<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 JUNE 30, 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 JUNE 30, 1995
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . 1
Statements of Operations,
Six and Three Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . 2
Statement of Partners' Equity,
Six Months Ended June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Six Months Ended June 30, 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
JUNE 30, 1995 AND DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN AND ADVANCES TO LIMITED
PARTNERSHIPS $ 810,570 $ 690,570
CASH AND CASH EQUIVALENTS 9,057,920 7,209,247
SHORT TERM INVESTMENTS 125,000 1,146,022
OTHER ASSETS 50,000 50,000
----------- ----------
TOTAL ASSETS $10,043,490 $9,095,839
=========== ==========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
NOTES PAYABLE $ 1,510,000 $1,510,000
INTEREST PAYABLE 289,192 344,007
ACCOUNTS PAYABLE 10,824 10,958
----------- ----------
1,810,016 1,864,965
PARTNERS' EQUITY 8,233,474 7,230,874
----------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $10,043,490 $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
SIX AND THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1995 June 30, 1995 June 30, 1994 June 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 123,508 $ 80,573 $ 83,334 $ 44,064
---------- --------- --------- ---------
OPERATING EXPENSES
Legal and accounting 71,913 30,526 61,398 25,864
Management fees-general partner 227,400 113,700 227,400 113,700
Interest expense 75,500 37,750 75,500 37,750
General and administrative 41,925 22,629 37,703 17,961
---------- --------- --------- ---------
Total operating expenses 416,738 204,605 402,001 195,275
---------- --------- --------- ---------
LOSS FROM OPERATIONS (293,230) (124,032) (318,667) (151,211)
DISTRIBUTIONS RECOGNIZED
AS INCOME 955,830 842,540 657,194 555,063
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTI-
ZATION OF ACQUISITION COSTS 340,000 170,000 364,000 182,000
---------- --------- --------- ---------
NET INCOME $1,002,600 $ 888,508 $ 702,527 $ 585,852
========== ========= ========= =========
</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 (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- -------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
June 30, 1995 11,456
==========
EQUITY (DEFICIENCY),
at January 1, 1995 $(126,667) $7,357,541 $7,230,874
Net income for six months
ended June 30, 1995 10,026 992,574 1,002,600
--------- ---------- ----------
EQUITY (DEFICIENCY),
at June 30, 1995 $(116,641) $8,350,115 $8,233,474
========= ========== ==========
</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
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,002,600 $ 702,527
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in income of limited partnerships (340,000) (368,000)
Amortization of acquisition costs - 4,000
Advances to limited partnerships - (70,000)
Increase (decrease) in -
Accounts payable (134) 7,865
Interest payable (54,815) (90,787)
---------- ----------
Net cash provided by operating activities 607,651 185,605
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short term investments 1,021,022 -
Distributions recognized as return of capital 220,000 462,460
---------- ----------
Net cash provided by investing activities 1,241,022 462,460
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,848,673 648,065
CASH AND CASH EQUIVALENTS, beginning of period 7,209,247 6,610,307
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $9,057,920 $7,258,372
========== ==========
</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
JUNE 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited 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. National Partnership Investments Corp.
(NAPICO) is the corporate general partner of the Partnership.
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 June 30, 1995 and the results of operations and changes
in cash flows for the six 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
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS (CONTINUED)
interest, either directly or indirectly including through REA, 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 June 30, 1995:
<TABLE>
<S> <C>
Balance, beginning of period $ 690,570
Distributions recognized as return of capital (220,000)
Equity in income of limited partnerships 340,000
---------
Balance, end of period $ 810,570
=========
</TABLE>
The following are unaudited combined estimated statements of operations
for the limited partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1995 June 30, 1995 June 30, 1994 June 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCOME
Rental and other $10,770,000 $5,385,000 $10,704,000 $5,352,000
----------- ---------- ----------- ----------
EXPENSES
Depreciation 1,850,000 925,000 1,886,000 943,000
Interest 3,538,000 1,769,000 3,664,000 1,832,000
Operating 5,868,000 2,934,000 5,404,000 2,702,000
----------- ---------- ----------- ----------
11,256,000 5,628,000 10,954,000 5,477,000
----------- ---------- ----------- ----------
Net loss $ (486,000) $ (243,000) $ (250,000) $ (125,000)
=========== ========== =========== ==========
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995
NOTE 3 - NOTES PAYABLES
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnerships. 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 NAPICO 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 six months ended
June 30, 1995 and 1994 was $227,400.
The Partnership reimburses NAPICO for certain expenses. In 1995, the
reimbursement to NAPICO of $14,963 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 named 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)
JUNE 30, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds 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 notes which are payable by the Partnership through REA,
are due in June 2020 and March 2024 or upon the sale or refinancing of
the properties. These obligations bear interest at 10% and are
payable to unrelated parties.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual Partnership management fee in
an amount equal to .4 percent of investment assets is payable to the
corporate general partner.
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. Losses incurred after the limited partnership
investment account is reduced to zero are 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. Available cash is
invested in these funds earning 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)
JUNE 30, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The corporate general partner is a plaintiff or defendant in several
lawsuits. None of these are 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.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 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:
---------------------------------------
By:
---------------------------------------
Bruce Nelson
President
Date:
---------------------------------------
By:
---------------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
10
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 9,057,920
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,182,920
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,043,490
<CURRENT-LIABILITIES> 10,824
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 8,233,474
<TOTAL-LIABILITY-AND-EQUITY> 10,043,490
<SALES> 0
<TOTAL-REVENUES> 1,419,338
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 341,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,500
<INCOME-PRETAX> 1,002,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,002,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002,600
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
