
</TABLE>
Due to affiliates consisted of expense reimbursements of $55,040 and
$199,500 at December 31, 1999 and 1998, respectively.
H. Federal Income Taxes
For federal income tax purposes, the Partnership is depreciating property
under the Accelerated Cost Recovery System ("ACRS") and the Modified
Accelerated Cost Recovery System ("MACRS"), depending on which is
applicable.
The reconciliation of the net income (loss) reported in the accompanying
Consolidated Statement of Operations with the net loss reported in the
Partnership's 1999, 1998 and 1997 federal income tax returns is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) per Consolidated
Statement of Operations $ 536,168 $ 536,483 $ (23,224)
Difference in book to tax
depreciation and amortization 1,000,678 1,164,574 557,885
---------- ---------- ----------
Net income (loss) for federal
income tax purposes $1,536,846 $1,701,057 $ 534,661
========== ========== ==========
</TABLE>
The allocation of the net income for federal income tax purposes for the
year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Portfolio Passive
Income Income Total
--------- ---------- ----------
<S> <C> <C> <C>
Investor Limited Partners $ 64,040 $1,395,964 $1,460,004
Original Limited Partner 2,696 58,778 61,474
General Partners 674 14,694 15,368
--------- ---------- ----------
$ 67,410 $1,469,436 $1,536,846
========= ========== ==========
</TABLE>
During the years ended December 31, 1999, 1998 and 1997 the per Unit net
income (loss) to the Investor Limited Partners for federal income tax
purposes was $58.40, $64.64 and $21.17, respectively.
The basis of the Partnership's assets for financial reporting purposes
exceeds its tax basis by approximately $1,287,000 and $2,288,000 at
December 31, 1999 and 1998, respectively. The tax and book basis of the
Partnership's liabilities are the same at December 31, 1999 and 1998.
Continued
F-14
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
I. Subsequent Event
On January 28, 2000 KRF3 Acquisition Company, L.L.C. ("KR3"), KRF Company,
L.L.C., and The Krupp Family Limited Partnership - 94, affiliates of the General
Partner, filed a Transaction Statement on Schedule 13E-3 with the Securities and
Exchange Commission (the "SEC") with respect to KR3's proposal to merge KRF-III
with and into KR3. Under the terms of the proposed merger, each unitholder of
KRF-III other than KR3 and certain unitholders that have agreed to reinvest
their units in KR3 will receive $600 in cash for each outstanding investor
limited partnership interest owned by it. KR3 was initially organized for the
purpose of effecting a tender offer for the units of the Partnership, pursuant
to which it acquired 10,304 units, or approximately 41.2% of the outstanding
units, for a price of $550 per unit, in June 1999. KR3 later purchased a total
of 1,637.5 units, for a price of $600 per unit, from various investment
management professionals, increasing its ownership to approximately 47.9% of the
outstanding units. The General Partners of the Partnership have filed definitive
proxy materials with the SEC, which is subject to certain conditions, including
approval by unitholders of the merger and related amendments to KRF-III's
partnership agreement with respect to the proposed merger. KRF-III estimates
that the merger, if approved by unitholders, will be completed in the second
quarter of 2000.
F-15
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Costs to Partnership Acquisition
-------------------------- ---------
Buildings Buildings
and and Depreciable
Description Encumbrances Land Improvements Improvements Life
- ---------------- ------------ -------- ----------- --------------- --------
<S> <C> <C> <C> <C> <C>
Brookeville
Apartments
Columbus, OH $ 8,351,909 $ 623,126 $ 8,312,134 $ 4,443,689 3 to 25 years
Hannibal Grove
Apartments
Columbia, MD 4,210,866 518,519 6,883,945 4,607,191 3 to 25 years
Dorsey's Forge &
Oakland Meadows
Apartments
Columbia, MD 5,726,778 340,956 4,521,895 2,498,488 3 to 25 years
----------- ---------- ----------- ------------
Total $18,289,553 $1,482,601 $19,717,974 $ 11,549,368
=========== ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amounts Carried at
End of Year
-------------------------------
Buildings Year
and Accumulated Year Construction
Description Land Improvements Total Depreciation Acquired Completed
- --------------- -------- ------------ --------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brookeville
Apartments
Columbus, OH $ 623,126 $12,755,823 $13,378,949 $ 9,760,605 1983 1975
Hannibal Grove
Apartments
Columbia, MD 518,519 11,491,136 12,009,655 8,788,605 1983 1970
Dorsey's Forge &
Oakland Meadows
Apartments
Columbia, MD 340,956 7,020,383 7,361,339 5,125,101 1983 1970
---------- ----------- ----------- -----------
Total $1,482,601 $31,267,342 $32,749,943 $23,674,311
========== =========== =========== ===========
</TABLE>
Continued
F-16
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 1999
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
Real Estate
-----------
<S> <C> <C> <C>
Balance at beginning of year $31,762,104 $30,736,411 $29,786,870
Acquisition and improvements 987,839 1,025,693 949,541
----------- ----------- -----------
Balance at end of year $32,749,943 $31,762,104 $30,736,411
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Depreciation 1999 1998 1997
------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $21,977,268 $20,216,642 $18,281,640
Depreciation expense 1,697,043 1,760,626 1,935,002
----------- ----------- -----------
Balance at end of year $23,674,311 $21,977,268 $20,216,642
=========== =========== ===========
</TABLE>
Note: The Partnership uses the cost basis for property valuation for both income
tax and financial statement purposes. The aggregate cost for federal income tax
purposes at December 31, 1999 is $32,763,515, and the aggregate accumulated
depreciation for federal income tax purposes is $24,966,748.
F-17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Krupp Realty
Fund III Financial Statements for the twelve months ended December 31, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 722,318
<SECURITIES> 0
<RECEIVABLES> 37,746<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,166,213
<PP&E> 33,269,527<F2>
<DEPRECIATION> (23,979,062)<F3>
<TOTAL-ASSETS> 11,216,742
<CURRENT-LIABILITIES> 770,437
<BONDS> 18,289,553<F4>
0
0
<COMMON> 0
<OTHER-SE> (7,843,248)<F5>
<TOTAL-LIABILITY-AND-EQUITY> 11,216,742
<SALES> 0
<TOTAL-REVENUES> 7,848,536<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,723,792<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,588,576
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 536,168
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes all receivables grouped in "Prepaid Expenses and Other Assets" on
the Balance Sheet.
<F2>Includes apartment complexes of $32,749,943 and deferred expenses of
$519,584.
<F3>Includes depreciation of $23,674,311 and amortization of deferred expenses
of $304,751.
<F4>Represents mortgage note payable.
<F5>Represents total deficit of the General Partners ($332,381) and the Limited
Partners ($7,510,867).
<F6>Includes all revenue of the Partnership.
<F7>Includes operating expenses of $3,391,682, real estate taxes of $589,177 and
depreciation and amortization of $1,742,933.
<F8>Net Income allocated, $5,361 to General Partners and $530,807 to Limited
Partners. Net Income of $20.37 per unit on 25,000 units outstanding.
</FN>
</TABLE>
