<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR QUARTER ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 2-68983
REAL ESTATE ASSOCIATES LIMITED III
A CALIFORNIA LIMITED PARTNERSHIP
I.R.S. EMPLOYER IDENTIFICATION NO. 95-3547611
9090 Wilshire Blvd., Suite 201,
Beverly Hills, Calif. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Securities Registered Pursuant to
Section 12(b) or 12(g) of the Act
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve 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
--- ---
<PAGE> 2
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10Q
FOR THE QUARTER ENDED MARCH 31, 1995
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets, March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . 1
Statements of Operations,
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . 2
Statement of Partners' Equity,
Three Months Ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Analysis and Discussion of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN AND ADVANCES TO LIMITED
PARTNERSHIPS $ 860,570 $ 690,570
CASH AND CASH EQUIVALENTS 7,208,460 7,209,247
SHORT-TERM INVESTMENTS 1,143,330 1,146,022
OTHER ASSETS 50,000 50,000
---------- ----------
TOTAL ASSETS $9,262,360 $9,095,839
========== ==========
LIABILITIES AND PARTNERS' EQUITY
NOTES PAYABLE $1,510,000 $1,510,000
INTEREST PAYABLE 381,757 344,007
ACCOUNTS PAYABLE 25,637 10,958
---------- ----------
1,917,394 1,864,965
PARTNERS' EQUITY 7,344,966 7,230,874
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $9,262,360 $9,095,839
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
INTEREST INCOME $ 42,935 $ 39,271
--------- ---------
OPERATING EXPENSES
Legal and accounting 41,387 35,534
Management fees 113,700 113,700
Interest expense 37,750 37,750
General and administrative 19,296 19,743
--------- ---------
Total operating expenses 212,133 206,727
--------- ---------
LOSS FROM OPERATIONS (169,198) (167,456)
DISTRIBUTIONS RECOGNIZED AS INCOME 113,290 102,131
EQUITY IN INCOME OF LIMITED PARTNERSHIPS
AND AMORTIZATION OF ACQUISITION COSTS 170,000 182,000
--------- ---------
NET INCOME $ 114,092 $ 116,675
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- --------- -------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
March 31, 1995 11,456
==========
BALANCE (DEFICIENCY),
at January 1, 1995 $(126,667) $7,357,541 $7,230,874
Net income for three months
ended March 31, 1995 1,141 112,951 114,092
--------- ----------- -----------
BALANCE (DEFICIENCY),
at March 31, 1995 $(125,526) $7,470,492 $7,344,966
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 114,092 $ 116,675
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in (income) loss of limited partnerships (170,000) (184,000)
Amortization of acquisition costs - 2,000
Advances to limited partnerships - (70,000)
Increase (decrease) in -
Accounts payable 14,679 (4,225)
Interest payable 37,750 37,750
---------- ----------
Net cash used in operating activities (3,479) (101,800)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investments 2,692 -
----------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (787) (101,800)
CASH AND CASH EQUIVALENTS,
beginning of period 7,209,247 7,810,307
---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $7,208,460 $7,708,507
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements are condensed from that which would appear in the annual
financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements
and related notes thereto contained in the Real Estate Associates
Limited III (the "Partnership") Annual Report for the year ended
December 31, 1994. Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The results of
operations for the interim period presented are not necessarily
indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 1995 and the results of operations and changes in cash
flows for the three months then ended.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition and selection fees and other costs related to the
acquisition of the projects have been capitalized as part of the
investment account.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of three months or less.
SHORT TERM INVESTMENTS
Short term investments consist of bank certificates of deposit and other
securities with original maturities ranging from more than three months
to twelve months. The fair value of these securities, which have been
classified as held for sale, approximates their carrying value.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the liability of the
individual partners.
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 26 limited
partnerships. In addition, the Partnership holds a general partner
interest in REA. NAPICO is also a general partner in REA. REA, in
turn, holds limited partner interests in six additional limited
partnerships. In total, therefore, the Partnership holds interests,
either directly or indirectly including through
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS (CONTINUED)
REA, in 32 partnerships which own residential rental projects consisting
of 3,062 apartment units. The mortgage loans of these projects are
insured by various governmental agencies.
The Partnership, as a limited partner, is entitled to between 75 percent
and 99 percent of the profits and losses of the limited partnerships it
has invested in directly. The Partnership is also entitled to 99.9
percent of the profits and losses of REA. REA holds a 99 percent
interest in each of the limited partnerships in which it has invested.
Equity in losses of limited partnerships is recognized in the financial
statements until the limited partnership investment account is reduced
to a zero balance. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized.
Distributions from limited partnerships are recognized as a reduction of
capital until the investment balance has been reduced to zero.
Subsequent distributions received are recognized as income.
The following is a summary of the investment in limited partnerships as
of March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of period $690,570
Equity in income of limited partnerships 170,000
--------
Balance, end of period $860,570
========
</TABLE>
The following is an unaudited combined estimated statement of operations
for the limited partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
INCOME
Rental and other $5,385,000 $5,352,000
---------- ----------
EXPENSES
Depreciation 925,000 943,000
Interest 1,769,000 1,832,000
Operating 2,934,000 2,702,000
---------- -----------
5,628,000 5,477,000
---------- -----------
Net loss $ (243,000) $ (125,000)
========== ==========
</TABLE>
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
NOTE 3 - NOTES PAYABLES
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnership. The Partnership is obligated on non-recourse
notes payable of $1,510,000, bearing interest at 10 percent, to the
sellers of the partnership interests. These notes are payable by the
Partnership through REA, and have principal maturity dates in June 2020
and March 2024 or upon the sale or refinancing of the underlying
partnership properties. These notes and the related interest are
collaterized by REA's investment in the respective limited partnerships
and are payable only out of cash distributions from the investee
partnerships, as defined in the notes. Unpaid interest is due at
maturity of the notes.
NOTE 4 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to the General Partner for an
annual management fee approximately equal to .5% of the invested assets.
Invested assets is defined as the costs of acquiring project interests,
including the porportionate amount of the mortgage loans related to the
Partnership's interests in the capital accounts of the respective
partnership. The fee incurred for the three months ended March 31, 1995
and 1994 was approximately $113,700.
The Partnership reimburses NAPICO for certain expenses. In 1995, the
reimbursement to NAPICO of $7,481 has been paid and included in the
Partnership's operating expenses.
NOTE 5 - CONTINGENCIES
The corporate general partner of the Partnership is a plaintiff in
various lawsuits and has also been a defendant in other lawsuits arising
from transactions in the ordinary course of business. In the opinion of
management, and the corporate general partner, the claims will not
result in any material liability to the Partnership.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary source of funds is the proceeds from its
public offering. Other sources include interest income earned from
investing available cash and distributions from limited partnerships in
which the Partnership has invested. It is not expected that any of the
local limited partnerships in which the Partnership has invested will
generate cash flow sufficient to provide for distributions to limited
partners in any material amount.
The $1,510,000 note which is payable by the Partnership through REA, is
due upon the sale or refinancing of the properties. This obligation
bears interest at 10% and is payable to unrelated parties.
RESULTS OF OPERATIONS
The Partnership was formed to provide various benefits to its partners
as discussed in Item 1 of the annual 10K report. It is anticipated that
the local limited partnerships in which REAL III has invested could
produce tax losses for as long as 20 years. The Partnership will seek
to defer income taxes from capital gains by not selling any projects or
project interests within 10 years, except to qualified tenant
cooperatives, or when proceeds of the sale would supply sufficient cash
to enable the partners to pay applicable taxes.
Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for
interest expense decrease as mortgage principal is amortized, and as the
Tax Reform Act of 1986 limits the deductions available.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships. The decrease in equity in loss of limited
partnerships was because investment balances were reduced to zero for
certain limited partnerships and the related losses were not recognized
in accordance with the equity accounting method.
Distributions received from limited partnerships are recognized as
return of capital until the investment balance has been reduced to zero
or to a negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income. Overall
distributions from limited partnerships continue to be favorable. This
primarily due, to improved operating results at several of the
properties.
Except for certificates of deposit and money market funds, the
Partnership's investments are entirely interests in other limited
partnerships owning government assisted projects. Funds temporarily not
required for such investments in projects are invested in certificates
of deposit and money market funds which provide substantial amounts of
interest as reflected in the statements of operations. These
investments are converted to cash to meet obligations as they arise.
The Partnership intends to continue investing available funds in this
manner.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
A recurring Partnership expense is the annual management fee. The fee
is payable to the corporate general partner of the Partnership and is
calculated as a percentage of the Partnership's invested assets. The
fee is payable beginning with the month following the Partnership's
initial investment in a local limited partnership.
Operating expenses, exclusive of management fees, of the Partnership
consist substantially of professional fees for services rendered to the
Partnership. Operating expenses did not vary significantly for the
years presented.
The Partnership, as a Limited Partner in the local limited partnerships
in which it has invested, is subject to the risks incident to the
construction, management, and ownership of improved real estate. The
Partnership investments are also subject to adverse general economic
conditions, and, accordingly, the status of the national economy,
including substantial unemployment and concurrent inflation, could
increase vacancy levels, rental payment defaults, and operating
expenses, which in turn, could substantially increase the risk of
operating losses for the projects.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1995, REAL III's corporate general partner was plaintiff
or defendant in several suits. None of these suits were related to REAL
III.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of item 7 of
regulation S-K.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
SIGNATURES
Pursuant to the requirements 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.
REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
Date: 5/17/95
____________________________________________
By: /s/ BRUCE E. NELSON
______________________________________________
Bruce E. Nelson
President
Date: 5/17/95
____________________________________________
By: /s/ SHAWN HORWITZ
______________________________________________
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 7,208,460
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,351,790
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,262,360
<CURRENT-LIABILITIES> 25,637
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 7,344,966
<TOTAL-LIABILITY-AND-EQUITY> 9,262,360
<SALES> 0
<TOTAL-REVENUES> 326,225
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 174,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,750
<INCOME-PRETAX> 114,092
<INCOME-TAX> 0
<INCOME-CONTINUING> 114,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,092
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
