NATIONAL PROPERTY INVESTORS III, 10KSB, 1999-03-30

NATIONAL PROPERTY INVESTORS III
10KSB, 1999-03-30
LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES)

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FORM 10-KSB- ANNUAL OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)

FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]

For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]

For the transition period from to

Commission file number 0-9567

NATIONAL PROPERTY INVESTORS III
(Name of small business issuer in its charter)

California 13-2974428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)

Issuer's telephone number (864) 239-1000

Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:

Limited Partnership Units
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. X

State issuer's revenues for its most recent fiscal year. $8,447,000

State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of a specified date within the past 60 days. No market exists for
the limited partnership interest of the Registrant, and therefore, no aggregate
market value can be determined.

DOCUMENTS INCORPORATED BY REFERENCE
PROSPECTUS AND SUPPLEMENTS

PART I

ITEM 1. DESCRIPTION OF THE BUSINESS

National Property Investors III (the "Partnership" or the "Registrant") is a
California limited partnership formed as of February 1, 1979. The Partnership
is engaged in the business of operating and holding for investment, income
producing real estate properties. NPI Equity Investments, Inc. (the "Managing
General Partner or "NPI Equity"), a Florida corporation, became the
Partnership's general partner on June 21, 1991. The Managing General Partner
was a wholly owned subsidiary of National Property Investors, Inc. ("NPI") until
December 31, 1996, at which time the stock of NPI Equity was acquired by
Insignia Properties Trust ("IPT"). See "Transfers of Control". The Partnership
Agreement provides that the Partnership is to terminate on December 31, 2005,
unless terminated prior to such date.

In 1980, during its acquisition phase, the Partnership acquired six existing
apartment properties. The Partnership continues to own and operate three of
these properties. (See "Item 2. Description of Properties").

Reference is made to the Prospectus of the Partnership dated October 24, 1979,
as supplemented by Supplements dated January 24, 1980, April 24, 1980, July 16,
1980, September 3, 1980, October 2, 1980, and October 16, 1980, which have been
filed pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933, as
amended, all of which are incorporated herein by reference. The Prospectus was
filed as part of the Partnership's Registration Statement filed with the
Securities and Exchange Commission pursuant to which 66,000 units of Limited
Partnership Interest (the "Units") were registered. The Partnership sold 48,049
units aggregating $24,024,500. The general partner contributed capital in the
amount of $1,000 for a 1% interest in the Partnership. Since its initial
offering, the Partnership has not received additional capital contributions.

The Managing General Partner of the Partnership intends to maximize the
operating results and, ultimately, the net realizable value of each of the
Partnership's properties in order to achieve the best possible return for the
investors. Such results may best be achieved through property sales or
exchanges, refinancings, debt restructurings or relinquishment of the assets.
The Partnership intends to evaluate each of its holdings periodically to
determine the most appropriate strategy for each of the assets.

The Registrant has no employees. Management and administrative services are
provided by the Managing General Partner and by agents retained by the Managing
General Partner. These services were provided by affiliates of the Managing
General Partner for the years ended December 31, 1998 and 1997.

The business in which the Partnership is engaged is highly competitive. There
are other residential properties within the market area of the registrant's
properties. The number and quality of competitive properties, including those
which may be managed by an affiliate of the Managing General Partner in such
market area, could have a material effect on the rental market for the
apartments at the Registrant's properties and the rents that may be charged for
such apartments. While the Managing General Partner and its affiliates are a
significant factor in the United States in the apartment industry, competition
for the apartments is local. In addition, various limited partnerships have
been formed by the Managing General Partner and/or affiliates to engage in
business which may be competitive with the Registrant.

There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.

The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.

Both the income and expenses of operating the remaining properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential (and
commercial) properties because such properties are susceptible to the impact of
economic and other conditions outside of the control of the Partnership.

Transfers in Control

Pursuant to a series of transaction which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired all of the
issued and outstanding shares of stock of National Property Investors, Inc.
("NPI"), the sole shareholder of NPI Equity. On December 31, 1996, Insignia
transferred its interest in NPI Equity to IPT.

Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
Managing General Partner. The Managing General Partner does not believe that
this transaction will have a material effect on the affairs and operations of
the Partnership.

The Tender Offer

On January 19, 1996, DeForest Ventures II L.P. ("DeForest"), the entity which
tendered for units of the Partnership in 1994 and 1995, and certain of its
affiliates sold the units then held by them (21,340 units representing
approximately 44% of the total outstanding units at such time) to Insignia NPI
L.L.C. ("Insignia LLC"), an affiliate of Insignia. Insignia LLC subsequently
transferred these units to Insignia Properties L.P. ("IPLP"). As a result, IPLP
could be in a position to significantly influence all voting decisions with
respect to the Partnership. Under the Partnership Agreement, unit holders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, IPLP would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Managing
General Partner because of its affiliation with the Managing General Partner.
However, in connection with the original tender offers by DeForest, it has been
agreed for the benefit of non-tendering unit holders, that it will vote its
Units acquired on in the tender offers: (i) against any proposal to increase the
fees and other compensation payable by the Partnership to the Managing General
Partner and any of its affiliates; and (ii) with respect to any proposal made by
the Managing General Partner or any of its affiliates, in proportion to votes
cast by other unit holders.

ITEM 2. DESCRIPTION OF PROPERTIES

The following table sets forth the Partnership's investment in properties.

Date of Type of
Property Purchase Ownership Use

Pinetree Apartments 7/01/80 Fee ownership, subject to a Apartment-
Charlotte, North Carolina first deed of trust. (3) 220 units

Lakeside Apartments 12/18/80 Fee ownership, subject to a Apartment-
Lisle, Illinois first deed of trust. 568 units

Summerwalk Apartments (1) 12/24/80 Fee ownership, subject to a Apartment-
Winter Park, Florida first deed of trust. (2) 306 units

(1)The Partnership acquired the co-tenant's 10% interest in the property in
January 1997, for $50,000.
(2)Property is held by a Limited Partnership of which the Partnership owns a
99.9% interest.
(3)Property is held by a Limited Partnership of which the Partnership owns a
99% interest.

SCHEDULE OF PROPERTIES:

Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.

Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis

(in thousands) (in thousands)

Pinetree Apartments $ 6,310 $ 4,502 5-27.5 yrs. SL $ 1,776

Lakeside Apartments 21,280 14,407 5-27.5 yrs. SL 6,968

Summerwalk Apartments 7,889 5,450 5-27.5 yrs. SL 2,320
$35,479 $24,359 $11,064

See "Note A" to the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation
policy.

SCHEDULE OF PROPERTY INDEBTEDNESS:

The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.

Principal Principal

Balance At Balance

December 31, Interest Period Maturity Due At

Property 1998 Rate Amortized Date Maturity (2)

(in thousands) (in thousands)

Pinetree Apartments $ 2,183 9.87% 25 yrs. 07/01/01 $ 2,090

Lakeside Apartments 17,200 7.33% (1) 11/01/03 17,200

Summerwalk Apartments 4,955 7.13% 30 yrs. 01/01/08 4,312

$24,338

(1) Monthly payments are interest only.
(2) See "Item 7. Financial Statements - Note D" for information with respect to
the Registrant's ability to prepay these loans and other specific details
about these loans.

RENTAL RATES AND OCCUPANCY

Average annual rental rate and occupancy for 1998 and 1997 for each property:

Average Annual Average Annual

Rental Rates Occupancy

Property 1998 1997 1998 1997

Pinetree Apartments $6,687/unit $6,432/unit 92% 94%

Lakeside Apartments 9,541/unit 9,294/unit 91% 96%

Summerwalk Apartments 6,403/unit 6,187/unit 98% 98%

The Managing General Partner attributes the decrease in occupancy at Lakeside to
a July 1998 fire at the property, which destroyed one building consisting of 22
units. The construction to rebuild the damaged building has begun and is
estimated to be completed by the end of the second quarter of 1999.

As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other apartment complexes in the area. The Managing General
Partner believes that all of the properties are adequately insured. All of the
lease terms are for one year or less. No individual tenant occupies 10% or more
of the available rental space. All the properties are in good condition,
subject to normal depreciation and deterioration as typical for assets of this
type and age. See "Capital Improvements" below for information relating to
budgeted capital improvements at the property.

REAL ESTATE TAXES AND RATES:

Real estate taxes and rates in 1998 for each property were:

1998 1998

Billing Rate

(in thousands)

Pinetree Apartments $ 58 1.3%

Lakeside Apartments 553 7.0%

Summerwalk Apartments 110 1.9%

CAPITAL IMPROVEMENTS:

Lakeside Apartments

During the year ended December 31, 1998, the Partnership completed approximately
$454,000 of capital improvements at Lakeside Apartments consisting of building
improvements, carpet replacement, cabinets and appliances. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $362,000
of capital improvements over the near term. Capital improvements planned for
1999 consist of, but are not limited to, carpet and vinyl replacements,
electrical upgrades, heating systems, landscaping, painting and appliances.
These improvements are expected to cost approximately $473,000.

Pinetree Apartments

During the year ended December 31, 1998, the Partnership completed approximately
$102,000 of capital improvements at Pinetree Apartments consisting of carpet
replacement, swimming pool repairs and appliances. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $274,000
of capital improvements over the near term. Capital improvements planned for
1999 consist of, but are not limited to, roof repairs, painting, landscaping,
and other building repairs and improvements. These improvements are expected to
cost approximately $305,000.

Summerwalk Apartments

During the year ended December 31, 1998 the Partnership completed approximately
$210,000 of capital improvements at Summerwalk Apartments consisting of swimming
pool repairs, carpet replacement, building improvements, and appliances. Based
on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $505,000 of capital improvements over the near term. Capital
improvements planned for 1999 consist of, but are not limited to, landscaping,
structural improvements, electrical upgrades and painting. These improvements
are expected to cost approximately $636,000.

The capital improvements planned for 1999 at the Partnership's properties will
be made only to the extent of cash available from operations and Partnership's
reserves.

ITEM 3. LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner has
filed demurrers to the amended complaint which were heard February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, to be material to
the Partnership's overall operations.

On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's net income.

The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.

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

During the quarter ended December 31, 1998, the unit holders of the Partnership
did not vote on any matter covered by this report.

PART II

ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Partnership, a publicly-held limited partnership, offered and sold 48,049
Limited Partnership Units aggregating $24,025,500. As of December 31, 1998, the
Partnership had 48,049 units outstanding held by 1,795 limited partners of
record. Affiliates of the Managing General Partner owned 21,546 units or 44.84%
at December 31, 1998. No public trading market has developed for the Units, and
it is not anticipated that such a market will develop in the future.

During the year ended December 31, 1998, the Partnership distributed
approximately $1,060,000 ($22.06 per LP Unit) from the proceeds relating to the
refinancing of the mortgage encumbering Summerwalk Apartments and approximately
$1,040,000 ($21.44 per LP Unit) of cash flow from operations. No distributions
were made during the year ended December 31, 1997. Future cash distributions
will depend on the levels of cash generated from operations, property sales,
property refinancings and the availability of cash reserves. The Partnership's
distribution policy will be reviewed on a quarterly basis. There can be no
assurance, however, that the Partnership will generate sufficient funds after
required capital expenditures to permit further distributions to its partners in
1999 or subsequent periods.

For services relating to the administration of the Partnership and operation of
the Partnership property, the Managing General Partner is entitled to receive
payment for the non-accountable expenses up to a maximum of $100,000 per year
based upon the number of Partnership units sold, subject to certain limitations.
The Managing General Partner is entitled to receive $100,000 in 1998. This
reimbursement was paid in December 1998.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the forward-
looking statements as a result of a number of factors, including those
identified herein.

This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.

Results of Operations

The Partnership's net income for the year ended December 31, 1998, was
approximately $996,000 versus approximately $934,000 for the year ended December
31, 1997. The increase in net income for the year ended December 31, 1998, is
primarily attributable to decreased operating expenses.

Rental revenue decreased primarily due to reduced occupancy and higher rental
concessions at Lakeside Apartments resulting from a fire that destroyed one
building at the complex (See "Note H" in "Item 7. Financial Statements" for
further discussion). The increase in other income is attributable to an
increase in interest income resulting from an increase in cash balances in
interest-bearing accounts and fees collected from the tenants at Lakeside
Apartments. Operating expenses decreased for the year ended December 31, 1998,
as a result of decreases in property and maintenance related expenses. Property
expenses decreased as a result of a decrease in utility expenses and expenses
associated with administrative units at Lakeside Apartments. Maintenance
expenses decreased due to an overall decrease in maintenance requirements at
Lakeside and Summerwalk Apartments. Partially offsetting these decreases was an
increase in general and administrative expenses for the year ended December 31,
1998, as a result of increases in reimbursements to the Managing General Partner
and the payment of a management fee associated with the cash distribution to the
partners in December 1998. Included in general and administrative expenses at
both December 1998 and 1997 are reimbursements to the Managing General Partner
allowed under the Partnership Agreement associated with its management of the
Partnership. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included. The increase in
property tax expense is due to a refund received in 1997 for Lakeside as well as
adjusting for an overaccrual of expense in a previous year.

As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.

Capital Resources and Liquidity

At December 31, 1998, the Partnership had cash and cash equivalents of
approximately $1,243,000 as compared to approximately $1,508,000 at December 31,
1997. The decrease in cash and cash equivalents is due to $763,000 of cash used
in investing activities and $2,176,000 of cash used in financing activities,
which was offset by $2,674,000 of cash provided by operating activities. Cash
used in investing activities consists of property improvements and replacements.
Cash used in financing activities consists of payments of principal made on the
mortgages encumbering Pinetree and Summerwalk and partner distributions. The
Partnership invests its working capital reserves in a money market fund.

The Managing General Partner has made available to the Partnership a $300,000
line of credit. At the present time, the Partnership has no outstanding amounts
due under this line of credit. Based on present plans, the Managing General
Partner does not anticipate the need to borrow in the near future. Other than
cash and cash equivalents, the line of credit is the Partnership's only unused
source of liquidity.

On December 23, 1997, the Partnership refinanced the mortgage encumbering
Summerwalk Apartments. The refinancing replaced indebtedness of $4,443,000 with
a new first mortgage in the amount of $5,000,000. The mortgage was refinanced
at a rate equal to 7.13% and matures on January 1, 2008, with a balloon payment
of approximately $4,312,000 due at maturity. The previous mortgage had an
interest rate of 9.75% and had matured on September 1, 1996. Total capitalized
loan costs were approximately $190,000. In connection with the refinancing, the
Partnership was required to transfer all the assets and liabilities of
Summerwalk to a newly formed subsidiary, Summerwalk NPI III, L.P.

The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and the other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. The Partnership has
budgeted approximately $1,414,000 in capital improvements for all of the
Partnership's properties in 1999. Budgeted capital improvements at Lakeside
include, but are not limited to, carpet and vinyl replacement, electrical
upgrades, heating systems, landscaping, painting and appliances. Budgeted
capital improvements at Pinetree include, but are not limited to, roof repairs,
painting, landscaping and other building repairs and improvements. Budgeted
capital improvements at Summerwalk include, but are not limited to, landscaping,
structural improvements, electrical upgrades and painting. The capital
expenditures will be incurred only if cash is available from operations or from
Partnership reserves. To the extent that such budgeted capital improvements are
completed, the Partnership's distributable cash flow, if any, may be adversely
affected at least in the short term.

The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $24,338,000 is being amortized over varying
periods with balloon payments due over periods ranging from July 2001 to January
2008. The Managing General Partner will attempt to refinance such remaining
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such properties through foreclosure.

During the year ended December 31, 1998, the Partnership distributed
approximately $1,060,000 from the proceeds relating to the refinancing of the
mortgage encumbering Summerwalk Apartments and approximately $1,040,000 of cash
flows from operations. The Partnership's distribution policy is reviewed on a
quarterly basis. There can be no assurance, however, that the Partnership will
generate sufficient funds from operations after required capital improvements to
permit distributions to its partners in 1999 or subsequent periods. Future cash
distributions will depend on the levels of cash generated from operations,
property sales, property refinancings and the availability of cash reserves.

Casualty Event

In July 1998, a fire occurred at Lakeside Apartments that destroyed one building
at the complex, consisting of 22 units. The fire is covered by insurance. In
1998 estimated insurance proceeds were recognized only to the extent of the
write-off of destroyed assets. The balance sheet reflects an insurance
receivable of approximately $225,000 in "Other Assets". Total insurance
proceeds are estimated to cover the cost of replacement of the assets.
Currently replacement costs are estimated to be approximately $1,368,000. No
insurance proceeds were received in 1998. The construction to rebuild the
damaged building has begun and is estimated to be complete by the end of the
second quarter of 1999.

Year 2000 Compliance

General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems

The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.

The Managing Agent's plan to resolve Year 2000 issues involves four Phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.

Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase

Computer Hardware:

During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and routers
and desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
December 31, 1998, had completed approximately 75% of this effort.

The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.

Computer software:

The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.

During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.

The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.

Operating Equipment:

The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).

The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.

Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.

The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.

The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.

Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000

The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.

The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.

The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.

Costs to Address Year 2000

The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.

Risks Associated with the Year 2000

The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.

In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.

Contingency Plans Associated with the Year 2000

The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.

ITEM 7. FINANCIAL STATEMENTS

NATIONAL PROPERTY INVESTORS III

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Reports

Consolidated Balance Sheet - December 31, 1998

Consolidated Statements of Operations - Years ended December 31, 1998 and
1997

Consolidated Statements of Changes in Partners' Deficit - Years ended
December 31, 1998 and 1997

Consolidated Statements of Cash Flows - Years ended December 31, 1998 and
1997

Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors

To The Partners
National Property Investors III

We have audited the accompanying consolidated balance sheet of National Property
Investors III as of December 31, 1998, and the related consolidated statements
of operations, changes in partners' deficit and cash flows for year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Property
Investors III at December 31, 1998, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Greenville, South Carolina
March 3, 1999

To the Partners
National Property Investors III
Greenville, South Carolina

We have audited the accompanying consolidated statements of operations, changes
in partners' deficit and cash flows of National Property Investors III (a
limited partnership)(the "Partnership") and its subsidiaries for the year ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
National Property Investors III and its subsidiaries for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.

/S/ IMOWITZ KOENIG & CO., LLP
Certified Public Accountants

New York, NY
January 17, 1998

NATIONAL PROPERTY INVESTORS III

CONSOLIDATED BALANCE SHEET

December 31, 1998
(in thousands, except unit data)

Assets

Cash and cash equivalents $ 1,243

Receivables and deposits 571

Restricted escrows 757

Other assets 750

Investment properties (Notes D and E):

Land $ 3,023

Buildings and related personal property 32,456

35,479

Less accumulated depreciation (24,359) 11,120

$ 14,441

Liabilities and Partners' Deficit

Liabilities:

Accounts payable $ 118

Tenant security deposits payable 134

Accrued property taxes 647

Other liabilities 312

Mortgage notes payable (Note D) 24,338

Partners' Deficit:

Limited partners' (48,049 units issued

and outstanding) $(10,828)

General partner's (280) (11,108)

$ 14,441

See Accompanying Notes to Consolidated Financial Statements

NATIONAL PROPERTY INVESTORS III

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)

Years Ended December 31,

1998 1997

Revenues:

Rental income $7,953 $8,113

Other income 494 401

Total revenues 8,447 8,514

Expenses:

Operating 3,048 3,392

General and administrative 334 199

Depreciation 1,396 1,323

Interest 1,912 2,002

Property taxes 761 664

Total expenses 7,451 7,580

Net income $ 996 $ 934

Net income allocated to general partner (1%) $ 10 $ 9

Net income allocated to limited partners (99%) 986 925

$ 996 $ 934

Net income per limited partnership unit $20.52 $19.25

Distributions per limited partnership unit $43.50 $ --

See Accompanying Notes to Consolidated Financial Statements

NATIONAL PROPERTY INVESTORS III

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)

Limited

Partnership General Limited

Units Partner Partners Total

Original capital contributions 48,049 $ 1 $ 24,025 $ 24,026

Partners' deficit at

December 31, 1996 48,049 $ (289) $(10,649) $(10,938)

Net income for the year ended

December 31, 1997 -- 9 925 934

Partners' deficit at

December 31, 1997 48,049 (280) (9,724) (10,004)

Distribution to partners -- (10) (2,090) (2,100)

Net income for the year ended

December 31, 1998 -- 10 986 996

Partners' deficit at

December 31, 1998 48,049 $ (280) $(10,828) $(11,108)

See Accompanying Notes to Consolidated Financial Statements

NATIONAL PROPERTY INVESTORS III

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years ended December 31,

1998 1997

Cash flows from operating activities:

Net income $ 996 $ 934

Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation 1,396 1,323

Amortization of loan costs 87 74

Loss on disposal of property -- 17

Change in accounts:

Receivables and deposits 53 (234)

Other assets 24 62

Accounts payable 84 (263)

Tenant security deposit payable (24) (13)

Accrued property taxes 41 52

Other liabilities 17 (38)

Net cash provided by operating activities 2,674 1,914

Cash flows from investing activities:

Net withdrawals from (deposits to) restricted escrows 3 (298)

Buyout of Summerwalk co-tenant -- (50)

Property improvements and replacements (766) (1,234)

Net cash used in investing activities (763) (1,582)

Cash flows from financing activities:

Mortgage principal payments (76) (141)

Repayment of mortgage note payable -- (4,443)

Proceeds from mortgage note payable -- 5,000

Loan costs -- (204)

Distributions to partners (2,100) --

Net cash (used in) provided by

financing activities (2,176) 212

Net (decrease) increase in cash and cash equivalents (265) 544

Cash and cash equivalents at beginning of period 1,508 964

Cash and cash equivalents at end of period $ 1,243 $ 1,508

Supplemental disclosure on cash flow information:

Cash paid for interest $ 1,795 $ 1,964

Supplemental disclosure of non-cash transaction:

Insurance proceeds receivable recognized related to

Lakeside casualty event $ 225 $ --

See Accompanying Notes to Consolidated Financial Statements

NATIONAL PROPERTY INVESTORS III

Notes to Consolidated Financial Statements

December 31, 1998

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization:

National Property Investors III (the "Partnership"), a limited partnership, was
organized under the Uniform Limited Partnership Laws of California as of
February 1, 1979, for the purpose of operating income-producing residential real
estate. The general partner is NPI Equity Investments, Inc. ("NPI Equity" or
the "Managing General Partner"). A total of 48,049 units of the limited
partnership were issued for $500 each, for an aggregate capital contribution of
$24,024,500. In addition, the general partner contributed a total of $1,000 to
the Partnership. The Partnership will terminate on December 31, 2005, or sooner,
in accordance with the terms of the Partnership Agreement. The Partnership
commenced operations in the beginning of 1980 and completed its acquisition of
apartment properties by the end of 1980. The Partnership operates two apartment
properties located in the Southeast and one apartment property located in the
Midwest.

Principles of Consolidation:

The Partnership's financial statements include the accounts of National
Pinetree, LP, of which the Partnership owns a 99% interest, and of Summerwalk
NPI III, LP, of which the Partnership owns a 99.9% interest. The Partnership
has the ability to control the major operating and financial policies of these
partnerships. All interpartnership transactions have been eliminated.

Cash and Cash Equivalents:

The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.

Security Deposits:

The Partnership requires security deposits from leasees for the duration of the
lease and such deposits are included in receivables and deposits. The security
deposits are refunded when the tenant vacates, provided the tenant has not
damaged its space, and is current on its rental payments.

Investment Properties:

Investment properties consist of three apartment complexes and are stated at
cost. Acquisition fees are capitalized as a cost of real estate. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", the Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No adjustments for
impairment of value were recorded in the years ended December 31, 1998 and 1997.

Depreciation:

Depreciation is calculated by the straight-line method over the estimated lives
of the rental properties and related personal property ranging from 5 to 27.5
years.

Leases:

The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases. In addition, the
Managing General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged against rental income as
incurred.

Advertising Costs:

Advertising costs of approximately $138,000 in 1998 and approximately $131,000
in 1997 were charged to expense as incurred and are included in operating
expenses.

Loan Costs:

Loan costs of approximately $705,000 are included in other assets in the
accompanying consolidated balance sheet and are being amortized on a straight-
line basis over the life of the loans. At December 31, 1998, accumulated
amortization is approximately $199,000. Amortization of loan costs is included
in interest expense.

Income Taxes:

Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. No provision for income taxes is made in the consolidated
financial statements of the Partnership.

Fair Value of Financial Instruments:

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments (except for long term debt) approximates their fair value
due to the short term maturity of these instruments. The fair value of the
Partnership's long term debt, after discounting the scheduled loan payments to
maturity, approximates its carrying balance. Due to significant prepayment
penalties associated with portions of the debt, it would not be beneficial to
the Partnership to refinance those obligations.

Allocation of Income, Loss and Distributions:

Net income, loss and distributions of cash of the Partnership are allocated
between the general and limited partners in accordance with the provisions of
the Partnership Agreement.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.

Segment Reporting:

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
years beginning after December 15, 1997. Statement 131 established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. See "Note I" for disclosure.

Reclassifications:

Certain reclassifications have been made to the 1997 balances to conform to the
1998 presentation.

NOTE B - TRANSFER OF CONTROL

NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES

The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.

The following transactions with the Managing General Partner and its affiliates
were incurred during the twelve month periods ended December 31, 1998 and 1997:

1998 1997

(in thousands)

Property management fees (included in operating

expenses) $427 $423

Reimbursement for services of affiliates, including

approximately $24,000 and $61,000 of construction

services reimbursements in 1998 and 1997, respectively

(included in investment properties and operating

and general and administrative expenses) 292 204

During the years ended December 31, 1998 and 1997, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates $427,000 and $423,000 for the years ended
December 31, 1998 and 1997, respectively.

Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $292,000 and $204,000 for the
years ended December 31, 1998 and 1997, respectively.

For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an insurer unaffiliated with the Managing General
Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner who received payments on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Managing General Partner by virtue of the agent's obligations is not
significant.

NPI Equity is entitled to receive 1% of distributions of cash from operations
and an allocation of 1% of the net income or loss of the Partnership.

Upon sale of the Partnership properties, NPI Equity will be entitled to an
Incentive Compensation Fee equal to a declining percentage of the difference
between the total amount distributed to limited partners and the appraised value
of their investment at February 1, 1992. The percentage amount to be realized
by NPI Equity, if any, will be dependent upon the year in which the property is
sold. Payment of the Incentive Compensation Fee is subordinated to the receipt
by the limited partners, of: (a) distributions from capital transaction proceeds
of an amount equal to their appraised investment in the Partnership at February
1, 1992, and (b) distributions from all sources (capital transactions as well as
cash flow) of an amount equal to six percent (6%) per annum cumulative, non-
compounded, on their appraised investment in the Partnership at February 1,
1992.

NPI Equity has established a revolving credit facility (the "Partnership
Revolver") to be used to fund deferred maintenance and working capital needs of
the National Property Investors Partnership Series. The maximum draw available
to the Partnership under the Partnership Revolver is $300,000. Loans under the
Partnership Revolver will have a term of 365 days, be unsecured and bear
interest at the rate of 2% per annum in excess of the prime rate announced from
time to time by Chase Manhattan Bank, N.A. The maturity date of such borrowing
will be accelerated in the event of: (i) the removal of the NPI Equity (whether
or not For Cause); (ii) the sale or refinancing of a property by the Partnership
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. The Partnership
has not borrowed under the Partnership Revolver, to date.

AIMCO currently owns, through affiliates, a total of 21,546 limited partnership
units or 44.84%. Consequently, AIMCO could be in a position to significantly
influence all voting decisions with respect to the Registrant. under the
Partnership Agreement, unitholders holding a majority of the Units are entitled
to take action with respect to a variety of matters. When voting on matters,
AIMCO would in all likelihood vote the Units it acquired in a manner favorable
to the interest of the Managing General Partner because of their affiliation
with the Managing General Partner.

NOTE D - MORTGAGE NOTES PAYABLE

The principle terms of mortgage notes payable are as follows (in thousands):

Principal Monthly Principal

Balance At Payment Stated Balance

December 31, Including Interest Maturity Due At

Property 1998 Interest Rate Date Maturity

(in thousands) (in thousands)

Lakeside $17,200 $ 105 (1) 7.33% 11/01/03 $17,200

Pinetree 2,183 21 9.87% 7/01/01 2,090

Summerwalk 4,955 34 7.13% 1/01/08 4,312

$24,338 $ 160

(1) Amount is interest only.

The mortgage notes payable are nonrecourse and are secured by pledge of the
Partnership's rental properties and by pledge of revenues from the respective
rental properties. The mortgage notes payable include prepayment penalties if
repaid prior to maturity. Further, the properties may not be sold subject to
existing indebtedness.

On December 23, 1997, the Partnership refinanced the mortgage encumbering
Summerwalk Apartments. The refinancing replaced indebtedness of $4,443,000 with
a new first mortgage in the amount of $5,000,000. The mortgage was refinanced
at a rate equal to 7.13% and matures on January 1, 2008, with a balloon payment
of approximately $4,312,000 due at maturity. The previous mortgage had an
interest rate of 9.75% and had matured on September 1, 1996. Total capitalized
loan costs were approximately $190,000 during the year ended December 31, 1997.
In connection with the refinancing, the Partnership was required to transfer all
the assets and liabilities of Summerwalk to a newly formed subsidiary,
Summerwalk NPI III, L.P.

On November 15, 1996, the Partnership refinanced the mortgage encumbering
Lakeside Apartments. The refinancing replaced indebtedness of $16,943,000 with
a new mortgage in the amount of $17,200,000. The mortgage was refinanced at a
rate equal to 7.33%, compared to the prior rate of 8.25%. Payments of interest
only are due on the first day of each month until the loan matures on November
1, 2003. The prior note was scheduled to mature in August of 1999. Total
capitalized loan costs were approximately $417,000 during the year ended
December 31, 1996. Total capitalized loan costs were approximately $14,000
during the year ended December 31, 1997. The Partnership recognized an
extraordinary loss on early extinguishment of debt in the amount of
approximately $75,000 due to the write off of unamortized loan costs.

Scheduled principal payments on the mortgage notes payable subsequent to
December 31, 1998, are as follows (in thousands):

1999 $ 87
2000 95
2001 2,172
2002 65
2003 17,270
Thereafter 4,649
$24,338

NOTE E - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION

Initial Cost

To Partnership

(in thousands)

Buildings Net Costs

and Related Capitalized

Personal Subsequent to

Description Encumbrances Land Property Acquisition

(in thousands)

Lakeside $17,200 $ 2,087 $15,363 $ 3,830

Pinetree 2,183 493 3,873 1,944

Summerwalk 4,955 427 6,347 1,115

$24,338 $ 3,007 $25,583 $ 6,889

Gross Amount at Which Carried

at December 31, 1998

(in thousands)

Buildings Accumu- Deprec-

and Related lated Year Of Date Of iable

Personal Deprec- Construc- Acqu- Life-

Description Land Property Total iation tion sition Years

(in thousands)

Lakeside $ 2,093 $19,187 $21,280 $14,407 1973/1975 12/80 5-27.5 yrs.

Pinetree 499 5,811 6,310 4,502 1974 7/80 5-27.5 yrs.

Summerwalk 431 7,458 7,889 5,450 1974 12/80 5-27.5 yrs.

$ 3,023 $32,456 $35,479 $24,359

</TABLE>

Reconciliation of Investment Properties and Accumulated Depreciation:

December 31,

1998 1997

(in thousands)

Investment Properties

Balance at beginning of year $35,484 $34,255

Disposal of property (771) (55)

Buyout of Summerwalk co-tenant -- 50

Property improvements 766 1,234

Balance at end of year $35,479 $35,484

Accumulated Depreciation

Balance at beginning of year $ 23,509 $ 22,224

Disposal of property (546) (38)

Additions charged to expense 1,396 1,323

Balance at end of year $ 24,359 $ 23,509

The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998 and 1997, is $36,345,000 and $35,529,000, respectively. The
accumulated depreciation taken for Federal income tax purposes at December 31,
1998 and 1997, is $25,281,000 and $23,613,000, respectively.

In January 1997, the Partnership acquired the 10% interest in Summerwalk
previously held by an unaffiliated third party for $50,000. This amount has
been accounted for as an increase in the Partnership's investment in the
property.

NOTE F - INCOME TAXES

The Partnership files its tax returns on an accrual basis and has computed
depreciation for tax purposes using accelerated methods, which are not in
accordance with generally accepted accounting principles. A reconciliation of
net income from the consolidated financial statements to the net taxable income
to partners is as follows (in thousands, except unit data):

Years Ended
December 31,
1998 1997

Net income as reported $ 996 $ 934
Difference between income and
expenses for the consolidated
financial statements and tax
reporting 331 11
Depreciation differences (275) 156
Federal taxable income $1,052 $1,101

Federal taxable income per limited
partnership unit $21.68 $22.68

The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):

1998

Net liabilities as reported $(11,108)
Land and buildings 866
Accumulated depreciation (922)
Syndication and distribution costs 2,727
Prepaid rent 188
Other 27
Net liabilities-Federal tax basis $( 8,222)

NOTE G - DISTRIBUTIONS

During the year ended December 31, 1998, the Partnership distributed
approximately $1,060,000 ($22.06 per LP Units) from the proceeds relating to the
refinancing of the mortgage encumbering Summerwalk Apartments and approximately
$1,040,000 ($21.64 per LP Units) of cash flows from operations. No
distributions were made during the year ended December 31, 1997.

NOTE H - CASUALTY EVENT

NOTE I - SEGMENT REPORTING

Description of the types of products and services from which the reportable
segment derives its revenues:

As defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" the Partnership has one reportable segment: residential
properties. The Partnership's residential property segment consists of three
apartment complexes in three states in the United States. The Partnership rents
apartment units to people for terms that are typically less than twelve months.

Measurement of segment profit or loss:

The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those described in the
summary of significant accounting policies.

Factors management used to identify the enterprise's reportable segment:

The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.

Segment information for the years 1998 and 1997 is shown in the tables below (in
thousands). The "Other" column includes partnership administration related
items and income and expense not allocated to the reportable segment.

1998
Residential Other Totals

Rental income $ 7,953 $ -- $ 7,953
Other income 418 76 494
Interest expense 1,912 -- 1,912
Depreciation 1,396 -- 1,396
General and administrative expense -- 334 334
Segment profit (loss) 1,254 (258) 996
Total assets 14,330 111 14,441
Capital expenditures for investment
properties 766 -- 766

1997
Residential Other Totals
Rental income $ 8,113 $ -- $ 8,113
Other income 377 24 401
Interest expense 2,002 -- 2,002
Depreciation 1,323 -- 1,323
General and administrative expense -- 199 199
Segment profit (loss) 1,109 (175) 934
Total assets 14,517 986 15,503
Capital expenditures for investment
properties 1,234 -- 1,234

NOTE J - LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner has
filed demurrers to the amended complaint which were heard during February 1999.
No ruling on such demurrers has been received. The Managing General Partner
does not anticipate that costs associated with this case, if any, to be material
to the Partnership's overall operations.

The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.

ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

Effective November 10, 1998, the Registrant dismissed its prior Independent
Auditors, Imowitz Koenig and Company LLP ("Imowitz"). Imowitz' Independent
Auditor's Report on the Registrant's financial statements for the calendar year
ended December 31, 1997 did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. The decision to change Independent Auditors was approved
by the Managing General Partner's Directors. During the calendar year ended
1997 and through November 10, 1998, there were no disagreements between the
Registrant and Imowitz on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which
disagreements if not resolved to the satisfaction of Imowitz, would have caused
it to make references to the subject matter of the disagreements in connection
with its reports.

Effective November 24, 1998, the Registrant engaged Ernst & Young LLP as its
Independent Auditors. During the last two calendar years and through November
10, 1998, the Registrant did not consult Ernst and Young LLP regarding any of
the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-B.

PART III

ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

National Property Investors III (the "Partnership") has no officers or
directors. NPI Equity Investments, Inc. ("NPI Equity" or the "Managing General
Partner"), manages substantially all of the Partnership's affairs and has
general responsibility in all matters affecting its business. NPI Equity was a
wholly owned subsidiary of National Property Investors, Inc. ("NPI") until
December 31, 1996, at which time Insignia Properties Trust ("IPT") acquired the
stock of NPI Equity. The names, ages and positions held by the executive
officers and director of NPI Equity are as follows:

Name Age Position

Patrick J. Foye 41 Executive Vice President and Director

Timothy R. Garrick 42 Vice President - Accounting and Director

Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.

Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice
President-Accounting and Director of the Managing General Partner since October
1, 1998. Prior to that date, Mr. Garrick served as Vice President-Accounting
Services of Insignia Financial Group since June of 1997. From 1992 until June
of 1997, Mr. Garrick served as Vice President of Partnership Accounting and from
1990 to 1992 as an Asset Manager for Insignia Financial Group. From 1984 to
1990, Mr. Garrick served in various capacities with U.S. Shelter Corporation.
From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney.
Mr. Garrick received his B.S. Degree from the University of South Carolina and
is a Certified Public Accountant.

No family relationships exist among any of the officers or directors of the
Managing General Partner.

ITEM 10. EXECUTIVE COMPENSATION

No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the Managing General Partner. The Partnership has no
plan, nor does the Partnership presently propose a plan, which will result in
any remuneration being paid to any officer or director upon termination of
employment. However, reimbursements and other payments have been made to the
Partnership's Managing General Partner and its affiliates, as described below in
"Item 12. Certain Relationships and Related Transactions".

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Except as noted below, as of December 31, 1998, no person or entity was known to
own of record or beneficially more than five percent of the Units of the
Partnership.

Name and Address Number of Units Percent of Total

Insignia Properties, LP 21,546 44.84%
(an affiliate of AIMCO)

Insignia Properties LP is indirectly ultimately owned by AIMCO. Their business
address is 55 Beattie Place, Greenville, SC 29602.

No director or officer of the General partner owns any Units.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following transactions with the Managing General Partner and its affiliates
were incurred during the twelve month periods ended December 31, 1998 and 1997:

1998 1997

(in thousands)

Property management fees $427 $423

Reimbursement for services of affiliates, including

approximately $24,000 and $61,000 of construction

services reimbursements in 1998 and 1997, respectively 292 204

NPI Equity is entitled to receive 1% of distributions of cash from operations
and an allocation of 1% of the net income or loss of the Partnership.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

See Exhibit Index contained herein.

(b) Reports on Form 8-K during the fourth quarter of 1998:

Current Report on Form 8-K filed on October 1, 1998, disclosing
change in control of the Partnership from Insignia Financial
Group, Inc. to AIMCO.

Current Report on Form 8-K filed on November 10, 1998, disclosing
the dismissal of Imowitz Koenig & Co., LLP as the registrant's
Independent accountant.

Current Report on Form 8-K filed December 9, 1998 disclosing the
engagement of Ernst & Young, LLP as the registrant's Independent
accountant.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

NATIONAL PROPERTY INVESTORS III

By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner

By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President

By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting

Date: March 30, 1999

In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.

Signature/Name Title

/s/ Patrick J. Foye Executive Vice President Date: March 30, 1999
Patrick J. Foye and Director

/s/ Timothy R. Garrick Vice President - Accounting Date: March 30, 1999
Timothy R. Garrick and Director

EXHIBIT INDEX

Exhibit

2.1 NPI, Inc. Stock Purchase Agreement dated as of August 17, 1995,
incorporated by reference to Exhibit 2 to the Partnership's Current
Report on Form 8-K dated August 17, 1995.

2.3 Management Purchase Agreement dated as of August 17, 1995,
incorporated by reference to Exhibit 2.2 to Form 8-K filed by
Insignia Financial Group, Inc. with the Securities and Exchange
Commission on September 1, 1995.

2.4 Limited liability Company Agreement of Riverside Drive L.L.C. dated
as of August 17, 1995, Incorporated by reference to Exhibit 2.4 to
Form 8-K filed by Insignia Financial Group, Inc. with the Securities
and Exchange Commission on September 1, 1995.

2.5 Master Indemnity Agreement dated as of August 17, 1995, incorporated
by reference to Exhibit 2.5 to Form 8-K filed by Insignia Financial
Group, Inc. with the Securities and Exchange Commission on September
1, 1995

2.6 Agreement and Plan of Merger, dated as of October 1, 1998, by and
between AIMCO and IPT shown as Exhibit 2.1 in 8-K dated as of
October 1, 1988.

3.2 Second Amended and Restated Bylaws of IPT, dated October 2, 1998
filed in Current Report on Form 8-K dated October 1, 1998.

3.4 (a) Agreement of Limited Partnership incorporated by reference to
Exhibit A to the Prospectus of the Partnership dated October 24,
1979 contained in the Partnership's Registration Statement on Form
S-11 (Reg. No. 2-63733).

3.4 (b) Amendments to Agreement of Limited Partnership dated as of November
25, 1980 incorporated by reference to Exhibits 3 and 4 to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1981.

3.4 (c) Amendments to the Agreement of Limited Partnership Incorporated by
reference to the Definitive Proxy Statement of The Partnership dated
April 3, 1981.

3.4 (d) Amendments to the Agreement of Limited Partnership Incorporated by
reference to the Statement Furnished In Connection With The
Solicitation of Consents of the Partnership dated August 28, 1992.

10.1 Form of Property Management Agreement dated June 21, 1991, by and
between the Partnership and NPI Management with respect to each of
the Partnership's properties, incorporated by reference to Exhibit
10.6 to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1991.

10.2 Mortgage Note dated June 30, 1994, made by National Pinetree
Limited Partnership for the benefit of Main America Capital, L.C. in
the original principal balance of $2,300,000, incorporated by
reference to Exhibit 10.1 to the Partnership's Quarterly Report on
Form 10-Q for the period ended September 30, 1994.

10.3 Deed of Trust and Security Agreement among National Pinetree Limited
Partnership, as borrower, and Main America Capital L.C., as
beneficiary, dated June 30, 1994, incorporated by reference to
Exhibit 10.2 to the Partnership's Quarterly Report on Form 10-Q for
the period ended September 30, 1994.

10.4 Multifamily Note dated September 30, 1996, by and between the
Partnership and Lehman Brothers Holding, Inc. for Lakeside
Apartments incorporated by reference to Exhibit 10.14 to the
Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1996.

10.5 Multifamily Note dated November 1, 1996, by and between the
Partnership and Lehman Brothers Holding, Inc. for Lakeside
Apartments incorporated by reference to Exhibit 10.15 to the
Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1996.

10.6 Multifamily Note dated December 23, 1997, by and between Summerwalk
NPI III, L.P. and Collateral Mortgage, Ltd. for Summerwalk
Apartments incorporated by reference to Exhibit 10.16 to the
Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1997.

10.7 Addendum to Multifamily Note dated December 23, 1997, by and between
Summerwalk NPI III, L.P. and Collateral Mortgage, Ltd. for
Summerwalk Apartments incorporated by reference to Exhibit 10.17 to
the Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1997.

16 Letter dated November 11, 1998, from the Registrant's former
independent accountant regarding its concurrence with the statements
made by the Registrant in this Current Report.

27 Financial Data Schedule.

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors III Year-End 1998, 10-KSB and is qualified in its entirety by
reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000310485
<NAME> NATIONAL PROPERTY INVESTORS III
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,243
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 35,479
<DEPRECIATION> 24,359
<TOTAL-ASSETS> 14,441
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 24,338
0
0
<COMMON> 0
<OTHER-SE> 11,108
<TOTAL-LIABILITY-AND-EQUITY> 14,441
<SALES> 0
<TOTAL-REVENUES> 8,447
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,912
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 996
<EPS-PRIMARY> 20.52<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>

</TABLE>