UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESx
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17691
Krupp Insured Plus-III Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3007489
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 423-2233
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of
Depositary Receipts representing Units of Limited
Partner Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: see Part IV, Item 14
The exhibit index is located on pages 8-14.
<PAGE>
PART I
ITEM 1. BUSINESS
Krupp Insured Plus-III Limited Partnership (the "Partnership") is a
Massachusetts limited partnership which was formed on March 21, 1988. The
Partnership raised approximately $255 million through a public offering of
limited partner interests evidenced by units of depositary receipts
("Units") and used the net proceeds primarily to acquire participating
insured mortgages ("PIMs") and mortgage-backed securities ("MBS"). The
Partnership considers itself to be engaged in only one industry segment,
investment in mortgages.
The Partnership's investments in PIMs on multi-family residential
properties consist of a MBS or an insured mortgage loan (collectively, the
"insured mortgage") guaranteed or insured as to principal and basic
interest and a participation feature that is not insured or guaranteed.
The insured mortgages were issued or originated under or in connection with
the housing programs of the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal
Housing Administration ("FHA") under the authority of the Department of
Housing and Urban Development ("HUD"). PIMs provide the Partnership with
monthly payments of principal and interest on the insured mortgage and also
provide for Partnership participation in the current revenue stream and in
residual value, if any, as a result of a sale or other realization of the
underlying property from the participation feature. The borrower conveys
the participation rights to the Partnership through a subordinated
promissory note and mortgage.
The Partnership also acquired MBS collateralized by single-family or
multi-family mortgage loans issued or originated by GNMA, FNMA, the Federal
Home Loan Mortgage Corporation ("FHLMC") or the FHA. FNMA, FHLMC and GNMA
guarantee the principal and basic interest of the FNMA, FHLMC and GNMA MBS,
respectively. HUD insures the pooled mortgage loans underlying the GNMA
MBS and FHA mortgage loans.
Prior to June 22, 1995 the Partnership could reinvest or commit for
reinvestment principal proceeds or other realization of the mortgages in
new mortgages, but following that date, the Partnership must distribute to
the investors through quarterly, or possibly special distributions,
proceeds received from prepayments or other realizations of mortgage
assets.
Although the Partnership will terminate no later than December 31, 2028
it is expected that the value of the PIMs generally will be realized by the
Partnership through repayment or sale as early as ten years from the dates
of the closings of the permanent loans and that the Partnership will
realize the value of all of its other investments within that time frame
thereby resulting in a dissolution of the Partnership significantly prior
to December 31, 2028.
The Partnership's investments are not expected to be subject to seasonal
fluctuations. However, the future performance of the Partnership will
depend upon certain factors which can not be predicted. Such factors
include interest rate fluctuation and the credit worthiness of GNMA, FNMA,
HUD and FHLMC. Any ultimate realization of the participation features on
PIMs is subject to similar risks associated with equity real estate
investments, including: reliance on the owner's operating skills, ability
to maintain occupancy levels, control operating expenses, maintain the
property and obtain adequate insurance coverage; adverse changes in
government regulations, real estate zoning laws, or tax laws; and other
circumstances over which the Partnership may have little or no control.
<PAGE>
The requirements for compliance with federal, state and local
regulations to date have not had an adverse effect on the Partnership's
operations, and no adverse effect therefrom is now anticipated in the
future.
As of December 31, 1995, there were no personnel directly employed by
the Partnership.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership
is a party or to which any of its investments is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There currently is no established trading market for the Units.
The number of investors holding Units as of December 31, 1995 was
approximately 12,000. One of the objectives of the Partnership is to
provide quarterly distributions of cash flow generated by its investments
in mortgages. The Partnership anticipates that future operations will
continue to generate cash available for distributions.
The Partnership made the following distributions, in quarterly
installments, to its Partners during the two years ended December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
Average Average
Amount Per Unit Amount Per Unit
<S> <C> <C> <C> <C>
Limited Partners $15,324,192 $1.20 $21,242,039 $1.66
General Partners 421,051 400,197
$15,745,243 $21,642,236
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Partnership's financial position and operating results. This
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements and Financial Statement Schedule, which are included in Item 7
and Item 8, (Appendix A) of this report, respectively.
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total revenues $ 15,728,883 $ 15,725,544 $ 16,164,307 $ 17,217,037 $ 18,110,154
Net income 12,335,057 12,197,925 12,647,339 13,486,347 14,497,525
Net income allocated
to:
Limited Partners 11,965,005 11,831,987 12,267,919 13,081,757 14,062,599
Average per Unit .94 .93 .96 1.02 1.10
General Partners 370,052 365,938 379,420 404,590 434,926
Total assets at
December 31 201,760,285 203,907,975 213,344,580 222,293,447 230,468,829
Distributions to:
Limited Partners 15,324,192 21,242,039 21,183,876 21,213,068 21,198,422
Average per Unit 1.20 1.66 1.66 1.66 1.66
General Partners 421,051 400,197 411,646 453,383 485,305
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The most significant demand on the Partnership's liquidity are quarterly
distributions paid to investors of approximately $3.8 million in 1995.
Funds used for investor distributions come from interest received on the
PIMs, MBS, cash and cash equivalents net of operating expenses, and certain
principal collections received on the PIMs and MBS. The cash generated by
these items totaled approximately $16.8 million in 1995. The Partnership
funds a portion of the distributions from principal collections, as a
result, the capital resources of the Partnership will continually decrease.
As the capital resources decrease, the total cash inflows to the
Partnership will also decrease which will result in periodic adjustments to
the quarterly distributions paid to investors.
The General Partners periodically review the distribution rate to
determine whether an adjustment to the distribution rate is necessary based
on projected future cash flows. In general, the General Partners try to
set a distribution rate that provides for level quarterly distributions of
cash available for distribution. To the extent quarterly distributions do
not fully utilize the cash available for distribution and cash balances
increase, the General Partners may adjust the distribution rate or
distribute such funds through a special distribution.
During December 1995 the Partnership agreed to a modification of the
Royal Palm PIM. The Partnership received a reissued Federal National
Mortgage Association ("FNMA") mortgage-backed security ("MBS") and
increased its participation percentage in income and appreciation from 25%
to 30%. During December 1995, the Partnership received its pro-rata share
of a $90,644 principal payment and will receive interest only payments on
the FNMA MBS at interest rates ranging from 6.25% to 8.775% per annum
through maturity in 2006. Also, the Partnership will receive its pro-rata
share of the $250,000
<PAGE>
principal payments due on December 1 of each of the next four years. As a
result of the modification, the Royal Palm PIM will continue to provide the
Partnership with a competitive yield, potential participation in future
income and appreciation, and principal and interest from the FNMA MBS will
continue to be guaranteed by FNMA.
For the first five years of the PIMs the borrowers are prohibited from
repaying. For the second five years, the borrower can repay the loans
incurring a prepayment penalty. The Partnership has the option to call
certain PIMs by accelerating their maturity if the loans are not prepaid by
the tenth year after permanent funding. The Partnership will determine the
merits of exercising the call option for each PIM as economic conditions
warrant. Such factors as the condition of the asset, local market
conditions, interest rates and available financing will have an impact on
this decision.
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by
FNMA, FHLMC, GNMA and HUD and therefore the certainty of their cash flows
and the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
FNMA is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and
is wholly-owned by the twelve Federal Home Loan Banks. These obligations
are not guaranteed by the U.S. Government or the Federal Home Loan Bank
Board. GNMA guarantees the full and timely payment of principal and basic
interest on the securities it issues, which represent interests in pooled
mortgages insured by HUD. Obligations insured by HUD, an agency of the
U.S. Government, are backed by the full faith and credit of the U.S.
Government.
Distributable Cash Flow and Net Cash Proceeds from Capital Transactions
Shown below is the calculation of Distributable Cash Flow and Net Cash
Proceeds from Capital Transactions as defined in Section 17 of the
Partnership Agreement and the source of cash distributions for the year
ended December 31, 1995 and the period from inception through December 31,
1995. The General Partners provide certain of the information below to
meet requirements of the Partnership Agreement and because they believe
that it is an appropriate supplemental measure of operating performance.
However, Distributable Cash Flow and Net Cash Proceeds from Capital
Transactions should not be considered by the reader as a substitute to net
income as an indicator of the Partnership's operating performance or to
cash flows as a measure of liquidity.
<PAGE>
<TABLE>
(Amounts in thousands, except
per Unit amounts)
<CAPTION>
Inception
Year Ended Through
12/31/95 12/31/95
Distributable Cash Flow:
<S> <C> <C>
Income for tax purposes $13,070 $ 97,095
Items not requiring or (not providing)
the use of operating funds:
Amortization of prepaid expenses, fees
and organization costs 888 6,069
Acquisition expenses paid from offering
proceeds charged to operations - 184
Shared appreciation income - (800)
Gain on sale of MBS - (253)
Total Distributable Cash Flow ("DCF") $13,958 $102,295
Limited Partners Share of DCF $13,539 $ 99,226
Limited Partners Share of DCF per Unit $ 1.06 $ 7.77 (c)
General Partners Share of DCF $ 419 $ 3,069
Net Proceeds from Capital Transactions:
Principal collections and prepayments
(including Shared appreciation income) on PIMs $ 972 $ 17,838
Principal collections and sales proceeds on MBS
(including gain on sale) 1,866 60,544
Reinvestment of MBS and PIM principal collections (1,028) (41,960)
MBS and PIM principal collections or prepayment (reserved for reinvestment) released from
reserve 1,030 -
Total Net Proceeds from Capital Transactions $ 2,840 $ 36,422
Cash available for distribution
(DCF plus proceeds from Capital transactions) $16,798 $138,717
Distributions:
Limited Partners $15,324 (a) $134,760 (b)
Limited Partners Average per Unit $ 1.20 (a) $ 10.55 (b)(c)
General Partners $ 419 (a) $ 3,069 (b)
Total Distributions $15,743 (a) $137,829 (b)
</TABLE>
(a) Represents all distributions paid in 1995 except the February
1995 distri-bution and includes an estimate of the distribution
to be paid in February 1996.
(b) Includes distribution to be paid in February 1996.
(c) Limited Partners average per Unit return of capital as of
February 1996 is $2.78 [$10.55 - $7.77]. Return of capital
represents
<PAGE>
that portion of distributions which is not funded from DCF such
as proceeds from the sale of assets and substantially all of
the principal collections received from MBS and PIMs.
Operations
The following discussion relates to the operation of the Partnership
during the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
(Amounts in Thousands)
1995 1994 1993
Interest income on PIMs:
<S> <C> <C> <C>
Base interest $12,078 $11,985 $12,024
Participation interest received 544 302 208
Interest income on MBS 2,913 2,665 2,827
Interest income - other 195 449 576Partnership expenses (1,772) (1,964) (1,995)
Distributable Cash Flow $13,958 $13,437 $13,640
Gain on sale of MBS - - 247
Accrued Participation income - 324 281
Amortization of prepaid expenses and fees (1,623) (1,563) (1,521)
Net income $12,335 $12,198 $12,647
</TABLE>
Net income did not change materially during any of the three years in
the periods ended December 31, 1995, primarily because the Partnership's
investments in PIMs remained stable during these periods. Overall, the
change in total interest income was not significant during the three years
ended December 31, 1995. Participation interest received increased
$242,000 or 80.1% during 1995 as compared to 1994 due to the Partnership
receiving participation from 11 of the PIMs as compared to 8 PIMs in 1994.
Interest income on MBS increased $248,000 in 1995 as compared to 1994 due
primarily to the Partnership reinvesting approximately $12 million of
principal collections in additional MBS to obtain the higher yields as
compared to the available yields on short-term investments. These MBS
acquisitions reduced cash available for short-term investment which
resulted in a decline in interest income - other in 1995 as compared to
1994. Interest income on MBS decreased $162,000 or 6% during 1994 as
compared to 1993 primarily as a result of significant prepayments caused
by refinancings of the underlying mortgages during 1993 and the first half
of 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<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 Krupp Plus Corporation which is
a General Partner of the Partnership and is the general partner of Mortgage
Services Partners Limited Partnership, which is the other General Partner
of the Partnership, is as follows:
Position with
Name and Age Krupp Plus Corporation
Douglas Krupp (49) Co-Chairman of the Board
George Krupp (51) Co-Chairman of the Board
Laurence Gerber (39) President
Peter F. Donovan (42) Senior Vice President
Robert A. Barrows (38) Treasurer and Chief Accounting Officer
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate, mortgage and healthcare company which is headquartered in
Boston with regional offices throughout the country. A staff of 3,400 are
responsible for the more than $3 billion under management for institutional
and individual clients. Mr. Krupp is a graduate of Bryant College.
In 1989 he received an honorary Doctor of Science in Business
Administration
from this institution and was elected trustee in 1990. Mr. Krupp serves
as Chairman of the Board and a Director of Berkshire Realty Company,
Inc.(NYSE-BRI).
George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility ownership. Today, The Berkshire Group is an integrated
real estate, mortgage and healthcare company which is headquartered in
Boston with regional offices throughout the country. A staff of 3,400 are
responsible for more than $3 billion under management for institutional and
individual clients. Mr. Krupp attended the University of Pennsylvania and
Harvard University. Mr. Krupp serves as Chairman of the Board and Trustee
of Krupp Government Income Trust and Krupp Government Income Trust II.
Laurence Gerber is the President and Chief Executive Officer of The
Berkshire Group. Prior to becoming President and Chief Executive Officer
in 1991, Mr. Gerber held various positions with The Berkshire Group which
included overall responsibility at various times for: strategic planning
and product development, real estate acquisitions, corporate finance,
mortgage banking, syndication and marketing. Before joining The Berkshire
Group in 1984, he was a management consultant with Bain & Company, a
national consulting firm headquartered in Boston. Prior to that, he was
a senior tax accountant with Arthur Andersen & Co., an international
accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics
from the University of Pennsylvania, Wharton School and an M.B.A. degree
with high distinction from Harvard Business School. He is a Certified
Public Accountant. Mr. Gerber also serves as President and a Director of
Berkshire <PAGE>
Realty Company, Inc. (NYSE-BRI) and President and Trustee of Krupp
Government Income Trust and Krupp Government Income Trust II.
Peter F. Donovan is President of Berkshire Mortgage Finance and directs
the underwriting, servicing and asset management of a $2.5 billion multi-
family loan portfolio. Previously, he was Senior Vice President of
Berkshire Mortgage Finance and was responsible for all mortgage
originations. Before joining the firm in 1984, he was Second Vice
President, Real Estate Finance for Continental Illinois National Bank &
Trust, where he managed a $300 million construction loan portfolio of
commercial properties. Mr. Donovan received a B.A. from Trinity College
and an M.B.A. degree from Northwestern University.
Robert A. Barrows is Senior Vice President and Chief Financial Officer
of Berkshire Mortgage Finance and Corporate Controller of The Berkshire
Group. Mr. Barrows has held several positions within The Berkshire Group
since joining the company in 1983 and is currently responsible for
accounting and financial reporting, treasury, tax, payroll and office
administrative activities. Prior to joining The Berkshire Group, he was
an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received
a B.S. degree from Boston College and is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1995, no person owned of record or was known by the
General Partners to own beneficially more than 5% of the Partnership's
12,770,161 outstanding Units. The only interests held by management or its
affiliates consist of its General Partner and Corporate Limited Partner
interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in Note F to the
Partnership's Financial Statements presented in Appendix A to this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements and
Schedule included under Item 8, Appendix A, on page F-2 of this
report.
2. Financial Statement Schedules - see Index to Financial Statements
and Schedule included under Item 8, Appendix A, on page F-2 of
this report. All other schedules are omitted as they are not
applicable, not required or the information is provided in the
Financial Statements or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
<PAGE>
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
(4) Instruments defining the rights of security holders including
indentures:
(4.1) Agreement of Limited Partnership dated as of June
22, 1988 [Exhibit A included in Amendment No. 1 of
Registrant's Registration Statement on Form S-11
dated June 22, 1988 (File No. 33-21200)].*
(4.2) Subscription Agreement whereby a subscriber agrees
to purchase Units and adopts the provisions of the
Agreement of Limited Partnership [Exhibit D included
in Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated June 22, 1988 (File No.
33-21200)].*
(4.3) Copy of First Amended and Restated Certificate of
Limited Partnership filed with the Massachusetts
Secretary of State on June 22, 1988. [Exhibit 4.4
to Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated June 22, 1988 (File No.
33-21200)].*
(10) Material Contracts:
(10.1) Revised form of Escrow Agreement [Exhibit 10.1 to
Amendment No. 1 of Registrant's Registration
Statement on Form S-11 dated June 22, 1988 (File No.
33-21200)] *
(10.2) Form of agreement between the Partnership and Krupp
Mortgage Corporation [Exhibit 10.2 to Registrant's
Registration Statement on Form S-11 dated April 20,
1988 (File No. 33-21200)].*
Sundance Apartments
(10.3) Prospectus for GNMA Pools No. 276431 (CS) and 276432
(PL) [Exhibit 19.1 to Registrant's Report on Form
10-Q for the quarter ended September 30, 1989 (File
No. 0-17691)].*
(10.4) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated July 26, 1989
between Sundance Associates II, Ltd. and Krupp
Insured Plus-III Limited Partnership [Exhibit 19.2
to Registrant's Report on Form 10-Q for the quarter
ended September 30, 1989 (File No. 0-17691)].*
Woodbine Apartments
(10.5) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated August 23, 1989
between Woodbine II Investors Limited Partnership
and Krupp Insured Plus-III Limited Partnership
[Exhibit 19.3 to Registrant's Report on Form 10-Q
for the
<PAGE>
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.6) Participation Agreement dated August 23, 1989
between The Krupp Mortgage Corporation ("Mortgagee")
and Krupp Insured Plus-III Limited Partnership (the
"Participant") [Exhibit 19.4 to Registrant Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.7) Mortgage Note dated August 23, 1989 between Woodbine
II Investors Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.5 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.8) Deed of Trust dated August 23, 1989 between Woodbine
II Investors Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.6 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
Ironwood Apartments
(10.9) Prospectus for GNMA Pool No. 272542(CS) and
272543(PN). [Exhibit 19.7 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.10) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated July 18, 1989
between Ironwood Associates Limited Partnership and
Krupp Insured Plus-III Limited Partnership. [Exhibit
19.8 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.11) Mortgage Note dated July 18, 1989 between Ironwood
Associates Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.9 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989
(File No. 0-17691)].*
(10.12) Mortgage dated July 18, 1989 between Ironwood
Associates Limited Partnership and Krupp Mortgage
Corporation. [Exhibit 19.10 to Registrant's Report
on Form 10-Q for the quarter ended September 30,
1989 (File No. 0-17691)].*
Casa Marina Apartments
(10.13) Prospectus for GNMA Pool No. 279699 (CS) and 279700
(PL) [Exhibit 19.11 to Registrant's Report on Form
10-Q for the quarter ended September 30, 1989 (File
No. 0-17691)].*
(10.14) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated June 29, 1989
between Beaux Gardens Associates, LTD., a Florida
<PAGE>
limited partnership and Krupp Insured Plus-II
Limited Partnership. [Exhibit 19.12 to Registrant's
Report on Form 10-Q for the quarter ended September
30, 1989 (File No. 0-17691)].*
(10.15) Participation Agreement dated July 31, 1989 between
Krupp Insured Plus-II Limited Partnership and Krupp
Insured Plus-III Limited Partnership. [Exhibit 19.13
to Registrant's Report on Form 10-Q for the quarter
ended September 30, 1989 (File No. 0-17691)].*
Rosewood Apartments
(10.16) Prospectus for GNMA Pool No. 280647(CS) and
280648(PL) [Exhibit 10.16 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-17691).*
(10.17) Security Deed Note, dated September 28, 1989 between
Knight Davidson Rosewood I, a Georgia general
partnership and Krupp Mortgage Corporation. [Exhibit
19.14 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.18) Security Deed dated September 28, 1989 between
Knight Davidson Rosewood I, a Georgia general
partnership and Krupp Mortgage Corporation. [Exhibit
19.15 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1989 (File No. 0-
17691)].*
(10.19) Subordinated Multifamily Deed to Secure Debt
(including Subordinated Promissory Note) dated
September 28, 1989 between Knight Davidson RosewoodI,
a Georgia general partnership and Krupp Insured
Plus-III Limited Partnership. [Exhibit 19.16 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1989 (File No. 0-17691)].*
Windsor Court
(10.20) Supplement to Prospectus for FNMA Pool No. MX-073006
[Exhibit 10.23 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989
(File No. 0-17691).*
(10.21) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 26,
1989 between Sexton 1986 Windsor-V, an Indiana
limited partnership and Krupp Insured Plus-III
Limited Partnership [Exhibit 10.24 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-17691).*
Paddock Park II Apartments
(10.22) Prospectus for FNMA Pool No. MX-073010 [Exhibit 19.1
to Registrants's Report on Form 10-Q for the quarter
<PAGE>
ended March 31, 1990 (File No. 0-17691)].*
(10.23) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated February 21,
1990 between Paddock Park Ocala II, a Georgia
limited partnership and Krupp Insured Plus-III
Limited Partnership [Exhibit 19.2 to Registrants's
Report on Form 10-Q for the quarter ended March
31,1990 (File No. 0-17691)].*
Harbor Club Apartments
(10.24) Prospectus for GNMA Pool No. 259237(CS) and
259238(PN). [Exhibit 19.3 to Registrants's Report
on Form 10-Q for the quarter ended March 31,1990
(File No. 0-17691)].*
(10.25) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated January 30, 1990
between Ann Arbor Harbor Club, a Texas limited
partnership and Krupp Insured Plus-III Limited
Partnership. [Exhibit 19.4 to Registrants's Report
on Form 10-Q for the quarter ended March 31,1990
(File No. 0-17691)].*
Mill Ponds Apartments
(10.26) Prospectus for FNMA Pool No. MX-073012. [Exhibit
19.1 to Regi-strant's Report on Form 10-Q for the
quarter ended June 30, 1990 (File No. 0-17691)].*
(10.27) Multifamily Mortgage (including Subordinated
Promissory Note) dated May 17, 1990 between State
Bank of Countryside, Illinois and Krupp Insured
Plus-III Limited Partnership. [Exhibit 19.2 to
Registrants's Report on Form 10-Q for the quarter
ended June 30, 1990 (File No. 0-17691)].*
Friendly Hills Apartments
(10.28) Multifamily Deed of Trust (including Subordinated
Promissory Note) dated June 27, 1990 between
Friendly Hills Apartments, Ltd., a New Jersey
Limited Partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.3 to Registrants's
Report on Form 10-Q for the quarter ended June 30,
1990 (File No. 0-17691)].*
(10.29) Deed of Trust Note dated June 27, 1990 between
Friendly Hills Apartments, Ltd., a New Jersey
Limited Partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.4 to Regi-strant's
Report on Form 10-Q for the quarter ended June 30,
1990 (File No. 0-17691)].*
<PAGE>
Paces Arbor
(10.30) Prospectus for FNMA Pool No. MX-073015. [Exhibit
19.1 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 0-
17691)].*
(10.31) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated June 7, 1990
between Paces Arbor Apartments, Ltd., a North
Carolina limited partnership and Krupp Insured Plus-
III Limited Partnership. [Exhibit 19.2 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 1990 (File No. 0-17691)].*
Paces Forest
(10.32) Prospectus for FNMA Pool No. MX-073016. [Exhibit
19.3 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 0-
17691)].*
(10.33) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note dated June 7, 1990
between Paces Forest Apartments Limited Partnership,
a North Carolina limited partnership and Krupp
Insured Plus-III Limited Partnership. [Exhibit 19.4
to Registrant's Report on Form 10-Q for the quarter
ended September 30, 1990 (File No. 0-17691)].*
Fourth Ward
(10.34) Prospectus for GNMA Pool No. 280969(CS) and
280970(PL). [Exhibit 19.5 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1990
(File No. 0-17691)].*
(10.35) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated June 27, 1990
between The Fourth Ward Square Associates Limited
Partnership and Krupp Insured Plus-III Limited
Partnership. [Exhibit 19.6 to Registrant's Report
on Form 10-Q for the quarter ended September 30,
1990 (File No. 0-17691)].*
Paddock Club
(10.36) Prospectus for GNMA Pool No. 280973(CS) and
280974(PL). [Exhibit 19.7 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1990
(File No. 0-17691)].*
(10.37) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated August 2, 1990
between Paddock Club Tallahassee, A Limited
Partnership, and Krupp Insured Plus-III Limited
Partnership. [Exhibit 19.8 to Registrant's Report
on Form 10-Q for the quarter ended September 30,
1990 (File No. 0-17691)].*
<PAGE>
Meridith Square
(10.38) Prospectus for FNMA Pool No. MX-073019. [Exhibit
10.41 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No. 0-
17691)].*
(10.39) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated September 17,
1990 between BAND/Carolina Associates Limited
Partnership, a Virginia limited partnership and
Krupp Insured Plus-III Limited Partnership. [Exhibit
10.42 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No. 0-
17691)].*
Paddock Club Jacksonville
(10.40) Prospectus for FNMA Pool No. MX-073020. [Exhibit
19.01 to Registrant's Report on Form 10-Q for the
quarter ended March 31, 1991 (File No. 0-17691)].*
(10.41) Subordinated Multifamily Mortgage (including
Subordinated Promissory Note) dated December 20,
1991 between Paddock Club Jacksonville, a Georgia
limited partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.02 to Registrant's
Report on Form 10-Q for the quarter ended March 31,
1991 (File No. 0-17691)].*
Marina Shores Apartments
(10.42) Prospectus for GNMA Pool No. 280971(CS) and
280972(PL). [Exhibit 19.03 to Registrant's Report on
Form 10-Q for the quarter ended March 31, 1991 (File
No. 0-17691)].*
(10.43) Subordinated Multifamily Deed of Trust (including
Subordinated Promissory Note) dated June 27, 1990
between Marina Shores Associates One, a Virginia
limited partnership and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.04 to Registrant's
Report on Form 10-Q for the quarter ended March 31,
1991 (File No. 0-17691)].*
(10.44) Participation Agreement dated June 29, 1990 by and
between Krupp Insured Plus-III Limited Partnership
and Krupp Insured Mortgage Limited Partnership.
[Exhibit 19.05 to Registrant's Report on Form 10-Q
for the quarter ended March 31, 1991 (File No. 0-
17691)].*
Royal Palm Place
(10.45) Prospectus for FNMA Pool No. MB-109057.+
(10.46) Subordinated Multifamily Mortgage dated March 20,
1991 between Royal Palm Place, Ltd., a Florida
Limited Partnership and Krupp Insured Plus-III
Limited
<PAGE>
Partnership. [Exhibit 19.2 to Registrant's Report on
Form 10-Q for the quarter ended June 30, 1991 (File
No. 0-17691)].*
(10.47) Modification Agreement dated March 20, 1991, between
Royal Palm Place, Ltd., and Krupp Insured Plus-III
Limited Partnership. [Exhibit 19.3 to Registrant's
Report on Form 10-Q for the quarter ended June 30,
1991 (File No. 0-17691)].*
(10.48) Participation Agreement dated March 20, 1991 by and
between Krupp Insured Plus-III Limited Partnership
and Krupp Insured Plus Limited Partnership. [Exhibit
19.1 to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1991 (File No. 0-
17691)].*
(10.49) Amended and Restated Subordinated Promissory Note by
and between Royal Palm, Ltd. and Krupp Insured Plus-
III Limited Partnership.+
* Incorporated by reference
+ Filed herein
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1995, the
Partnership did not file any reports on Form 8-K.
<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 26th day of February, 1996.
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
By: Krupp Plus Corporation,
a General Partner
By: /s/George Krupp
George Krupp, Co-Chairman (Principal Executive
Officer) and Director of Krupp Plus Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 26th day of February,
1996.
Signatures Title(s)
/s/Douglas Krupp Co-Chairman (Principal Executive Officer)
Douglas Krupp and Director of Krupp Plus Corporation, a
General Partner.
/s/ George Krupp Co-Chairman (Principal Executive Officer)
George Krupp and Director of Krupp Plus Corporation, a
General Partner.
/s/ Laurence Gerber President of Krupp Plus Corporation, a
Laurence Gerber General Partner.
/s/ Peter F. Donovan Senior Vice President of Krupp Plus
Peter F. Donovan Corporation, a General Partner.
/s/ Robert A. Barrows Treasurer and Chief Accounting Officer
Robert A. Barrows of Krupp Plus Corporation, a General
Partner.
<PAGE>
APPENDIX A
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1995
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Balance Sheets at December 31, 1995 and 1994 F-4
Statements of Income for the Years Ended December 31, 1995, 1994
and 1993 F-5
Statements of Changes in Partners' Equity for the Years Ended
December 31, 1995, 1994 and 1993 F-6
Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 F-7
Notes to Financial Statements F-8 - F-14
Schedule IV - Mortgage Loans on Real Estate F-15 - F-18
All other schedules are omitted as they are not applicable or not required,
or the information is provided in the financial statements or the notes
thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Insured Plus-III Limited Partnership:
We have audited the financial statements and the financial statement
schedule of Krupp Insured Plus-III Limited Partnership (the "Partnership")
listed in the index on page F-2 of this Form 10-K. The financial
statements and financial statement schedule are the responsibility of the
General Partners of the Partnership. Our responsibility is to express an
opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the General Partners of
the Partnership, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Krupp Insured
Plus-III Limited Partnership as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 27, 1996
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
<CAPTION>
1995 1994
<S> <C> <C>
Participating Insured Mortgages ("PIMs")
(Notes B, C and H) $151,465,652 $152,438,036
Mortgage-Backed Securities and insured
mortgages ("MBS")(Notes B, D and H) 36,693,963 36,259,855
Total mortgage investments 188,159,615 188,697,891
Cash and cash equivalents (Notes B and H) 3,433,885 3,257,180
Interest receivable and other assets 1,924,402 2,088,083
Prepaid acquisition expenses, net of
accumulated amortization of $6,091,012 and
$4,926,364, respectively (Note B) 6,240,051 7,404,699
Prepaid participation servicing fees, net of
accumulated amortization of $2,084,200 and
$1,626,410, respectively (Note B) 2,002,332 2,460,122
Total assets $201,760,285 $203,907,975
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 14,756 $ 24,886
Partners' equity (deficit) (Notes A and E):
Limited Partners 200,575,459 203,934,646
(12,770,261 Units outstanding)
General Partners (102,556) (51,557)
Unrealized gain on MBS (Note B) 1,272,626 -
Total Partners' equity 201,745,529 203,883,089
Total liabilities and Partners' equity $201,760,285 $203,907,975
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
Revenues:
<S> <C> <C> <C>
Interest income - PIMs:
Base interest $12,078,125 $11,985,295 $12,024,070
Participation interest 543,613 625,632 489,642
Interest income - MBS (Notes B and D) 2,912,632 2,665,309 2,826,975
Interest income - other 194,513 449,308 576,391
Gain on sale of MBS - - 247,229
Total revenues 15,728,883 15,725,544 16,164,307
Expenses:
Asset management fee to an affiliate
(Note F) 1,412,787 1,415,178 1,411,451
Expense reimbursements to affiliates
(Note F) 181,503 382,735 426,271
Amortization of prepaid fees and
expenses (Note B) 1,622,438 1,562,511 1,521,228
General and administrative 177,098 167,195 158,018
Total expenses 3,393,826 3,527,619 3,516,968
Net income (Notes E and G) $12,335,057 $12,197,925 $12,647,339
Allocation of net income (Notes E and G):
Limited Partners $11,965,005 $11,831,987 $12,267,919
Average net income per
Limited Partnerinterest
(12,770,261 Limited Partner
interests outstanding) $ .94 $ .93 $ .96
General Partners $ 370,052 $ 365,938 $ 379,420
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
Total
Limited General Unrealized Partners'
Partners Partners Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $222,260,655 $ 14,928 $ - $222,275,583
Net income 12,267,919 379,420 - 12,647,339
Distributions (21,183,876) (411,646) - (21,595,522)
Balance at December 31, 1993 213,344,698 (17,298) - 213,327,400
Net income 11,831,987 365,938 - 12,197,925
Distributions (21,242,039) (400,197) - (21,642,236)
Balance at December 31, 1994 $203,934,646 $ (51,557) - $203,883,089
Net income 11,965,005 370,052 - 12,335,057
Distributions (15,324,192) (421,051) - (15,745,243)
Unrealized gain on MBS - - 1,272,626 1,272,626
Balance at December 31, 1995 $200,575,459 $(102,556) $1,272,626 $201,745,529
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income $12,335,057 $12,197,925 $12,647,339
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of prepaid fees and expenses 1,622,438 1,562,511 1,521,228
Gain on sale of MBS - - (247,229)
Shared appreciation income - - (25,000)
Changes in assets and liabilities:
Decrease (increase) in interest receivable and other assets 163,681 (416,775) 19,277
Increase (decrease) in liabilities (10,130) 7,706 (684)
Net cash provided by operating
activities 14,111,046 13,351,367 13,914,931
Investing activities:
Principal collections on PIMs 972,384 811,733 711,385
Investment in PIMs - - (2,646,017)
Investment in MBS (1,027,567) (11,278,411) (11,596,373)
Principal collections on MBS 1,866,085 5,161,680 11,869,304
Proceeds from sale of MBS - - 8,371,529
Decrease (increase) in other investment - - 2,440,344
Shared appreciation income - - 25,000
Net cash provided by (used for)
investing activities 1,810,902 (5,304,998) 9,175,172
Financing activity:
Distributions (15,745,243) (21,642,236) (21,595,522)
Net increase (decrease)in cash and
cash equivalents 176,705 (13,595,867) 1,494,581
Cash and cash equivalents, beginning of period 3,257,180 16,853,047 15,358,466
Cash and cash equivalents, end of period $ 3,433,885 $ 3,257,180 $16,853,047
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Insured Plus-III Limited Partnership (the "Partnership") was
formed on March 21, 1988 by filing a Certificate of Limited Partnership
in The Commonwealth of Massachusetts. The Partnership issued all of
the General Partner Interests to Krupp Plus Corporation and Mortgage
Services Partners Limited Partnership in exchange for capital
contributions aggregating $3,000. The Partnership terminates on
December 31, 2028, unless terminated earlier upon the occurrence of
certain events as set forth in the Partnership Agreement.
The Partnership commenced the public offering of Units on June 24, 1988
and completed its public offering having sold 12,770,161 Units for
$254,686,736 net of purchase volume discounts of $716,484 as of June
22, 1990.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial
reporting purposes, which differ in certain respects from those used
for federal income tax purposes (Note G):
PIMs
The Partnership carries its investments in PIMs at amortized cost as
it has the ability and intention to hold these investments. Basic
interest is recognized based on the stated rate of the Federal
Housing Administration ("FHA") mortgage loan (less the servicer's
fee) or the stated coupon rate of the Government National Mortgage
Association ("GNMA") or Federal National Mortgage Association
("FNMA") MBS. Participation interest is recognized as earned and
when deemed collectible by the Partnership.
MBS
At December 31, 1995, the Partnership in accordance with the
Financial Accounting Standards Board's Special Report on Statement
115, "Accounting for Certain Investments in Debt and Equity
Securities", reclassified its MBS portfolio from held-to-maturity to
available-for-sale. The Partnership carries its MBS at fair market
value and reflects any unrealized gains (losses) as a separate
component of Partners' Equity. Prior to December 31, 1995, the
Partnership carried its MBS portfolio at amortized cost. The
Partnership amortizes purchase premiums or discounts over the life of
the underlying mortgages using the effective interest method.
Cash Equivalents
The Partnership includes all short-term investments with maturities
of three months or less from the date of acquisition in cash and cash
equivalents. The Partnership invests its cash primarily in deposits
and money market funds with a commercial bank and has not experienced
<PAGE>
any loss to date on its invested cash.
Prepaid Expenses and Fees
Prepaid expenses and fees consist of prepaid acquisition fees and
expenses and prepaid participation servicing fees paid for the
acquisition and servicing of PIMs. The Partnership amortizes the
prepaid acquisition fees and expenses using a method that
approximates the effective interest method over a period of ten to
twelve years,
which represents the actual maturity or anticipated call date of the
underlying mortgage. Acquisition expenses incurred on potential
acquisitions which were not consummated were charged to operations.
The Partnership amortizes prepaid participation servicing fees using
a method that approximates the effective interest method over a ten
year period beginning at final endorsement of the loan if a
Department of Housing and Urban Development ("HUD") insured loan and
at closing if a FNMA loan.
Income Taxes
The Partnership is not liable for federal or state income taxes
because Partnership income is allocated to the partners for income
tax purposes. If the Partnership's tax returns are examined by the
Internal Revenue Service or state taxing authority and such an
examination results in a change in Partnership taxable income, such
change will be reported to the partners.
Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of
revenues and expenses during the period. Actual results could differ
from those estimates.
C. PIMs
The Partnership has investments in eighteen PIMs. The Partnership's
PIMs consist of a GNMA or FNMA MBS representing the securitized first
mortgage loan on the underlying property or a sole participation
interest in a first mortgage loan originated under the FHA lending
program on the underlying property (collectively the "insured
mortgages"), and participation interests in the revenue stream and
appreciation of the underlying property above specified base levels.
The borrower conveys these participation features to the Partnership
generally through a subordinated mortgage (the "Agreement"). The
Partnership receives guaranteed monthly payments of principal and
interest on the GNMA and FNMA MBS and HUD insures the first mortgage
loan underlying the GNMA MBS and the FHA mortgage loan. The borrower
usually can not prepay the first mortgage loan during the first five
years and usually may prepay the first mortgage loan thereafter subject
to a 9% prepayment penalty in years six through nine, a 1% prepayment
penalty in year ten and no prepayment penalty thereafter. The
Partnership may receive interest related to its participation interests
in the underlying property, however, these amounts are neither insured
nor guaranteed.
<PAGE>
Generally, the participation features consist of the following: (i)
"Minimum Additional Interest" at a stated rate ranging from .5% to .75%
per annum calculated on the unpaid principal balance of the first
mortgage on the underlying property , (ii) "Shared Income Interest"
ranging from 25% to 30% of the monthly gross rental income generated by
the underlying property in excess of a specified base, but only to the
extent that it exceeds the amount of Minimum Additional Interest
received during such month, (iii) "Shared Appreciation Interest"
ranging from 25% to 30% of any increase in Value of the underlying
property in excess of a specified base. Payment of participation
interest from the operations of the property is limited to 50% of net
revenue or surplus cash as defined by FNMA or HUD, respectively. The
aggregate amount of Minimum Additional Interest, Shared Income Interest
and Shared Appreciation Interest payable on the maturity date by the
underlying borrower generally cannot exceed 50% of any increase in
value of the property. However, generally any net proceeds from the
sale or refinancing of the underlying property will be available to
satisfy any accrued but unpaid Shared Income or Minimum Additional
interest.
Shared Appreciation Interest is payable when one of the following
occurs: (1) the sale of the underlying property to an unrelated third
party on a date which is later than five years from the date of the
Agreement, (2) the maturity date or accelerated maturity date of the
Agreement, or (3) prepayment of amounts due under the Agreement and the
insured mortgage.
Under the Agreement, the Partnership, upon giving twelve months written
notice, can accelerate the maturity date of the Agreement and insured
mortgage to a date not earlier than ten years from the date of the
Agreement for (a) the payment of all participation interest due under
the Agreement as of the accelerated maturity date, or (b) the payment
of all participation interest due under the Agreement plus all amounts
due on the first mortgage note on the property.
Listed in the chart is a summary of the Partnership's PIM investments
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Issuer Aggregate Permanent Aggregate Outstanding
Original Number Interest Maturity Principal Balance at
Principal of PIMs Rate Range Date Range December 31,
1995 1994
<S> <C> <C> <C> <C> <C> <C>
FNMA $ 70,168,742
(a) 8 6.25%-8%
(a) 10/99 - 4/06
(a) $ 67,790,969 $ 68,362,445
GNMA 69,099,733
(b) 8 8%-8.50% 8/30 - 5/32 68,129,224 68,424,113
FHA 16,012,300 2 8.625%-8.675% 7/25 - 1/31 15,545,459 15,651,478
$155,280,775 18 $151,465,652 $152,438,036
</TABLE>
(a) Includes the Partnership's share of the Royal Palm Place PIM, in
which the Partnership holds 73% of the $22,000,000 total PIM and an
affiliate of the Partnership holds the remaining 27%. During
December 1995 the Partnership agreed to a modification of the Royal
Palm PIM. The Partnership received a reissued FNMA MBS with revised
terms that included extending the
maturity from 2001 to 2006. During December 1995, the Partnership
received its
pro-rata share of a $90,644 principal payment related to the
modification. The FNMA MBS will provide the Partnership with monthly
interest payments at interest rates ranging from 6.25% to 8.775% per
annum through maturity, and the Partnership will receives its pro-
rata share of $250,000 principal payments on December 1 of the
following four years. In addition, the
<PAGE>
modification changed the maturity of the subordinated promissory
note to 2006, and increased the Shared Income and Appreciation
Interest percentages from 25% to 30%.
(b) Includes the Partnership's share of the Marina Shores PIM in which
the Partnership holds 71% of the $21,200,000 total PIM and an
affiliate of the Partnership holds the remaining 29%.
The underlying mortgages of the PIMs are collateralized by multi-
family apartment complexes located in 9 states, primarily Florida and
North Carolina. The apartment complexes range in size from 96 to 503
units.
D. MBS
At December 31, 1995, the Partnership's MBS portfolio has an
amortized cost of approximately $35,421,000 and unrealized gains and
losses of approximately $1,278,000 and $6,000, respectively. At
December 31, 1994, the Partnership's MBS portfolio had a market value
of approximately $35,503,000 and unrealized gains and losses of
$296,000 and $1,053,000, respectively. The MBS portfolio has a
maturity dates ranging from 2010 to 2035.
During the third quarter of 1994, the Partnership acquired $4,929,288
face value of Federal Home Loan Mortgage Corporation ("FHLMC") MBS
for $4,872,241 having coupon rates of 8% per annum and maturities
ranging from 2017 to 2024.
On August 14, 1995, the Partnership's construction-phase MBS achieved
final endorsement and the Partnership funded its remaining commitment
on this $8,209,800 face value MBS. During the construction-phase the
MBS provided the Partnership with interest only payments at an
interest rate of 8.125% per annum. The permanent MBS will provide
the Partnership with monthly payments of principal and interest at an
interest rate of 7.375% per annum.
E. Partners' Equity
Under the terms of the Partnership Agreement, profits from
Partnership operations and Distributable Cash Flow are allocated 97%
to the Unitholders and Corporate Limited Partner (the "Limited
Partners") and 3% to the General Partners.
Upon the occurrence of a capital transaction, as defined in the
Partnership Agreement, net cash proceeds and profits from the capital
transaction will be distributed first, to the Limited Partners until
they have received a return of their total invested capital, second,
to the General Partners until they have received a return of their
total invested capital, third, 99% to the Limited Partners and 1% to
the General Partners until the Limited Partners receive an amount
equal to any deficiency in the 11% cumulative return on their
invested capital that exists through fiscal years prior to the date of
the capital transaction, fourth, to the class of General
Partners until they have received an amount equal to 4% of all
amounts of
cash distributed under all capital transactions and fifth, 96% to the
Limited Partners and 4% to the General Partners. Losses from a
capital transaction will be allocated 97% to the Limited Partners and
3% to the General Partners.
<PAGE>
As of December 31, 1995, the following cumulative partner
contributions and allocations have been made since inception of the
Partnership:
<TABLE>
<CAPTION>
Corporate Total
Limited General Partners'
Unitholders Partner Partners Equity
<S> <C> <C> <C> <C> <C>
Capital contributions $254,686,736 $ 2,000 $ 3,000 $254,691,736
Syndication costs (15,834,700) - - (15,834,700)
Distributions (130,928,487) (1,152) (2,971,053) (133,900,692)
Net income 92,650,267 795 2,865,497 95,516,559
Unrealized gain on MBS - - - 1,272,626
Total at December 31, 1995 $200,573,816 $ 1,643 $ (102,556) $201,745,529
</TABLE>
F. Related Party Transactions
Under the terms of the Partnership Agreement, the General Partners
or their affiliates are paid an Asset Management Fee equal to .75%
per annum of the value of the Partnership's actual and committed
mortgage assets, payable quarterly. The General Partners may also
receive an incentive management fee in the amount equal to .3% per
annum on the Partnership's total invested assets provided the
Unitholders have received their specified non-cumulative return on
their Invested Capital. Total Asset Management Fees and Incentive
Management Fees payable to the General Partners or their affiliates
shall not exceed 10% of Distributable Cash Flow over the life of
the Partnership.
Additionally, the Partnership reimburses affiliates of the General
Partners for certain expenses incurred in connection with
maintaining the books and records of the Partnership and the
preparation and mailing of financial reports, tax information and
other communications to the investors.
G. Federal Income Taxes
The reconciliation of the net income reported in the accompanying
statement of income with the net income reported in the
Partnership's 1995 federal income tax return is as follows:
Net income per statement of income $12,335,057
Add: Book to tax difference for amortization
of prepaid expenses and fees 734,458
Net income for federal income tax purposes $13,069,515
The allocation of the net income for federal income tax purposes for
1995 is as follows:
<PAGE>
Portfolio
Income
Unitholders $12,677,331
Corporate Limited Partner 99
General Partners 392,085
$13,069,515
During the years ended December 31, 1995, 1994 and 1993 the average
per Unit net income to the Unitholders for federal income tax
purposes was $.99, $.95 and $.97, respectively.
H. Fair Value Disclosures of Financial Instruments
The Partnership uses the following methods and assumptions to
estimate the fair value of each class of financial instrument:
Cash and cash equivalents
The carrying amount approximates the fair value because of
the short maturity of those instruments.
MBS
The Partnership estimates the fair value of MBS based on
quoted market prices.
PIMs
There is no established trading market for these investments.
Management estimates the fair value of the PIMs using quoted
market prices of MBS having the same stated coupon rate as
the insured mortgages and the estimated value of the
participation features. Management estimates the fair value
of the participation features using the estimated fair value
of the underlying properties. Management does not include in
the estimated fair value of the participation features any
fair value estimate arising from appreciation of the
properties, because Management does not believe it can
predict the time of realization of the appreciation feature
with any certainty. Based on the estimated fair value
determined using these methods and assumptions, the
Partnership's investments in PIMs had gross unrealized gains
and losses of $5,051,000 and $395,000 at December 31, 1995,
respectively, and a gross unrealized loss of $7,769,000 at
December 31, 1994.
Commitments to Fund Construction Loans and Insured Mortgages
At December 31, 1994, the Partnership approximated the fair
value of commitments to fund its construction-phase insured
mortgage to be equal to the commitment amount of $1,029,667.
At December 31, 1995 and 1994, the Partnership estimates the fair
values of its financial instruments as follows:
<PAGE>
<TABLE>
<CAPTION>
(rounded to thousands)
1995 1994
<S> <C> <C>
Cash and cash equivalents $ 3,434 $ 3,257
MBS 36,694 35,503
PIMs 156,122 144,669
$196,250 $183,429
</TABLE>
<PAGE>
KRUPP INSURED PLUS-III LIMITED PARTNERSHIP
<TABLE>
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1995
__________
<CAPTION>
Approx.
Normal
Maturity Monthly Original Current Carrying
PIMs (a) Interest Date Payment Face Face Amount at
Rate (b) (j) (k) Amount Amount 12/31/95(o)
GNMA
<S> <C> <C> <C> <C> <C> <C>
Casa Marina
Apts.
Miami, FL 8.00%
(d)(f)(h) 12/15/30 $ 49,000 $ 7,099,700 $ 6,959,826 $ 6,959,826
Fourth Ward Sq.
Apts.
Charlotte, NC 8.00%
(c)(f)(h) 11/15/31 50,000 7,250,000 7,139,886 7,139,886
Harbor Club
Apts.
Ann Arbor, MI 8.00%
(c)(e)
(i)(l) 10/15/31 97,000 13,562,000 13,475,296 13,475,296
Ironwood Place
Apts.
Ann Arbor, MI 8.50%
(c)(f)(h) 8/15/30 37,000 4,997,603 4,912,372 4,912,372
Marina Shores
Apts.
VA Beach, VA 8.00%
(c)(f)(h) 5/15/32 104,000 15,000,000 14,787,937 14,787,937
Paddock Club
Apts.
Tallahassee, FL 8.00%
(c)(f)(h) 3/15/32 60,000 8,600,000 8,479,661 8,479,661
Rosewood Apts.
Cartersville,GA 8.00%
(c)(f)(h) 2/15/31 36,000 5,197,314 5,101,801 5,101,801
Sundance Apts.
Miami, FL 8.50%
(c)(e)(g) 12/15/30 54,000 7,393,116 7,272,445 7,272,445
69,099,733 68,129,224 68,129,224
FNMA
Meridith Square
Apts.
Columbia, SC 8.00%
(c)(e)(g) 10/1/00 35,000
(n) 4,900,000 4,761,595 4,761,595
Mill Ponds
Apts.Naperville, IL7.50%
(c)(f)(g) 6/1/00 70,000
(n) 10,450,000 10,087,068 10,087,068
Paces Arbor
Apts.
Raleigh, NC 7.50%
(c)(e)(g) 7/1/00 24,000
(n) 3,545,000 3,426,418 3,426,418
Paces Forest
Apts.
Raleigh, NC 7.50%
(c)(e)(g) 7/1/00 29,000
(n) 4,345,000 4,199,657 4,199,657
Paddock Club
Apts.
Jacksonville,FL 8.00%
(c)(e)(g) 1/1/01 60,000
(n) 8,500,000 8,264,838 8,264,838
<PAGE>
Paddock Park II
Apts.
Ocala, FL 7.50%
(d)(e)(h) 3/1/00 $72,000
(n) 10,750,000 10,345,706 10,345,706
Royal Palm Pl.
Apts.
Kendall, FL 7.75%
(c)(f)
(h)(m) 4/1/06 111,000
(n) 15,978,742 15,491,579 15,491,579
Windsor Court
Apts.
Indianapolis,IN 7.25%
(c)(e)(g) 10/1/99 77,000
(n) 11,700,000 11,214,108 11,214,108
70,168,742 67,790,969 67,790,969
HUD
Friendly Hills
Apts.
Greensboro, NC 8.625%
(c)(e)(g) 7/1/25 88,000 11,684,500 11,310,588 11,310,588
Woodbine Apts.
Boise, ID 8.68%
(c)(e)(g) 1/1/31 32,000 4,327,800 4,234,871 4,234,871
16,012,300 15,545,459 15,545,459
Total $155,280,775 $151,465,652 $151,465,652
</TABLE>
(a) The Participating Insured Mortgages ("PIMs") consist of either a
mortgage-backed security ("MBS") issued and guaranteed by the
Federal National Mortgage Association ("FNMA"), an MBS issued or
guaranteed by the Government National Mortgage Association
("GNMA") or a sole participation interest in a first mortgage
insured by the United States Department of Housing and Urban
Development ("HUD") and a subordinated promissory note and
mortgage or shared income and appreciation agreement with the
underlying Borrower that conveys participation interests in the
revenue stream and appreciation of the underlying property above
certain specified base levels.
(b) Represents the permanent interest rate of the GNMA or FNMA MBS
or the HUD-insured first mortgage less servicers fee. The
Partnership may also receive additional interest, consisting of
(i) Minimum Additional Interest based on a percentage of the
unpaid principal balance of the first mortgage on the property,
(ii) Shared Income Interest based on a percentage of monthly
gross income generated by the underlying property in excess of a
specified base amount (but only to the extent it exceeds the
amount of Minimum Additional Interest received during such
month), (iii) Shared Appreciation Interest based on a percentage
of any increase in the value of the underlying property in
excess of a specified base value.
(c) Minimum additional interest is at a rate of .5% per annum
calculated on the unpaid principal balance of the first mortgage
note.
(d) Minimum additional interest is at a rate of .75% per annum
calculated on the unpaid principal balance of the first mortgage
note.
(e) Shared income interest is based on 25% of monthly gross rental
income over a specified base amount.
<PAGE>
(f) Shared income interest is based on 30% of monthly gross rental
income over a specified base amount.
(g) Shared appreciation interest is based on 25% of any increase in
the value of the project over the specified base value.
(h) Shared appreciation interest is based on 30% of any increase in
the value of the project over the specified base value.
(i) Shared appreciation interest is based on 35% of any increase in
the value of the project over the specified base value.
(j) The Partnership's GNMA MBS and HUD mortgage loans have call
provisions, which allow the Partnership to accelerate their
respective maturity date.
(k) The normal monthly payment consisting of principal and interest
is payable monthly at level amounts over the term of the GNMA
MBS and the HUD direct mortgages. The normal monthly payment
consisting of principal and interest for FNMA MBS is payable at
level amounts based on a 35 year amortization and all remaining
unpaid principal and accrued interest is due at the end of year
ten. The GNMA MBS, FNMA MBS and HUD-insured first mortgage
loans may not be prepaid during the first five years and may
generally be prepaid subject to a 9% prepayment penalty in years
six through nine, a 1% prepayment penalty in year ten and no
prepayment penalty after year ten.
(l) On April 7, 1992, the Partnership entered into an agreement
which provided for a one-year reduction in the interest rate on
the Harbor Club-Ann Arbor PIM from 8% to 6% for one year
retroactive to February 1, 1992 and to 7% for the following
year. In exchange for the reduction, the Minimum Additional
Interest increased from .50% to .75% and the Shared Appreciation
Interest Base decreased from $14,570,000 to $13,562,000.
(m) During December 1995 the Partnership agreed to a modification of
the Royal Palm PIM. The Partnership received a reissued FNMA
MBS with revised terms that include extending the maturity from
2001 to 2006. During December 1995, the Partnership received
its pro-rata share of a $90,644 principal payment. The FNMA MBS
will provide the Partnership with monthly interest payments at
interest rates ranging from 6.25% to 8.775% per annum through
maturity, and the Partnership will receive its pro-rata share of
$250,000 principal payments on December 1 of the following four
years. In addition, the modification changed the maturity of
the subordinated promissory note to 2006, and increased the
Shared Income and Appreciation Interest percentages from 25% to
30%.
(n) The approximate principal balance due at maturity for each PIM,
listed below, is as follows:
PIM Amount
Meridith Square Apartments $ 4,562,000
Mill Ponds Apartments $ 9,655,000
Paces Arbor Apartments $ 3,275,000
Paces Forest Apartments $ 4,015,000
Paddock Club Apartments $ 7,913,000
<PAGE>
Paddock Park II Apartments $ 9,932,000
Royal Palm Place Apartments $14,766,010
Windsor Court Apartments $10,767,000
(o) The aggregate cost of PIMs for federal income tax purposes is
$151,465,652.
A reconciliation of the carrying value of PIMs for each of the three years
in the period ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of period $152,438,036 $153,249,769 $151,315,137
Additions during period:
Investments - - 2,646,017
Deductions during period:
Principal collections (972,384) (811,733) (711,385)
Balance at end of period $151,465,652 $152,438,036 $153,249,769
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Balance
Sheet and Statement of Income and is qualified in its entirety by reference to
such financial statements
</LEGEND>
<CIK> 0000832091
<NAME> KRUPP INSURED PLUS III LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,433,885
<SECURITIES> 188,159,615<F1>
<RECEIVABLES> 1,924,402
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,242,383<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 201,760,285
<CURRENT-LIABILITIES> 14,756
<BONDS> 0
<COMMON> 200,472,903<F3>
0
0
<OTHER-SE> 1,272,626
<TOTAL-LIABILITY-AND-EQUITY> 201,760,285
<SALES> 0
<TOTAL-REVENUES> 15,728,883<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,393,826<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,335,057
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,335,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,335,057
<EPS-PRIMARY> 0<F6>
<EPS-DILUTED> 0<F6>
<FN>
<F1>Includes the following investments: Participating Insured Mortgages ("PIMs")
$151,465,652 & Mortgage-Backed Securities ("MBS") $36,693,963
<F2>Includes the following prepaid acquisition fees & expenses of $6,240,051 net of
accumulated amortization of $6,091,012 and prepaid participating servicing of
$2,002,332 net of accumulated amortization of $2,084,200
<F3>Represents total equity of General partners & Limited Partners of $(102,556)
and $200,575,459
<F4>Represents interest income on investments in mortgages & cash
<F5>Includes $1,622,438 of amortization related to prepaid fees & expenses
<F6>Net income allocated $370,052 to the General Partners & $11,965,005 to the
Limited Partners. Average net income per unit of Limited Partners interest is
$.94 on 12,770,261 units outstanding.
</FN>
</TABLE>
altman
development
corporation
VIA FACSIMILE-& FEDERAL EXPRESS
December 14, 1995
Krupp Insured Plus - III Limited Partnership
c/o Krupp Mortgage Corporation
Harbor Plaza
470 Atlantic Avenue
Boston, Mass. 02210
Attention: Ms. Peggy DeMuth
Re: Royal Palm Place, Ltd.
Dear Peggy:
Attached is a signed executed copy of the Amended and Restated
Subordinated
Promissory Note with Exhibits A and B for Royal Palm Place dated
December 1, 1995.
If you have any questions, please call me at your earliest convenience.
Sincerely,
ROYAL PALM PLACE, LTD.
By: ALTMAN DEVELOPMENT CORPORATION
General Partner
By:
Joel L. Altman, President
cc to Jeffrey Deutch
cc to George L. Dave
Attachments
2201 corporate blvd., n.w., suite 200, boca raton, florida 33431 (407)
997-8661
<PAGE>
AMENDED AND RESTATED
SUBORDINATED PROMISSORY NOTE
FOR VALUE RECEIVED, ROYAL PALM PLACE, LTD., a Florida limited
partnership, having an address at c/o Altman Development Corporation,
2201 Corporate Blvd., Suite 200, Boca Raton, Florida 33431 (hereinafter
referred to as the "Maker" or the "Mortgagor") has made and executed
this Amended and Restated Subordinated Promissory Note (the "Amended and
Restated Subordinated Note") payable to KRUPP INSURED PLUS - III LIMITED
PARTNERSHIP, or order, with offices c/o Berkshire Mortgage Finance
Corporation, Harbor Plaza, 470 Atlantic Avenue, Boston, Massachusetts
02110 (hereinafter, together with its and their successors and assigns,
referred to as the "Holder").
RECITALS
<PAGE>
A. The Maker previously executed a Subordinated Promissory
Note dated March 20, 1991, made payable to Holder which Subordinated
Promissory Note was modified by a Modification Agreement dated March 20,
1991 (hereinafter, collectively referred to as the "Original Subordinate
Note".) This Amended and Restated Subordinate Note amends and restates
the Original Subordinate Note. All accrued but unpaid interest under the
Original Subordinate Note shall be payable as provided herein.
B. The Maker has obtained from First Interstate Commercial
Mortgage Company, a Delaware corporation (hereinafter, together with its
successors and assigns, referred to as the "First Mortgagee") a loan in
the original principal amount of Twenty-Two Million and No/100 Dollars
($22,000,000) (the "First Mortgage Loan") which First Mortgage Loan was
assigned to the Federal National Mortgage Association with respect to
Royal Palm Place Apartments, a 377-unit housing project (the "Project")
located in the City of Kendall, Florida, upon certain real property more
particularly described in Exhibit "A" to the Subordinated Mortgage
(hereinafter defined) securing this Amended and Restated Subordinated
Note.
C. The First Mortgage Loan is evidenced by a certain
Multifamily Note (the "First Mortgage Note") from the Maker to the First
Mortgagee, which First Mortgage Note was modified on December 1, 1995,
and is secured by a certain mortgage (the "First Mortgage").
D. The First Mortgage Loan was funded through the sale to the
Holder of a mortgage backed security (the "Project MBS"). The interest
rate on the First Mortgage Loan and the Project MBS were below
prevailing interest rates for comparable loans and securities and the
lower interest rates inured to the benefit of the Maker. The Holder was
unwilling to acquire the Project MBS unless the Maker agreed to enter
into the Original Subordinated Note.
E. The Holder has entered into a Participation Agreement with
Krupp Insured Plus - I Limited Partnership whereby the Holder
transferred, assigned and conveyed a 27.3693546% interest in the Project
MBS and the Original Subordinated Note.
NOW, THEREFORE, in consideration of the foregoing and one
dollar and other good and valuable consideration in hand paid, the
receipt and sufficiency of which-is hereby acknowledged, subject to the
requirements specified in Paragraph 3 hereof, the Maker promises to pay
to Holder or order on April 1, 2006 (the "Maturity Date"), if not sooner
paid, as provided below, all those sums as more particularly described
herein.
1. Payment of Additional Interest. The Maker covenants and agrees to pay
the Holder from the date hereof "Additional Interest" which shall mean
and include the greater of "Minimum Additional Interest" or "Shared
Income Interest" as defined below in subparagraphs A and B, and in
addition, "Shared Appreciation Interest" as defined in Subparagraph C.
A. Minimum Additional Interest. "Minimum Additional Interest"
shall mean and include interest from April 1, 1993, at the rate of
one-half percent (.5%) per annum calculated on the unpaid principal
balance of the First Mortgage Note. Minimum Additional Interest shall be
deemed earned beginning April 1, 1993 and on the first day of each month
thereafter, and shall accrue and be payable in cash annually commencing
on the first day of January 1996, and on the first day of each
succeeding January of each calendar year thereafter ("Annual Payment
Date") until the entire balance of the First Mortgage Note has been paid
subject to the provisions of Paragraph 3.A. and the limitations
described below in this Paragraph 1. Any owed but unpaid amounts shall
be accrued and paid upon any future annual installment or pursuant to
Paragraph 1.F.
B. Shared Income Interest. "Shared Income Interest" shall mean
and include thirty percent (30%) of "Gross Rental Income", as defined
below, actually received by the Maker during the annual period of
calculation in excess of $3,275,004 (the "Annual Base Income") during
the first calendar year and each-succeeding calendar year thereafter.
For purposes of this Amended and Restated Subordinated Note, "Gross
Rental Income" shall include all cash, notes or other things of value
and any and all other consideration, direct or indirect, laundry income,
parking income, and all other income from whatever source received in
connection with the ownership and operation of the Project, except for:
(a) proceeds of refinancing; (b) casualty insurance, flood insurance,
condemnation proceeds; and (c) capital contributions to the Maker. Such
Shared Income Interest shall be deemed earned beginning on the first day
of the first calendar month-following the execution of this Amended and
Restated Subordinated Note and on the first day of each month
thereafter, and shall accrue and be payable in arrears in cash annually
on each Annual Payment Date thereafter so long as this Amended and
Restated Subordinated Note is outstanding, subject to the provisions of
Paragraph 3.A. and the limitations described below in this Paragraph 1.
Any owed but unpaid amounts shall be accrued and paid upon any future
annual installment or pursuant to Paragraph 1.F.
Notwithstanding the foregoing obligation of the Maker to pay
the greater of Minimum Additional Interest or Shared Income Interest,
with respect to the any Annual period, the Maker shall not pay more than
the lesser of:
(i) Thirty percent (30%) of Gross Rental Income actually received by The
Maker with respect to such annual period, less the Annual Base Income
in-such annual period; or
(ii) Fifty percent (50%) of the Project's net income ("Net Income").
"Net Income" shall mean Gross Rental Income for the applicable period
less payments for ordinary and necessary operating expenses, taxes,
deposits to a reserve for replacement escrow and debt service applicable
to the modified First Mortgage Note as described below. Debt service for
the purpose of calculating Net Income shall consist of the following:
interest-only payments paid in accordance with the modified
First Mortgage Note for such applicable period; and
in any applicable period in which a paydown of principal of the
First Mortgage Loan occurs in accordance with the terms of the modified
First Mortgage Note, an amount equal to the principal amortization for
such period that would have been paid under the original terms of the
First Mortgage Note had it not been modified. An amortization schedule
following the original terms of the First Mortgage Note is attached as
Exhibit B.
Furthermore, Gross Rental Income shall not be reduced by any payments
for expenses, replacement or capital items which are reimbursed through
a reserve for replacement escrow held by the First Mortgagee.
Any owed but unpaid amounts shall be accrued and paid upon any future
annual installment or pursuant to Paragraph 1.F.
C. Shared Appreciation Interest. "Shared Appreciation
Interest" shall mean and include thirty percent (30%) of the excess of
the "Value", as defined below, over the "Base Value", as defined below,
of the Project until the first to occur of (i) a "Sale of the Project",
as defined below, to an unrelated third party or parties; (ii) the
Maturity Date determined in accordance with the terms of this Amended
and Restated Subordinated Note; or (iii) prepayment of this Amended and
Restated Subordinated Note in accordance with its term.
The "Value" of the Project shall equal all consideration paid
in connection with the Sale of the Project, including the stated
purchase price, cash, notes, any indebtedness assumed and/or to which
the Project is then subject, interest on any deferred portion of the
purchase price and the value of any and all other consideration, direct
or indirect, and whether paid to the Maker or to any other period or
party, but excluding to the extent paid by Maker, the following: (i)
prorations and reasonable selling expenses, including reasonable
independent
third party broker's commissions, (ii) title searches, (iii) survey
costs, and (iv) recording costs, escrowed charges and transfer taxes.
The term "Base Value" shall mean $23,200,000 less all eminent
domain or
condemnation awards, or damages and casualty insurance proceeds received
by the Maker prior to the Maturity Date which are not applied to the
restoration of the Project. Base Value may not be less than the original
principal balance of the First Mortgage.
The term "Sale of the Project" shall mean any sale, transfer,
conveyance,
assignment, exchange, liquidation or other disposition to an unrelated
third party for value of substantially all of the Project or
substantially all of the interests in the Mortgagor entity. Unless the
Holder hereof gives written approval, any sale to a "Related Party" or
"Affiliate" shall not be Sale of the Project. A "Related Party"
includes, without limitation, any spouse, brother, sister, parent, child
or grandchild of the Maker or principal of the Maker. An "Affiliate"
means, as to the Maker, any individual or entity (i) that directly or
indirectly controls or is controlled by or is under common control with
the Maker, (ii) that is an officer of, partner in or trustee, or with
respect to which the Maker serves in a similar capacity, or (iii) that
is the beneficial owner, directly or indirectly, of 10% or more of any
class of equity securities of the Maker or of which the Maker is an
officer, partner or trustee, or with respect to which the Maker serves
in a similar capacity, or (iii) that is the beneficial owner, directly
or indirectly, of 10% or more of any class of equity securities of the
Maker or of which the Maker is directly or indirectly the owner of 10%
or more of any class of equity securities.
If there has been no Sale of the Project, the Value of the
Project shall be
determined by an appraisal of the Project, prepared within sixty (60)
days prior to the Maturity Date or the date of voluntary prepayment of
this Amended and Restated Subordinated Note by the Maker. The appraisal
shall be prepared by a qualified M.A.I. appraiser selected by Holder.
The determination of appraised value shall be based, in part,
upon the assumption that the rental income from or with respect to the
Project is based on the then prevailing market rates for comparable
rental space in the same vicinity as the Project even if the actual rent
then being paid by lessees thereon is less. The appraisal shall specify
the Value of the Project assuming that the said First Mortgage Loan may
not be assumed;
The purpose of appraisal of the Project shall be to estimate
the market value of the fee simple interest, as- unencumbered of the
Project at current occupancy as of the date of the appraisal. The
definition of market value is the highest price in terms of money which
a property will bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller, each acting
prudently, knowledgeably and assuming the price is not affected by undue
stimulus. The determination of market value shall be based, in part,
upon the assumption that the rental income from or with respect to the
Project is based on the then prevailing market rates, for comparable
rental space in the same vicinity as the Project, even if the actual
rent then being paid by lessees thereon is less. The determination of
market value shall be based, in part, upon a determination by the
appraiser of the Project's highest and best use, which may include the
value of the Project assuming conversion to condominium or cooperative
ownership, provided, however, that it can be proven that there exists a
viable market for condominium or cooperative conversions in the area
where the Project is located and taking into account an allowance for
reasonable costs incurred in connection with such conversion.
In the event the Maker does not agree with the appraisal, the
Maker must notify the Holder within three business days after receipt
thereof, and it may arrange for another appraisal of the project by a
qualified MAI appraiser, which appraisal must be completed within sixty
(60) days of receipt of the first appraisal.
In the event the Holder does not agree with the appraisal
which is obtained by the Maker, and the Holder and the Maker is unable
to agree upon the Value, the Holder must notify the Maker within three
(3) business days after the receipt thereof, and the Holder may arrange
for another appraisal of the Project by a qualified MAI appraiser to be
selected jointly by the two appraisers who made the prior appraisals,
which appraisal must be completed within thirty (30) days. The Value
established pursuant to this third appraisal shall be binding upon the
Maker and the Holder
The cost of the first appraisal shall be borne by the Maker. The
cost of all
subsequent appraisals shall be shared equally by Holder and the Maker.
D. Shared Appreciation Interest under subparagraph C shall be
deemed earned and shall be payable (i) on the date of Sale of the
Project; (ii) on the Maturity Date; or (iii) upon a prepayment of this
Amended and Restated Subordinated Note, whichever first occurs, and
further, such Shared Appreciation Interest is payable only to the extent
that it exceeds any prepayment premium paid under Paragraph 4.
E. Notwithstanding the foregoing, in the event of default by
Maker under this Amended and Restated Subordinated Note or the
Subordinated Mortgage securing this Amended and Restated Subordinated
Note, and upon Holder's election, in its sole discretion, to accelerate
all amounts due hereunder-and under the Subordinated-Mortgage, Holder
shall obtain-the appraisal, described in Subparagraph C, within one
hundred twenty (120) days after Holder's election so to accelerate, and
the Shared Appreciation Interest, if any, due Holder as a result of such
appraisal shall be due and payable within ten (10) days after a copy of
the completed appraisal is delivered to Maker
F. Notwithstanding the provisions contained in Paragraph l(c)
above providing for the payments of Additional Interest, upon the
earliest to occur of (i) the date of Sale of the Project; (ii) the
prepayment of this Amended and Restated Subordinated Note; or (iii) the
Maturity Date, Maker expressly understands and agrees to pay to the
Holder the aggregate amount of all accrued and unpaid Additional
Interest payable hereunder, provided that the aggregate amount of
Additional Interest shall not exceed fifty percent (50%) of any
difference between the Value and the Base Value of the Project (the
Value and the Base Value of the
Project to be calculated for purposes of this Paragraph 1.F. in the same
manner as provided in Paragraph 1 .C.).
2. Payment of First Mortgage Loan.
The Maker covenants and agrees to pay all sums due or required
to be paid under the terms of the First Mortgage Note and the First
Mortgage prior to making any payments due hereunder.
3. Additional Requirements.
A. So long as the First Mortgage Note is held in trust in
connection with the Project MBS, the Maker shall have no right or
obligation to make any payments or prepayments hereunder from the income
from the Project unless at the time of such payment or prepayment, the
income generated by the Project is sufficient to pay in a timely manner
the Project's necessary and reasonable expenses, reserves for
replacement and all other amounts due and payable under the First
Mortgage Note and the First Mortgage. Nothing contained herein is
intended to relieve or modify the obligations of Maker to pay any and
all sums due on or under the terms of the First Mortgage Note and the
First Mortgage. Any Additional Interest or other sums not paid in any
year because of the restrictions imposed by this subparagraph A shall
continue to accrue without interest thereon and shall be paid in
subsequent years as provided above. All such unpaid sums shall be added
to the amount of accrued Additional Interest payable under Paragraph 1.
B. Nothing in this Amended and Restated Subordinated Note is
intended to alter or conflict with the terms, conditions, and provisions
of the First Mortgage Note or the First Mortgage. In the event of any
conflict or inconsistency between the terms of this Amended and Restated
Subordinated Note-or the Subordinated Mortgage-and the terms of the
First Mortgage Note or the First Mortgage, the provisions of the First
Mortgage Note or the First Mortgage shall control, and the terms of this
Amended and Restated Subordinated Note or the Subordinated Mortgage
shall be deemed amended so as not to conflict with or alter such First
Mortgage Note or First Mortgage, so long as the First Mortgage has not
been released.
C. In the event of a monetary default or pending default under
any of the terms of the First Mortgage Note and/or the First Mortgage,
as reasonably determined by the First Mortgagee, no payments will be
made or accepted under this Amended and Restated Subordinated Note or
under the Subordinated Mortgage without the First Mortgagee's prior
written consent
D. This Amended and Restated Subordinated Note shall not be
modified or amended without the First Mortgagee's prior written consent.
E. In the event that the Holder receives any payment or other
distribution of any kind from the Maker or from any other source
whatsoever with respect to the subordinated debt evidenced hereby, other
than as permitted under this Amended and Restated Subordinated Note or
under the Subordinated Mortgage, such payment or other distribution
shall be received in trust for the First Mortgagee and promptly turned
over to the First Mortgagee.
F. Any default or breach hereunder also shall constitute a
breach and default under the First Mortgage Note and the First Mortgage,
and upon the occurrence thereof, the First Mortgagee shall have the
right to exercise any of the remedies to which it is entitled under the
First Mortgage Note and the First Mortgage.
G. This Amended and Restated Subordinated Note shall not be
negotiated, assigned or otherwise transferred without the prior written
approval of the First Mortgagee.
H. The Holder shall not, without the prior written approval
of the First Mortgagee, commence or join with any other creditor in
commencing any bankruptcy, reorganization or insolvency proceedings with
respect to the Maker.
I. In the event of a condemnation which results in a payment
by the condemning body for any portion of the Project, or in the event
any proceeds are received from any casualty loss covered by insurance,
such condemnation proceeds or casualty loss proceeds shall be paid only
to the First Mortgagee, and only upon the full satisfaction of the First
Mortgage Note and the First Mortgage, shall the Holder receive payment
from the remainder-of such proceeds.
J. In the event of a default hereunder, the Holder agrees
that it shall not, without the prior written consent of the First
Mortgagee, commence foreclosure proceedings or any other proceedings to
enforce collection or-enforce its lien evidenced by the
Subordinated-Mortgage.
4. Prepayment. This Amended and Restated Subordinated Note may not be
prepaid, in whole or in part, for a term of one (1) year from the date
hereof. After one (1) year, the Maker shall have the right to prepay
this Amended and Restated Subordinated Note in whole, provided that the
First Mortgage Note is also prepaid in whole, as follows: if the Maker
prepays this Amended and Restated Subordinated Note during the second
through the ninth year, the Maker shall pay to Holder a prepayment
penalty equal to nine percent (9%) of the unpaid principal amount of the
First Mortgage Note as of the day immediately preceding the prepayment
date of the First Mortgage Note; and if the Maker prepays during the
tenth year, the Maker shall pay a prepayment penalty equal to one
percent (1 %) of the unpaid principal amount of the First Mortgage Note
as of the day immediately preceding the prepayment date of the First
Mortgage Note. On the date of a prepayment in whole, the Maker shall pay
to the Holder all Additional Interest to be paid hereon. Any prepayment
shall be made only after not less than ninety (90) days nor more than
one hundred eighty (180) days prior written notice from the Maker to the
Holder and to the First Mortgagee of Maker's intention to prepay.
Notwithstanding anything contained herein to the contrary, in the event
that the Maker prepays the First Mortgage Note, the Maker shall be
required to also prepay this Amended and Restated Subordinated Note,
together with the prepayment penalties set forth herein.
Notwithstanding-anything herein contained to the contrary,
there shall be no prepayment premium due as a result of the application
of (i) insurance proceeds; (ii) condemnation proceeds; (iii) the funds
held with regard to the Achievement Escrow, as defined in the First
Mortgage loan documents, or any paydowns of the outstanding principal
balance of the First Mortgage Loan scheduled under the modified First
Mortgage Note.
Notwithstanding anything to the contrary regarding the
payment of Additional Interest and the 9% penalty upon prepayment of the
Amended and Restated Subordinated Note as provided above (the "KIP"
Penalty"), the Maker shall pay to Holder as follows:
a. For purposes of this Paragraph 4, fifty percent (50%) of
the difference between the Value and the Base Value of the Project upon
the earliest to occur of (i) the date of Sale of the Project; (ii) the
prepayment of the Amended and Restated Subordinated Note; or (iii) the
Maturity Date, shall be referred to as the Maximum Additional Interest
Payment.
b. In the event that the KIP Penalty is equal to or exceeds
the Maximum Additional Interest Payment, no accrued and unpaid
Additional Interest will be owed to Holder.
c. In the event the KIP Penalty is less than the Maximum
Additional Interest Payment, the aggregate amount of any accrued and
unpaid Additional Interest is payable only to the extent that the sum of
such accrued and unpaid Additional Interest and the KIP Penalty does not
exceed the Maximum Additional Interest Payment.
d. Upon the earliest to occur of (i) the date of Sale of the
Project; (ii) the
prepayment of the Amended and Restated Subordinated Note; or
(iii) the Maturity Date, if prepayment penalty is due from Maker to
First Mortgagee Holder under the First Mortgage Loan (the "First
Mortgage Penalty"), Holder agrees to pay to First Mortgagee, on behalf
of Maker, (i) fifty percent (50%) of the First Mortgage Penalty, and
(ii) if any, the amount of which the KIP Penalty received rom Maker by
Holder exceeds the Maximum Additional Interest Amount, but not in
excess of the First Mortgage Penalty. An example is attached as Exhibit
"A".
5. Late Payment. If the Maker fails to make any payment of any amounts
payable
under this Amended and Restated Subordinated Note or the Subordinated
Mortgage on or before the fifteenth (15th) day of the month during which
such payment is due, the Holder may, at its option, impose a late charge
upon the Maker not to exceed four cents ($0.04) on each dollar so
delinquent.
6. General Provisions.
A. It is the intention and agreement of the parties that the
Additional Interest payable hereunder be an additional charge for the
principal sum advanced by the Holder with respect to the First Mortgage
Note. Such Additional Interest shall not constitute an additional
principal sum due under this Amended and Restated Subordinated Note or
the First Mortgage Note.
B. Amounts payable under this Amended and Restated
Subordinated Note shall be payable at the offices of Holder, or at such
other place as the Holder may designate in writing.
C. This Amended and Restated Subordinated Note and the
indebtedness evidenced hereby is secured by a Subordinated Mortgage or
Deed of Trust of even date herewith (the "Subordinated Mortgage")
executed by the Maker in favor of the Holder hereof, which covers that
certain real property and improvements thereon being more particularly
described in the Subordinated Mortgage. The Subordinated Mortgage is
subordinate and subject to the First Mortgage.
D. It is not intended hereby to charge interest at a rate in
excess of the maximum lawful rate of interest permitted to be charged
the Maker under the laws of the State in which the Project is located or
the laws of any other jurisdiction which may be deemed to govern the
terms of this Amended and Restated Subordinated Note. The First
Mortgagee has agreed to receive interest with respect to the First
Mortgage Loan at a rate which is lower than the prevailing market rate
of interest at-the time of such loan. The Holder's agreement to charge
and receive such interest with respect to the First Mortgage Loan is in
consideration of the Maker's agreement to pay Additional Interest as
provided hereinabove. Accordingly, the Additional Interest received
hereunder should be deemed to be spread and applied to the outstanding
balance of this Amended and Restated Subordinated Note plus the
outstanding balance of the First Mortgage Note, from time to time, over
the entire term that both notes, or either of them, are outstanding. If,
nevertheless, interest in excess of such maximum lawful rate shall be
paid hereunder, then the rate imposed hereunder shall be reduced to such
maximum lawful rate, and if from the circumstance, the Holder hereof
shall ever receive as interest an amount which would exceed the highest
lawful rate, such amount as would be deemed excessive interest shall be
refunded to the Borrower.
E. All financial statements and calculations with respect to
the Property as required in this Amended and Restated Subordinated Note
and Subordinated Mortgage shall be prepared according to the accrual
method of accounting in accordance with generally accepted accounting
procedures applied on a consistent basis from year to year. Holder must
approve any accruals which are not normal and customary in the rental
apartment business. Examples of normal and customary accruals include
items such as taxes, insurance, replacement reserves or normal trade
payables which relate to a particular period but are not paid in that
period.
F. It is expressly agreed that if the Maker is in default under
this Amended and Restated Subordinated Note in the payment of any sums
when due, or if the Maker is in default in the performance of any
covenant or condition of the Subordinated Mortgage, or any other
agreement evidencing or securing the repayment of the indebtedness,
which default is not cured within the applicable grace period, if any,
permitted in the Subordinated Mortgage, or such other agreement, then,
and in any of such events, the Holder may declare all sums due and
payable under this Amended and Restated Subordinated Note, subject to
the restrictions of Paragraph 3.J. above.
The failure of the Holder to exercise its option for
acceleration of maturity,
foreclosure, or either, following any default as aforesaid or to
exercise any other option granted to it hereunder or under the
Subordinated Mortgage or the acceptance by the Holder of partial
payments or partial performance, shall not constitute a waiver of any
such default or option but such rights of the Holder shall remain
continuously in force. Acceleration of maturity or other rights granted
to the Holder hereunder, once claimed hereunder by the Holder, may at
its option be rescinded or extended by written notice to that effect.
The tender and acceptance of partial payment or partial performance
alone shall not in any way affect or rescind an acceleration of maturity
by the Holder.
If any sum payable under this Amended and Restated
Subordinated Note is not paid within ten (10) days of the date when due,
whether by maturity or acceleration, the Maker agrees to pay all costs
of collection, including but not limited to, court costs and reasonable
attorney's fees, whether or not suit is filed thereon.
G. The Maker, and any endorsers hereof, jointly and
severally: (i) waive
presentment, protest and demand, notice of protest, notice of dishonor
and nonpayment of this Amended and Restated Subordinated Note, and every
other notice of any kind respecting this Amended and Restated
Subordinated Note except as set forth in this Amended and Restated
Subordinated Note and the Subordinated Mortgage; and (ii) to the extent
not prohibited by law, waive the benefit of any law or rule of law
intended for its advantage or protection which would enable its release
or discharge from liability hereon, in whole or in part, for any reason
other than full and complete payment of all amounts due hereunder.
H. The Maker hereby represents and warrants that: (i) it is a
business or commercial organization; (ii) the loan evidenced hereby was
made and transacted solely for the purpose of carrying on an investment
in real estate; and (iii) the proceeds of the loan are not to be used in
whole or in part for personal, family or household purposes.
I. In the event that any one or more of the provisions
contained herein are, for any reason, held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Amended
and Restated Subordinated Note and this Amended and Restated
Subordinated Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein
J. This Amended and Restated Subordinated Note may not be
changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or
discharge is sought and subject to the provisions of Paragraph 3.D.
above.
K. All notices given pursuant to this Amended and Restated
Subordinated Note shall be in writing and shall be hand delivered or
mailed, registered U.S. Mail, return receipt requested to the parties at
the addresses specified below or to such other addresses as may be
specified by a party upon notice in compliance with this paragraph.
Maker: Royal Palm Place, Ltd.
c/o Altman Development Corporation
2201 Corporate Blvd.
Suite 200
Boca Raton, FL 33431
Holder: Krupp Insured Plus - III-Limited-Partnership
c/o Krupp Mortgage Corporation
Harbor Plaza
470 Atlantic Avenue
Boston, Massachusetts 02210
First Federal National Mortgage Association
Mortgagee: 950 East Paces Ferry Road
Suite 1900
Atlanta, GA 30326-1161
Attn: Vice President
Multifamily Activities
Servicer: GMAC Mortgage Corporation
101 S. Hanley Road, Suite 1300
St. Louis. MO 63105
L. This Amended and Restated Subordinated Note shall be given
effect and construed by application of the laws of the State in which
the Project is located.
M. It is expressly understood and agreed that neither the
Maker nor any partner, officer, director or stockholder of Maker, as the
case may be, shall have any personal liability for payment of any sums
due hereunder, and the Holder agrees to seek recourse solely against the
real estate and other security granted to the Holder under the
Subordinated Mortgage and any instrument further securing this Amended
and Restated Subordinated Note, including, without limitation, the
rents, issues and profits of the Project received by the Maker after
default herein or the Subordinated Mortgage or any instrument further
securing this Amended and Restated Subordinated Note (subject to the
provisions of Paragraph 3 of this Amended and Restated Subordinated
Note).
N. Notwithstanding the foregoing, the Maker, any partner,
officer, director or stockholder of Maker shall be subject to personal
liability to the extent of receipt by them of proceeds of insurance on
the Project, proceeds on account of condemnation thereof, or rents and
issues and profits of the Project (including, without limitation, the
proceeds of any sale of the Project) which Maker has not applied to
payment of this Amended and Restated Subordinated Note as and when
required by the terms of the Amended and Restated Subordinated Note.
WITNESS the signature and seal of the Maker hereof this 1st day of
December, 1995.
WITNESS: MAKER:
ROYAL PALM PLACE, LTD., a
Florida Limited Partnership
By: Altman Development
Corporation,
a Florida corporation
This Amended and Restated Subordinated Note is secured by a
Subordinated Mortgage dated March 20, 1991 on the property located in
the City of Kendall, County of Dade described therein from the Maker to
the Holder.
EXHIBIT "A"
EXHIBIT FOR PURPOSES OF PARAGRAPH 4d TO THE
AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE
Value of Project $27,000,000
Base Value of Project $23,200,000
difference $3,800,000
Maximum Additional Interest Payment = 50% of
or, $1,900,000 $3,800,000
Outstanding First Mortgage Loan balance $21,400,000
First Mortgage Penalty $415,588
(@ 1.942% in the 7th year
of the First Mortgage Loan)
KIP Penalty $1,926,000
( @ 9% in the 7th year of the
First Mortgage Loan)
So:
KIP Penalty $1,926,000
Less Maximum Additional Interest Payment $1,900,000
Excess $26,000
Plus KIP's 50% of First Mortgage Penalty $207,794
Amount paid by KIP to First Mortgage Lender $233,794
Amount paid by Royal Palm Place, Ltd. to $181,794
First Mortgage Lender
1. All capitalized terms used above are as defined in the
Amended and Restated Subordinated Promissory Note.
2. Both the Value and the Outstanding First Mortgage
Loan balance are assumed.
3. A Sale or prepayment date of May 1, 1997 is assumed.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
MORTGAGE-BACKED SECURITIES PROGRAM
SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 1, 1994
$ 21,329,259.000
ISSUE DATE DECEMBER 1, 1995
SECURITY DESCRIPTION FNAR 06.2500 MB109057
6.2500 PERCENT PASS-THROUGH RATE
FANNIE MAE POOL NUMBER MB-109057
CUSIP 313637B25
PRINCIPAL AND INTEREST PAYABLE ON THE 25TH OF
EACH MONTH
BEGINNING JANUARY 25, l996
POOL STATISTICS (AS OF ISSUE DATE)
NUMBER OF MORTGAGE LOANS 1
AVERAGE OUTSTANDING BALANCE 21,329,259.07
MATURITY DATE 04/01/2006
WEIGHTED AVG REMAINING TERM 124
HIGHEST ANNUAL INTEREST RATE 6.5000
LOWEST ANNUAL INTEREST RATE 6.5000
WEIGHTED AVG ANNUAL INT RATE 6.5000
%UPB W/ INTRST ONLY FIRST DISTRIB 0.00
GEOGRAPHIC DISTRIBUTION OF SECURITY PROPERTIES
FLORIDA 1 21,329,259.07
THE DATE OF THIS SUPPLEMENT IS DECEMBER l, 1995
SUPPLEMENT TO PROSPECTUS REFERRED TO IN POOL
STATISTICS ATTACHED HERETO
FEDERAL NATIONAL MORTGAGE ASSOCIATION
GUARANTEED MORTGAGE PASS-THROUGH CERTIFICATES
(ADJUSTABLE-RATE MULTIFAMILY BALLOON MORTGAGE LOAN)
PRINCIPAL AND INTEREST
PAYABLE ON THE 25TH DAY OF EACH MONTH
BEGINNING IN THE MONTH FOLLOWING THE ISSUE DATE
THE CERTIFICATES, TOGETHER WITH INTEREST THEREON, ARE NOT
GUARANTEED BY THE UNITED STATES. THE OBLIGATIONS OF THE FEDERAL NATIONAL
MORTGAGE ASSOCIATION UNDER ITS GUARANTY OF THE CERTIFICATES ARE
OBLIGATIONS SOLELY OF THE CORPORATION AND DO NOT CONSTITUTE AN
OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF
OTHER THAN THE CORPORATION. THE CERTIFICATES ARE EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE
"EXEMPTED SECURITIES" WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT
OF 1934.
Each Certificate offered hereby, and by the Prospectus {the
"Prospectus"1 to which this is a supplement (which Prospectus is
referred to in the Pool Statistics attached hereto), evidences a
fractional undivided interest in a pool (the "Pool"1 containing a
conventional, adjustable-rate balloon mortgage loan (the "Mortgage
Loan"1 formed and held in trust by the Federal National Mortgage
Association (the "Corporation"1, a corporation organized and existing
under the laws of the United States. The Mortgage Loan was purchased by
the Corporation for resale to Certificate holders by issuance of the
Certificates, and they and the underlying Mortgage Loan are more
particularly described herein.
The Certificates are issued pursuant to the terms of the Trust Indenture
dated as of July 1, 1984, as amended, executed by the Corporation acting
in its corporate capacity and in its capacity as Trustee, as
supplemented by an Issue Supplement dated as of the Issue Date set forth
in the Pool Statistics attached hereto. The Corporation has certain
contractual servicing responsibilities with respect to the Pool. In
addition, the Corporation is obligated to distribute scheduled monthly
installments of principal and interest (adjusted to the Accrual Rate) as
further described herein, to the Certificate holders, whether or not
received. The Corporation is also obligated to distribute to Certificate
holders the full principal balance of the Mortgage Loan upon
foreclosure, whether or not such principal balance is actually
recovered.
The Pool Statistics attached hereto contain statistical information
respecting the Pool, including a prefix to the Pool Number that
identifies the specific type of Mortgage Loan in the Pool. The Schedule
of Mortgage Loan Information attached hereto contains additional
Mortgage Loan information, including the maturity date, amortization
term and prepayment characteristics of the Mortgage Loan in the Pool.
The Corporation currently intends, but has not committed, to publish
certain updated information about the Mortgage Loan periodically with
Bloomberg L.P., or another similar information service. Such information
is in addition to any information provided in the Bond Buyer.
The Schedule of Loan Information sets forth the Debt Service Coverage
Ratio as of the Issue Date for the Mortgage Loan. The "Debt Service
Coverage Ratio" for the Mortgage Loan is the ratio of (a) the Net
Operating Income estimated by the Corporation to be generated by the
related Mortgaged Property for the 12-month period following the Issue
Date to (b) the product of the amount of the Monthly Payment in effect
at the Issue Date, multiplied by 12. "Net Operating Income" is the
estimated revenue derived from the use and operation of a Mortgaged
Property (consisting primarily of estimated market rental rates and
laundry facilities, if any) less the estimated operating expenses (such
as utilities, general administrative expenses, management fees,
advertising, repairs and maintenance) and less the estimated fixed
expenses (such as insurance and real estate taxes), all calculated in
accordance with the Corporation's Multifamily Delegated Underwriting and
Servicing Guide (the "DUS Guide"). The Schedule of Loan Information also
sets forth the Debt Service Coverage Ratio at the maximum interest rate
of 9.40% of the Mortgage Loan, which was equal to the ratio of (a) the
current Net Operating Income to (b) the Monthly Payment at the projected
unpaid principal balance of the Mortgage Loan when the maximum interest
rate goes into effect, multiplied by 12.
CHARACTERISTICS OF THE MORTGAGE LOAN
The Mortgage Loan has been originated by a mortgage lender (the
"Lender"). The promissory note that evidences the Mortgage Loan (the
"Mortgage Note") is secured by a security instrument (the "Mortgage") on
a multifamily residential property consisting of five or more dwelling
units (the "Mortgaged Property").
Interest Rate and Payments
The Mortgage Loan provides for a monthly payment in an amount sufficient
to pay all interest accruing on such Mortgage Loan. The Mortgage Loan
also provides that, on December 1, 1996, December 1, 1997, December 1,
1998 and December 1, 1999, the borrower shall make a principal payment
of $250,000 in addition to any accrued interest due and payable. Such
principal payment shall be distributed to Certificate holders on the
next Distribution Date. The interest rate that accrues on the Mortgage
Loan prior to December 1, 1996 is 6.50%. Since the Corporation's
servicing and guaranty fee prior to December 1, 1996 will be .250%, the
Accrual Rate for the Mortgage Loan will be 6.25% for each distribution
through December 1996. Thereafter, the rate at which interest will
accrue on the Mortgage Loan will not vary in response to a specified
index (notwithstanding the terms of the Prospectus), but shall change in
accordance with the schedule set forth below. The Corporation's
servicing and guaranty fee and the Accrual Rate for the Mortgage Loan
will also change as described below.
Mortgage Interest Servicing and
Rate Change Date Mortgage Interest Rate Guaranty Fee Accrual Rate
12-1-96 7.00% .500% 6.500%
12-1-97 7.50 .500 7.000
12-1-98 8.00 .625 7.375
12-1-99 8.50 .625 7.875
12-1-00 9.00 .625 8.375
12-1-01 9.40 .625 8.775
12-1-04 9.40 .875 8.525
The Mortgage Loan will mature on the maturity date indicated on the Pool
Statistics information attached to this Supplement. All unpaid principal
will be payable as a balloon payment due on the stated maturity date of
the Mortgage Note together with accrued interest.
Prepayment
The borrower may prepay the Mortgage Loan in whole, but not in part, at
any time without penalty. Furthermore, early recovery of Mortgage Loan
principal, in whole or in part, could occur- on account of receipt
of-casualty insurance proceeds or a condemnation award affecting the
Mortgaged Property. Any casualty proceeds will be applied to restoration
or repair of the Mortgaged Property and not to reduce Mortgage Loan
principal, if there is then no Mortgage Loan default and the Corporation
determines that: (i) there are sufficient funds to achieve restoration
of the Mortgaged Property to a satisfactory condition, (ii} rental
income after
restoration will be sufficient to meet all project obligations, and
(iii} restoration will be completed prior to the earlier of the maturity
date of such Mortgage Loan, or within one year of the event of casualty.
Prepayment or early recovery of principal of the Mortgage Loan may
affect a Certificate holder's yield on its investment in Certificates.
In addition, a partial early recovery of principal may affect the
monthly payment amount distributable to Certificate holders. Fannie Mae
guarantees the payment of principal and interest when due, but makes no
representation or guaranty as to the occurrence or non-occurrence or an
early prepayment of principal of a Mortgage Loan Mortgage Loan
Documents; Subordinate Financing
The Mortgage Note and Mortgage are executed on FNMA/FHLMC Uniform
Instruments for multifamily loans made in the state in which the
Mortgaged Property is located (as amended by an Addendum and a Rider}.
Because the borrower's covenants (breach of which could result in
Mortgage Loan default and early distribution of principal to Certificate
holders} are the covenants provided for by such standard forms, they are
typical of those contained in loans secured by multifamily rental
properties.
The loan documents also provide that any breach of the terms of any
subordinate financing, which remains uncured after any applicable cure
period, is a default on the Mortgage Loan pursuant to which the
Corporation would have the right, but not the obligation, to declare the
entire principal balance of the Mortgage Loan immediately due and
payable. The borrower has entered into subordinate financing with Krupp
Insured Plus III Limited Partnership, which is secured by a junior lien
on the Mortgaged Property. The subordinate note provides that, so long
as the Mortgage Loan is in the Pool, the borrower may not make payments
on the subordinate note (or prepay the subordinate note) unless income
from the Mortgaged Property is then sufficient to pay all amounts due
under the Mortgage Loan, to pay the Mortgaged Property's necessary and
reasonable expenses, and to fund reserves required by the Mortgage Loan.
Certificate holders have no right to any payments due on the subordinate
note. The subordinate note has no stated principal amount and its
payments are characterized as (i} "Additional Interest" equal to the
greater of "Minimum Additional Interest" and "Shared Income Interest,"
and (iii)} "Shared Appreciation Interest." "Minimum Additional Interest"
is interest at the annual rate of .5% (50 basis points) of the
outstanding balance of the Mortgage Loan accruing during each calendar
year. "Shared Income Interest" per month is 30% of the Mortgaged
Property's "Gross Rental Income" for such month(as defined in the
subordinate note). Additional Interest is due on January 1 of each year,
but the amount payable on each payment date may not exceed the lesser of
30% of the Gross Rental Income actually received in the prior year and
50% of the Mortgaged Properties "Net Income" (as defined in the
subordinate note) for such annual period. Any amount due but not payable
currently is deferred for payment on a later annual date. If not earlier
paid, all deferred Additional Interest is due and payable, together with
"Shared Appreciation Interest," when the Mortgaged Property is sold,
when the subordinate loan is prepaid, or on the maturity date of the
subordinate loan (which is the same as the maturity date of the Mortgage
Loan}; provided that the amount then due shall not exceed 50% of the
amount by which the value of the Mortgaged Property at the time of such
event, determined by sale or appraisal, exceeds such value when the
Mortgage Loan was made (as set forth in the subordinate note), with
adjustment to such original value for the amount of any insurance
proceeds or condemnation award insofar as not applied to restoration of
the Mortgaged Property. "Shared Appreciation Interest" is 30% of such
excess. The subordinate note may not be prepaid unless the Mortgage Loan
is prepaid at the-same time, and the subordinate-note-must-be-prepaid U
the Mortgage Loan is prepaid.
The subordinate note provides that in the event of any conflicts or
inconsistency between the terms of the subordinate financing and the
terms of the Mortgage Loan, the terms of the latter shall control.
Without consent of the Corporation as holder of the Mortgage Note, li)
the subordinate note may not be modified or amended, and may not be
negotiated, assigned, or otherwise transferred; (ii} if the Mortgage
Loan is in default, no payments may be made on the subordinate note; and
(iii) the holder of the subordinate note may not enforce its lien on the
Mortgaged Property, commence proceedings to collect sums owed, or
commence (or join in commencing} any bankruptcy, reorganization or
insolvency proceedings with respect to the borrower.
Assumption and Further Encumbrance
The Mortgage Loan is assumable by a new mortgagor in the case of certain
transfers of the related Mortgaged Property. As to such transfers, and
certain sales or transfers of interests in the mortgagor, the
Corporation's general policy described in the Prospectus requiring
acceleration in the event of certain transfers of the Mortgaged Property
is inapplicable. Among the permitted transfers are any for which a 156
transfer fee is paid and for which the transferee executes an assumption
agreement, if the transferee meets those standards as to
creditworthiness and management ability customarily applied by the
Corporation for approval of borrowers for loans secured by similar
properties. No portion of any such transfer fee will be distributed to
Certificate holders.
FEDERAL TAX ASPECTS
Certain federal income tax consequences of the ownership of Certificates
are described in the Prospectus. The rulings described in the Prospectus
under "Certain Federal Income Tax Consequences" and identified as
Paragraphs 1, 2 and 3 do not apply to a mortgage loan to the extent that
its principal amount exceeds the value of the real property securing it.
The definition of "real property" is based on state law for purposes of
the rulings described in Paragraphs 1 and 2, and on federal income tax
law for purposes of the ruling described in Paragraph 3. Relying on the
Lender's representations of its compliance with requirements of the OUS
Guide concerning property appraisals and loan-to-value ratios, the
Corporation believes that the fair market value of the real property
securing the Mortgage Loan exceeds the Issue Date principal balance of
such Mortgage Loan. The principal security for the Mortgage Loan is a
first lien on real property consisting of a multifamily rental property.
However, the Mortgage Loan is also secured by a security interest in
related tangible personal property (e 9., equipment and furniture}
and-in related intangible personal property such as rents and revenues,
insurance proceeds, condemnation awards or settlements, contract rights,
deposits, permits, accounts, licenses, and so forth.
This Prospectus Supplement does not contain complete information
regarding this offering and should be read only in conjunction with the
Prospectus that it supplements.
The date of this Prospectus Supplement is the Issue
Date.
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